Payne: How congressional EV tax credit bills discriminate against foreign and domestic models

Posted by Talbot Payne on November 5, 2021

As it tries to compel electric vehicle adoption with federal sweeteners, Congress is using tax credits to tip the scales to union-made EVs. Senate and House bills offer a whopping, $12,500 tax credit to purchase an EV — provided it’s Made-in-the-USA and Made-by-the-UAW.

The twin bills, when merged in congressional reconciliation, say industry insiders, could complicate the emerging EV market for foreign and domestic automakers alike.

Under the House bill pushed by Rep. Dan Kildee, D-Flint Township, EV buyers would get a base credit of $4,000 or $7,500 — depending on battery size — plus an additional $4,500 if the vehicle is built in the United States by United Auto Workers labor, and $500 if the battery is U.S.-made. That bill has been included in the draft of President Joe Biden’s social spending package that Democratic lawmakers are considering.

The Senate bill, championed by Sen. Debbie Stabenow, D-Lansing, contains similar provisions. It calls for $2,500 to go to U.S.-made EVs plus $2,500 if built by union workers, in addition to the $7,500 base credit.

The 2022 Mazda MX-30 is made in Japan and is not eligible for House Senate bill EV credits that benefit US-made, UAW-made EVs.

The buyer of a $38,550 Mazda MX-30 EV, under the House language for example, would only receive a $4,000 tax credit since it is imported from Japan and has a smaller battery. Its Orion Assembly-made, UAW-assembled, $40,950 Chevrolet Bolt EUV competitor, on the other hand, would come with a $12,500 credit against the purchaser’s April 15 tax bill.

The federal subsidy would erase the Mazda’s $2,400 price advantage and drop the favored Bolt EUV’s sticker below $30,000.

“We want a level playing field,” said Dan Ryan, Mazda vice president for government and public affairs. “If government wants to spur EV adoption, it should give consumers as much choice as possible.”

The favorable tax credit would not just discriminate against foreign transplants, but also domestic brands. Ford’s Mexican-made Mustang Mach-E would not receive the UAW-Made and Made-in-America credits, and Tesla’s California-made EVs would not be eligible for the UAW-Made credit. Both would get the base $7,500 credit — until 2026, when the foreign-built Mach-E would lose that credit under the House bill.

The 2022 Ford Mustang Mach-E GT is made in Mexico and would not be eligible for proposed House and Senate bill EV credits that subsidize buyers of U.S.- and UAW-made EVs.

“These bills get complicated,” said Ed Kim, vice president for industry analysis at Auto Pacific. “They are now meant, not just to incentivize EVs, but to incentivize the manufacture of UAW-built vehicles as well.”

Ford Motor Co.’s Oakville, Ontario, assembly plant is undergoing a major conversion to produce five EVs starting in 2025 — but none would be eligible for the American-made congressional credit. Meanwhile, the luxurious Cadillac Lyriq EV — to be produced in General Motors Co.’s Spring Hill, Tennessee, plant by the UAW next year — would qualify for the full $12,500 credit.

As will the GM-made Honda and Acura EVs coming down the Detroit automaker’s Spring Hill line, said Kim. Just down the road in Chattanooga, Honda competitor Volkswagen AG would only qualify for the partial, Made-in-America credit because its plant is non-union.

Despite the credit’s complications for its North Americans plants, Ford has endorsed congressional efforts. “EV consumer incentives are key to accelerating the transition to a zero-emissions transportation future, and we appreciate Congressman Kildee and Senator Stabenow’s leadership on this issue,” said Ford president for the Americas, Kumar Galhotra, in a statement on Kildee’s website. “This legislation will help more Americans get into EVs, while at the same time supporting American manufacturing and union jobs.”

They estimate that only two EVs — the Chevy Bolt EV and Bolt EUV, out of dozens currently selling in the U.S. market — would be eligible for the full tax credit. Four of the top-five selling EVs (Tesla Model Y, Model 3, Mustang Mach-E and Nissan Leaf) would not be eligible.

“The UAW is nervous about EV production because battery-driven vehicles have fewer parts than gas engines,” said Mazda’s Ryan. “They fear this will produce widespread joblessness, and so they are pushing incentives.”

The federal government currently gives electric vehicle consumers — regardless of the origin of their vehicle — a $7,500 tax break until the manufacturer reaches a ceiling of 200,000 EVs sold.

Due to EV shortcomings on cost and range compared with their internal combustion engine (ICE) peers, automakers say that subsidies are essential to EV adoption. Even with subsidies, Chevy’s Bolt and the Mustang Mach-E have sold in low volumes.

The exception is luxury-brand Tesla — with an average model transaction price of $55,000 — which blew through its 200,000 sales cap two years ago. Yet it continues to dominate the EV market with 80% of sales.

While Ford’s Mustang Mach-E would only get $7,500 in subsidies under the proposed  bills, the legislation’s ultimate goal is to subsidize only U.S.-made vehicles. Automakers call this the “import cliff” as all subsidies disappear.

As foreign-built vehicles, the Mach-E and Mazda MX-30 — to use two examples — would lose all EV credits after 2026 in the House bill, and after 2027 in the Senate bill. The Tennessee-made Volkswagen ID.4, by contrast, would still get federal subsidies for U.S. content — though not for union labor since the UAW has failed to organize workers at its Chattanooga site.

The import cliff and UAW provisions have drawn the wrath of foreign countries and automakers alike. And Toyota Motor Corp. is taking out ads this week in newspapers from the Wall Street Journal to The Detroit News.

“Let’s not play politics with the environment, the American autoworker, or the American consumer,” Toyota says in the ads.

The UAW has powerful Democratic allies in Washington with Kildee and Stabenow leading the charge for tax subsidies. Former Michigan Democratic Gov. Jennifer Granholm, now secretary energy, long has been a strong advocate for union members and the Detroit automakers.

GM has lobbied for lifting the 200,000 sales cap on its electric vehicle sales and has pushed for the United States to follow the path of Norway, which has seen its EV sales soar with 50% EV purchase subsides as well as $8-a-gallon gas.

Even with the $12,500 tax credit — or about 30% of the cost of a new Bolt EUV — EVs face an uphill battle in the United States with $3-a-gallon gas and high home-charger installation costs that can top $2,000.

In addition to throttling foreign-made EVs, the House legislation would penalize small electric batteries. With a 35.5 kWh battery, the Mazda MX-30 meets the House threshold of 10 kWh to receive a $4,000 subsidy. But for customers to get back $7,500 on their taxes, EVs must have batteries over 40 kWh — a threshold the Bolt twins meet but not the Mazda. After 2027, battery packs must be north of 50 kWh to qualify.

“(Congress is) basically dictating battery size to the market,” said Mazda’s Ryan. “I think it would be better to stay away from minimum battery size that may inhibit creative solutions or more choices for consumers. Not everyone needs a BEV with 400-mile range.”

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com or Twitter @HenryEPayne. 

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