How The Climate Bill Could Help The U.S. Lead Global EV Race

TEveryone involved with energy and climate issues in the U.S. are intensely focused this week on Inflation Reduction Act. We’re looking for any smoke signals to see if it passes and if modifications will be made.

This bill could be a boon for many green economies, including electric cars. Here are my team’s takeaways on some of the important EV-related aspects of the bill:

Extend your tax credit

It is huge news for General Motors, Toyota, and Tesla that the $7500 tax credit has been revived. As the incentive system was set up, all three companies have at least 200k vehicles. After reaching this threshold, manufacturers start receiving reduced credit, eventually no credits at all. Ford and Nissan are also close to this stage.

It would increase the availability of the entire incentive starting next year and, most importantly, allow customers to use the perk right at the point-of-sale instead of tax season.

In theory, automakers that had sold fewer EVs may be disappointed to have the 200,000 vehicle cap removed. This was because it would give them an edge in the short term. However, the majority of people should accept the increased purchase support as fuel economy regulations continue to tighten. This will allow EV sellers to reach their goals and make selling easier.

While tax credits are important, it’s worth noting that Tesla buyers haven’t been eligible for federal tax credits for well over two years, and that hasn’t stopped the company from dominating the EV segment by accounting for more than 70% of battery-electric models sold in the US last year. More important is making products that people actually like than creating products that can be tax-credited.

Content requirements

My Bloomberg News colleagues pointed out that carmakers may find it difficult to comply with the local requirement for battery materials. There’s also a requirement that a share of other components are manufactured in North America.

There are many requests coming down from the auto industry to find out which models can qualify, and what time it is possible to source localization. BNEF’s analysis indicates mid-stream refining capacity for battery metals is more likely to be an issue than raw material supply.

Commercial EVs Get a Boost

Vehicles weighing under 14,000 lbs can now claim the $7.500 clean car credit thanks to new commercial EV provisions. Vehicles that are heavier can receive the lower of either 30% or $40,000 of the difference between clean and comparable internal combustion engines vehicles.

The cost of a battery pack with 150-250 kilowatt hours would be covered by this. Prices will fall in the future, so it could cover all costs. The US would see a huge boost in its commercial EV market, which is still behind China and Europe in all segments.

In addition, the bill includes $3 billion that will be used to assist US Postal Service in decarbonizing its fleet and moving to EVs. Recent announcement by the Postal Service that it will increase the percentage of the initial purchase of 50,000 mail trucks from Wisconsin-based Oshkosh to be electric was a huge victory for activists who had opposed the original decision to use almost solely combustion engines.

Loan programs

It also provides $2 billion for automakers to retool existing plants to make clean cars. The loan package can provide up to $20 billion to automakers to finance new facilities that produce clean-vehicle vehicles across the nation. Stellantis and GM will likely benefit from this conversion section going into a contract year with United Auto Workers union. EV manufacturing in the US is already ramping up quickly, and this provision — which has largely flown under the radar — will further accelerate progress.

Importantly, many of the plants built and retooled to produce EVs can be found in Republican-controlled states. VW, for example, invested $800million in Chattanooga’s plant and announced that it had begun producing its first ID.4 electric utility vehicles. As the federal elections approach, EVs will not be a political topic because there is a solid EV manufacturing industry in red states.


This is where a sense scale is essential. This bill will extend EV credit eligibility up to 2032. BNEF estimates that 175,000,000 light-duty cars will be sold during this period. A growing number of these vehicles, however, will qualify for a tax credits.

There’s lots more to process — BNEF clients can access our full initial take here — but my initial feeling is that the bill, coupled with the stricter fuel-economy regulations the Biden administration is putting in place, should put the US right back in the race for EV leadership. China may have a great lead, but this is just the beginning. Don’t count the US out.

—With assistance from Corey Cantor and Ethan Zindler.

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