The US federal government is currently looking to include a ramp-up of investments in electrification as part of a massive infrastructure bill.
It’s unclear how the money will be spent, but we are now hearing that the electric car tax credit could increase to $10,000.
Last week, the Biden administration released an outline of its infrastructure plan, including a summary of a planned $174 billion investment in electrification.
As part of the summary, the administration confirmed that they are planning to reform the EV incentive program, which today consists of a $7,500 tax credit on new electric vehicles up to a 200,000-unit limit per manufacturer.
However, the summary remained vague about the reform – only confirming that it will not only take the form of tax rebates but also “point of sale rebates” and it will now be for “American-made EVs.”
Over the last few months and since the Democrats have taken a majority position in the federal government, several new reforms to the EV incentive program have been proposed to remove the 200,000-unit limit per manufacturer, among other things.
Several Democrats introduced the Growing Renewable Energy and Efficiency Now (GREEN) Act to reform the program.
In short, automakers that have met the threshold already would have access to a new $7,000 tax credit for 400,000 additional electric vehicles until a new phase-out period starts again.
A different bill, called the Electric Cars Act, has also been proposed, and it would eliminate any cap on actual volume and would instead introduce a 10-year period to get the incentive.
It would also allow buyers to have the credit applied at purchase instead of through a tax credit, but the latter would also be possible and over a five-year period if needed.
The Electric Cars Act appears to be closer to what was announced in the summary of the infrastructure plan, but it is unclear what will actually become law.
Now Wedbush analyst Dan Ives, one of the top-rated analysts that follow the electric vehicle market, says that the rumor in Washington is that the new incentive will be $10,000 [via Yahoo Finance]:
We are hearing from our contacts in the Beltway that $7,500 tax credit could potentially be $10,000 in terms of a credit and that’s going to be a massive catalyst not just for Tesla, but for the EV ecosystem in the US.
If the rumor turns out to be true, it’s likely to greatly accelerate sales of electric vehicles in the US.
Ives says that this is going to be a “massive catalyst” for Tesla and others in the EV industry in the US, but I think Tesla would be by far the biggest winners here.
We have to keep in mind that Tesla is now the biggest seller of electric vehicles in the US even though its buyers don’t have access to the $7,500 tax credit, while most of the competition does.
I can’t imagine what kind of lead they would be able to build if they not only gain back access but also get an increase of the incentive to $10,000.
However, I have to think that the reform will also come with a limit on the sale price of the electric vehicles.
It’s not something that has been discussed much lately, but it’s something that has been done in many other markets where EV incentives are offered, including Canada.
A cap of $45,000-$50,000 could make things more balanced while still having a very positive impact on EV demand in the US.
What do you think? Let us know in the comment section below.
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