With a compromise spending bill that devotes more than $360 billion to climate change efforts, consumers for the first time will have a tax incentive to use toward previously owned electric vehicles.
Newly built EVs also feature in the revived tax-credit proposals, which now look closer to passage in the Senate after Democrats reached agreement within its ranks last week and managed to swat down Republican amendments in an overnight debate session Saturday into Sunday. The final measure was expected to include assistance that Western senators have been trying to add to help their states cope with epic drought and wildfires, factors themselves that have been tied to fossil-fuel CL00, -0.54% combustion and its impact on climate change.
If passed — and the bill would return to the House next week, where Democrats hold a slight majority — these incentives could drive up interest in brands such as Tesla TSLA, -6.63%, Ford F, -0.46% and other automakers assembling in the U.S. that turn out alternatives to gas engines.
Consumers will have to balance excitement over these purchase sweeteners — a conditional $4,000 tax credit for the purchase of used EVs and $7,500 for new ones — against scarce inventory and vital semiconductor chip shortages. Cars, trucks and SUVs, especially EVs, are now much less mechanical and more digital.
The new draft spending bill is much more modest than the $3.5 trillion version Democrats originally put forward. But it restores some of the sustainable energy, EV and broader environmental efforts that featured prominently in early versions, It also comes at a time when Americans, and many around the world, are struggling with high inflation, recession jitters and volatile energy prices RB00, -0.14%.
The bill’s aim is to help lower U.S. carbon emissions by about 40% by the year 2030, shy of a Biden administration pledge for a more than 50% reduction by the end of the decade on the way to net-zero emissions by 2050. That pledge is in keeping with those of most U.S. economic rivals.
The bill would devote $369 billion to climate policies such as tax credits for solar panels, wind turbines and EVs, and to tackle the impact of pollution on low-income communities.
“By a wide margin, this legislation will be the greatest pro-climate legislation that has ever been passed by Congress,” Democratic Senate Majority Leader Chuck Schumer has said.
Tax breaks for buying EVs have some requirements. New EVs will need to be built with minerals — such as high-demand lithium and cobalt — that are extracted or processed in a country with which the U.S. has a free trade agreement. And they must include a battery that features a large percentage of components that were manufactured or assembled in North America.
The proposed deal also includes a cap on the suggested retail price of eligible vehicles of $55,000 for new cars and $80,000 for pickups and SUVs. Credits would be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles, and at $75,000 and $150,000 for used cars.
Proposed legislation removes prior requirements that called for qualified vehicles to have solely plug-in electric drive motors. The new version leaves out a 200,000-vehicle-per-manufacturer cap that automakers fought against. That means Tesla, GM GM, -0.47% and Toyota TM, +0.41%, which had all reached the cap, can lure buyers with this tax break yet again.
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BTIG analysts also said in a note that EV credits appear to cover hydrogen-powered vehicles as well. That source is seen as key to “greening” the cargo and ground-shipping markets.
EV industry participants say the inclusion of lower-priced used EVs is key to ramping up a transition from emissions-spewing traditional engines to zero-emission alternatives.
Charging company EVPassport’s co-founder Hooman Shahidi said access to widespread, quicker charging and access to the vehicles themselves are what will boost growth in this market. A deeper and incentivized used market can only help. That includes drivers for Uber UBER, +0.50% and Lyft LYFT, +16.62%, whose margins can be improved by a gently-used EV, Shahidi said.
In fact, more competition from used versus new offerings could benefit consumers with pressure on automakers to increase EV quality, which a recent J.D. Power report says has dropped in part because of the rush to meet market demand.
And Shahidi said as car buying shifts away from dealerships to direct purchases, that can likely boost EV access.
“Dealerships across the board are making more money than ever before just purely because of supply and demand,” he said in a recent interview with MarketWatch. “Direct buying is getting more enticing. I challenge Cars.com. I challenge CarGurus and True Car, make it easy for people to have access to that same experience with used cars, and specifically used EVs,” he said.
“It doesn’t cost a lot to compile a database of all the used cars that are for sale, that are electric, and give people the access,” he said.