Senate Finance Committee Approves $12,500 EV Tax Credit Bill

Matt Posky
by Matt Posky

On Wednesday, the Senate Finance Committee advanced the Clean Energy for America Act making a few tweaks from earlier proposals. Changes include raising the federal EV tax rebate ceiling to $12,500 and opening the door for automakers who already exhausted their production quotas.

It’s good news for General Motors, which recently begged the government for just such a handout. But any manufacturer participating in the sale of electric vehicles will find themselves similarly blessed by the updated rules — assuming they make it through the halls of Capitol Hill with the necessary support.

Let’s take a peek behind the curtain to see what the updated proposal entails.

While the $7,500 tax credit persists, the bill now adds special exemptions depending on how the vehicle is manufactured For example, the government will tack on another $2,500 if final assembly takes place inside the United States and another $2,500 if the factory in question happens to be represented by a union. While the latter inclusion seems concerningly political, there doesn’t appear to be any language stipulating whether not it matters if unionized plants have to be located in the country for the vehicle to be eligible.

It’s also probably one of the biggest reasons why the committee advanced the legislation on a tie split evenly (14-14) along party allegiances. But the rules say the bill only gets the kibosh if it loses the vote, so the deadlock still means it can be sent all the way to the Senate. But some of the particulars might make its pathway there incredibly difficult.

Perhaps the most fiscally irresponsible aspect of the proposal involves ending any caps on vehicle production. Early incarnations of the EV tax credit were intended only to get the ball rolling on alternative energy vehicles, so they would gain public acceptance. But the Clean Energy for America Act will continue issuing credits until electric vehicles become over half of a company’s annual sales. Even then, there will be a phase-out period where rebates would be scaled back over two years — similar to how things work under the current rules.

This is an insane amount of money for any government to effectively hand over to automotive manufacturers with no definitive end date. We have no real way of knowing when EVs will supplant the internal combustion engine as the dominant powertrain. These subsidies could last for decades, extending well beyond the point where electrically driven cars reach financial parity with ICEs. They also won’t be linked to the Biden infrastructure plan, which is striving to create $100 billion in additional rebates for electric cars.

Let’s not forget all this money is supposed to be coming from America’s tax base and there’s literally no way to even begin estimating what the total cost will be.

The Clean Energy for America Act basically throws any notion of there being a free auto market out the window. It incentives the building and purchase of EVs to such a degree that there would be little reason to continue pursuing gasoline or diesel development. Even they were suddenly proven to be better for the environment or consumers than plug-ins, the payout for running with EVs would still be far too big to ignore. I believe the correct term for this is a “planned economy,” as it technically shapes/restrains existing consumer demand in favor of greater capital investments for economic development in a manner that suits government goals.

In fact, the only aspect of the proposal that seems to exercise any financial restraint is the MSRP eligibility limit of $80,000. This is designed to prohibit wealthy individuals from taking advantage of the federal tax credits. However, most high-end electrics currently on the market already come in below the cutoff — including the Porsche Taycan and Tesla Model S.

[Image: Nmorguelan/Shutterstock]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Old_WRX Old_WRX on May 30, 2021

    slavuta, Please don't tell me they bought Joey B's money printing press.

  • NoSocialism NoSocialism on Jun 08, 2021

    Electric cars, especially Tesla vehicles are definitely superior to Gas powered cars. There's a reason why Tesla sales have been DOUBLING every single year for the past 10 years. I can easily see Tesla going from 500K sales last year to over a Million sales this year WITH OR WITHOUT this incentive. As for reaching parity, there's already parity when the Tesla Model 3 costs less to own over 5 years than a Toyota Camry. Why? No need to worry about Gas every day, Oil Changes every 3 months, Brakes every year and so on and so forth. This rebate is unnecessary and it's unlikely that Tesla will be able to more than double annual sales. What they really should do is end subsidies to Oil companies and refineries. End subsidies for Ethanol and other fuel additives.

  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
  • GregLocock Car companies can only really sell cars that people who are new car buyers will pay a profitable price for. As it turns out fewer and fewer new car buyers want sedans. Large sedans can be nice to drive, certainly, but the number of new car buyers (the only ones that matter in this discussion) are prepared to sacrifice steering and handling for more obvious things like passenger and cargo space, or even some attempt at off roading. We know US new car buyers don't really care about handling because they fell for FWD in large cars.
  • Slavuta Why is everybody sweating? Like sedans? - go buy one. Better - 2. Let CRV/RAV rust on the dealer lot. I have 3 sedans on the driveway. My neighbor - 2. Neighbors on each of our other side - 8 SUVs.
  • Theflyersfan With sedans, especially, I wonder how many of those sales are to rental fleets. With the exception of the Civic and Accord, there are still rows of sedans mixed in with the RAV4s at every airport rental lot. I doubt the breakdown in sales is publicly published, so who knows... GM isn't out of the sedan business - Cadillac exists and I can't believe I'm typing this but they are actually decent - and I think they are making a huge mistake, especially if there's an extended oil price hike (cough...Iran...cough) and people want smaller and hybrids. But if one is only tied to the quarterly shareholder reports and not trends and the big picture, bad decisions like this get made.