U.S. Senate Preps More Money for Auto Industry

Matt Posky
by Matt Posky

Senate Democrats have settled on how to funnel more money into the automotive sector using all-electric vehicles and environmentalism. Majority Leader Chuck Schumer and West Virginia's Joe Manchin have reportedly agreed on a proposal that would expand the $7,500 tax credit for EVs while also introducing a new $4,000 subsidy for used models.

But that's just to kick things off. The legislative package is likewise said to include $369 billion that's been earmarked for climate and energy spending. For automakers, that means massive financial help from the government whenever they want to convert their existing factories into the kind that build all-electric vehicles. Though it may not be limited to EVs, as the updated language now makes fuel cell vehicles similarly eligible for the proposed industry subsidization.

With the Biden administration signaling that it will do whatever it takes to electrify American roadways, it's not all that surprising to see allied politicians pushing for expanded tax breaks. The original $7,500 tax credit was implemented in 2010 as a way to help spur EV adoption rates while the technology was in its infancy using a quota system designed to keep things equal among the individual automakers. The theory was that, if the price of EVs were artificially lowered via tax breaks, more people would buy them.

Tesla was the first company to reach this cap and has been pretty clear that it doesn't want to see things changed. Elon Musk derided any plan to expand or reset the credits as unfair, as it did not put all automakers on even financial footing. He also came down hard on earlier proposals that additional funding could be set aside for union-built cars, finding an unlikely ally in the Toyota Motor Corp (which had also reached the 200,000-vehicle cap, along with General Motors). However, most manufacturers haven't cried foul at the latest draft because it basically guarantees they'll all be getting free money from the government by doing what they already said they would — building more EVs.

Now clinging to the broader definition of "clean cars," the updated tax credits come with a few stipulations. Firstly, they cannot be used on combustion vehicles. Second, the eligible cars must be built with minerals that are extracted and/or processed in a nation where the US has an existing free trade agreement. According to Bloomberg, a "large percentage" of the vehicle's components also need to have been manufactured or assembled within North America.

That provides a decent amount of leeway for automakers and provides some ammunition for those claiming that this is little more than a payout for an industry that still managed to enjoy healthy profits despite their supply chain woes. In fact, critics have noted that the industry's two main drives for swapping to EVs are avoiding regulatory penalties and reducing overhead. Electric cars typically take far fewer hands to build, meaning car companies don't have to pay for quite so much manpower.

Ford has recently been hinting that its big push into electrification will come with sizable layoffs, though it's not the first or last business you'll be hearing that from. That's assuming you're following the industry closely, of course. Regular folks are just fed boilerplate lines about environmentalism because it's ultimately more palatable than asserting that corporate executives believe a broader profit margin can be achieved with more EVs and fewer employees. Meanwhile, politicians have attempted to downplay the matter by chanting that the transition will result in new, better-paying jobs.

"[This package] doubles down on supporting American workers, and puts us in the driver’s seat to win the global clean energy race,” Senator Debbie Stabenow, a Michigan Democrat who has long supported the auto industry, said via Twitter.

As you might have guessed, your author is fairly dubious about our collective need for expanded EV tax credits as this already beleaguered world is tossed into another brutal recession. But this is also where there Senate's updated proposal starts making a little more sense to me. After over a decade of criticism that the $7,500 credit was effectively just a discount for wealthy people to purchase high-end electric vehicles, someone had the good sense to address it.

The new deal pitches adding caps based on the suggested retail price of eligible vehicles. Limits would be set at $55,000 for new passenger cars and $80,000 for electrified pickups and SUVs. Credits would be similarly capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers. While this does address complaints that it's just rich people benefiting from the tax breaks, it kind of runs counter to the premise that nationwide electrification is all about the environment by prioritizing what will undoubtedly be heavier and less-efficient vehicles.

Considering Sen. Joe Manchin — who considers himself a moderate Democrat — had previously said that the continued subsidization of electric vehicles was ludicrous, it's kind of amazing some common ground was reached within Congress. But, now that he and Chuck Schumer have announced they've come to terms, it's likely that the scaled-back version of Build Back Better (which includes $433 billion in spending for climate change programs, drug pricing reforms, health care provisions, and over $300 billion in tax increases) this is attached to will pass with a majority of democrats in Congress.

Industry-backed trade groups are already on board and arguably helped decide what form the proposed legislation would take. But Republicans don't seem interested in the slightest, saying that the additional spending would continue hampering the U.S. economy by worsening inflation. Though they probably won't be the group that determines whether the new budgetary bill passes or not — at least not directly. With the Senate only needing a simple majority to pass this baby, Sen. Kyrsten Sinema (D-AZ) is likely to become the deciding vote. Her approval would mean Vice President Kamala Harris could pass the bill onto the House of Representatives which is likely to vote yay.

[Image: JL IMAGES/Shutterstock]

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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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3 of 19 comments
  • Garrett Garrett on Jul 28, 2022

    Free money for EVs doesn’t help consumers. It helps raise the price by the amount of the government subsidy.

    • Redapple2 Redapple2 on Jul 29, 2022

      Garrett. Here's a guy that paid attention in econ class! PS - SAME THING APPLIES WITH CORPORATE TAXES. FACT!

  • Redapple2 Redapple2 on Jul 30, 2022

    All driven by global warming panic. CO2 oh my god !!!!!!!!!!

    There is no global warming. It s a scam for the demon cat commies.

    Let me reduce it down for to basic math.

    Say the atmosphere is made up of 10,000 units total

    360 units would be CO2

    Of the 360; 12 !!!


    You are either close minded, brain washed, stupid or insane if you say THE TWELEVE UNITS ARE THE PROBLEM.

  • 3-On-The-Tree Lou_BCsame here I grew up on 2-stroke dirt bikes had a 1985 Yamaha IT200 2-strokes then a 1977 Suzuki GT750 2-stroke 750 streetike fast forward to 2002 as a young flight school Lieutenant I bought a 2002 suzuki Hayabusa 1300 up in Huntsville Alabama. Still have that bike.
  • Milton Rented one for about a month. Very solid EV. Not as fun as my Polestar, but for a go to family car, solid. Practical EV ownership is only made possible with a home charger.
  • J Love mine, but the steering wheel blocks dashboard a bit, can't see turn signals nor headlights icons. They could use the upper corners of the screen for the turn signals. Mileage is much lower than shown too, disappointing
  • Aja8888 NO!
  • OrpheusSail I once did. My first four cars were American made, and through an odd set of circumstances surrounding a divorce, I wound up with a '95 Nissan Maxima which was fourteen years old and had about 150,000 miles on it.It was drove better, had an amazing engine, and was more reliable than any of my American cars. This included a new '95 GMC pickup that went through five alternators in under two years while the dealership insisted that there was no underlying electrical problem while they tried to run the clock on the warranty.That was the end of 'buy American'. I've bought from Honda and VW since, and I'll consider just about anything except American now.