Democrats’ push to boost electric vehicles could be hobbled by some of the protectionist supply chain provisions they included as requirements to get electric vehicle tax credits.
The credits were included as part of the climate deal reached between Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Charles Schumer (D-N.Y.), even after Manchin had expressed some skepticism about them.
In order for consumers to receive the full $7,500 for the purchase of a new electric vehicle, a portion of the minerals in that vehicle’s batteries will need to be extracted or refined from countries with free trade agreements with the United States.
Part of the credit is also tied to a percentage of battery components being manufactured in North America
Experts and industry players have indicated that these provisions — particularly the critical minerals piece — represents a high bar and may hamper electric vehicle adoption in the short term.
John Bozzella, president and CEO of the Alliance for Automotive Innovation, said companies are working to bring more of their supply chain to the U.S. but that “it’s also a change that doesn’t happen overnight.”
“A likely result of this bill (as currently constructed) is that a significant number of consumers will not be able to take advantage of this credit in the early years when it is needed the most,” Bozzella said in a statement.
Electric vehicles have been a central component of Democratic plans to combat climate change, and EV tax credits were included in various iterations of President Biden’s Build Back Better package.
The specifics: The Manchin-Schumer bill gives tax credits worth up to $7,500 to consumers to incentivize the purchase of new EVs, but half of those credits — amounting to $3,750 — is dependent on where the minerals in its batteries come from.
The legislation mandates that 40 percent of the value of the minerals used in the electric vehicles’ batteries are extracted or processed in countries where the U.S. has a free trade agreement, and that ratchets up over time.
For 2024, it increases to 50 percent, and 80 percent of the minerals used must come from these countries by 2027.
Does anybody actually benefit right away? An auto industry source told The Hill they believe there are currently no electric vehicles on the market that meet this requirement.
The U.S. has free trade agreements with some major mineral producers like Australia and Chile, but doesn’t have any such agreement with other major producers like China, Russia and the Democratic Republic of the Congo.
“The numbers that they quote in there are very high and very soon,” said Morgan Bazilian, a public policy professor at the Colorado School of Mines.
“Will those targets become a hindrance or an obstacle to the adoption of electric vehicles with those targets? Yes, if they are adhered to precisely and exactly,” he said.
Read more about the tax credits here.