Column: Federal EV tax credits still taking shape

Just like the transition to electric vehicles, there's a long way to go with the establishment of tax credits for the purchase of those vehicles.

After a series of twists and turns, the framework is pretty much in place to carry out what Joe Manchin, the Democratic senator from West Virginia, negotiated with Majority Leader Chuck Schumer: only North American-made vehicles with significant domestic or ally-produced battery content and no expensive toys for the rich.

The Treasury last month released a list of vehicles that qualify for $7,500 or half that, depending on what the companies have submitted about their battery supply chains, based on crucial and months-delayed guidance from the Treasury Department.

But even that isn't rock solid. The supply chain rules are technically at the proposal stage. And the auditing process to ensure that automakers aren't fudging their numbers has yet to be established.

"This is really building the train as it's on the tracks," Anne Blair, senior director of policy at the Electrification Coalition, said during the Automotive News LinkedIn Live webcast on the EV credits last week.

As Manchin had originally conceived, the supply chain rules further tighten the standards that saw the number of qualifying vehicles fall by about two-thirds last August.

In between, though, General Motors and Tesla were welcomed back into the loving arms of the IRS. And soon after the guidance was issued — and fueleconomy.gov, under the Energy Department and the EPA, added a much-needed form to learn of any vehicle's eligibility — Rivian's consumer vehicles and Volkswagen's ID4 crossovers made in Chattanooga would also allow many buyers to get a credit on their taxes.

It has not been a straight-line process, nor does it appear like it's going to become one.

"From my standpoint, it's created a lot of chaos right now, to be quite honest with you," said Robert Simmons, LaFontaine Automotive Group's general manager over its General Motors stores — the GM GM, so to speak, for the company that ranks No. 25 on Automotive News' list of the top dealership groups based in the U.S.

He hopes the credits will prove helpful — especially if GM can continue to get all its EVs qualified for the full $7,500.

In that LinkedIn Live conversation last week, I and Audrey LaForest, our reporter based in Washington, D.C.,who has been covering the establishment of Manchin and Schumer's labyrinthine limits on an otherwise very generous program, explored some of the challenges on the road ahead.

There's still much to define and establish, including a mechanism to issue the taxpayer support at the point of sale starting in 2024.

The point-of-sale element was favored by the National Automobile Dealers Association, in hopes of having a more expeditious process than dealers saw with the "Cash for Clunkers" program in 2009 — and because that's when it helps the most for making vehicles affordable by letting the consumer apply it to the down payment.

What I suspect NADA may not have foreseen was that the legislative process would add price and income limits that have the potential of putting too much burden on dealers to advise on or enforce the federal tax code.

Simmons said he's eager to hear how it will be implemented. And he's anxious.

"There's rumors about the credits being transferred to the dealer," he said. "Personally, I don't want that, because that just opens up another avenue of work for us."

The percentage of domestic or free-trade partner content of critical minerals increases each year until it reaches 80 percent in 2027. The requirement for battery components rises most years, until it becomes absolute in 2029.

Those are great goals, but are they doable?

Another hurdle in that uphill dash: limits on minerals and components supplied by a "foreign entity of concern" — semi-diplomatic speak for China, Congo and other human rights violators. No battery components can come from such a source next year and no critical minerals can as of 2025 for qualifying vehicles.

"It may get worse before it gets better" in terms of EV credit availability, Blair said. "We hope it will be an impetus to drive manufacturers to invest and determine how to shift some of that, that manufacturing and sourcing outside of those foreign entities of concern."

What we don't know is how much currently would fail that test or how exactly it will be interpreted. Battery plants being built in Michigan by Gotion or by Ford in partnership with CATL certainly seem to anticipate compliance with the Inflation Reduction Act. Time will tell.

The size of the tax credits is extraordinary — in line with the technology's cost disadvantage. Presumably, that gap will close over time. Some project that EVs could even become cheaper than internal combustion-powered cars, which would make the zero-emission vehicle overwhelmingly compelling for consumers.

Automakers, miners, refiners, battery makers, charging companies and recycling firms are all investing in the EV market, knowing it will take years to mature into an operation that stands profitably on its own two feet.

Dealers are in the same boat — if they didn't choose to abandon ship before embarking on the costly adventure into electrification.

"This has been quite a journey so far," Simmons said. "We've spent millions of dollars throughout the group, with the chargers that we need to supply for the exterior of the buildings. The interior — service departments — we need tools, we need chargers as well inside, not to mention forklifts. I mean, so the investment for dealers is incredible. ... It's daunting."