Marie Sapirie of E&E’s Tax Notes group reports on some potential big developments for the US federal EV tax credit contained in a draft bill, the ‘‘Growing Renewable Energy and Efficiency Now Act of 2019’’ or ‘‘GREEN Act of 2019’’. The draft is being promoted by Congressman Mike Thompson (D-CA), a member of the powerful Ways & Means committee, which is the chief tax-writing committee in the US House of Representatives. That means this draft bill should be taken seriously. The bill is a potential huge win for Tesla and General Motors, for whom the existing credit has almost fully extinguished.
The current credit
Back in 2010, Congress passed a tax credit for electric vehicle buyers, making them eligible to get back $7,500 at tax time after buying a new EV (assuming they owed at least that much in federal income tax).
However the credit is structured so that once an automaker delivers 200,000 electric vehicles in the US, the credit phases out over the subsequent four quarters. Tesla hit that milestone first in Q3 2018, with GM right behind them in Q4 2018. As a result, Tesla buyers will lose access to the credit after December 31, 2019, and GM buyers after March 30, 2020. This means the tax credit now primarily benefits automakers late to the EV game, penalizing those who put forward EVs earlier.
The draft bill’s revised credit for new EVs (Sec. 401 of the bill, full draft here: PDF)
The current draft of the GREEN Act of 2019 would do the following to the current EV credit:
- Raise the threshold from 200,000 EVs to 600,000 EVs;
- The EVs Tesla and GM sold in 2019 that only qualified for reduced partial credits wouldn’t count towards the new 600,000 threshold;
- Reduce the credit from the current $7,500 to $7,000;
New credit for used-EVs (Sec. 402 of the bill)
For the first time, there would be a federal tax credit of up to $2,500 for used-EVs. This used EV tax credit has many limitations:
- the used EV is sold for less than $25,000;
- the model year of the used EV has to be at least 2 years earlier than the year you buy it (e.g., you buy it in 2020, it can’t be a 2019 model);
- it was previously used and registered in the USA by someone other than you;
- the credit can’t exceed 30% of the sale price;
- the credit is tied to your income. It gets reduced by $250 for each $1,000 (or fraction thereof) by which your adjusted gross income exceeds $30,000 (double for married tax payers filing a joint return);
- you can only get the used-EV credit once every 3 years; and
- the used EV credit expires December 31, 2024.
New credit for manufacturers of heavy-EVs (Sec. 403 of the bill)
The draft bill creates a manufacturer (not consumer) 10% investment tax credit for sales of zero emission heavy-vehicles. “Zero emission heavy vehicle” is defined as having a gross vehicle weight rating of at least 14,000 pounds, not powered or charged by an internal combustion engine, and is propelled solely by an electric motor which draws electricity from a battery or fuel cell.
This is a very promising development. It seems untenable that the automakers who helped drive EV adoption in the 2010s (helping drive down battery prices) would be disadvantaged in the 2020s relative to the automakers who sat out the last decade.
I can’t even wrap my head around the consequences of a new, base Tesla Model 3, Y, or Cybertruck costing ~$33,000 after the credit refund. If economists are to be believed and we’re rational actors for the most part, this credit would be an atom-bomb explosion over the ICE landscape.
As for the used EV credit, we’re big fans, but …. damn, that’s a lot of rules. Quebec’s very successful used-EV credit is much simpler.
Don’t make any big decisions on this news yet, however. This draft bill language still has to make it out of Ways & Means, a big hurdle, and then survive the Republican-controlled Senate, another massive hurdle. So color me skeptical for now.
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