How Tesla, Ford, GM and Others Would Benefit From Biden Administration's Proposed EV Tax Credit Reform

The U.S. Senate Finance Committee passed on Wednesday the new Clean Energy for America bill to reform the federal electric vehicle tax credit.

What New Bill Provides: The new bill seeks an increase in the tax credits for EVs assembled by U.S. union workers to up to $12,500. This would mean an increase from the current maximum of $7,500 that can be claimed by car buyers.

A $2,500 incremental tax credit is envisaged for vehicles assembled in the U.S. and another $2,500 for cars manufactured at facilities, where the production workers are members of a labor union.

The current tax rebate ceases to apply when an individual automaker achieves sales of 200,000 EVs. The bill, which was advanced by a 14-14 tie vote, will take out this existing EV cap.

The tax credit will phase out over a three-year period, once when half of new passenger vehicle sales are made up of EVs, according to the new bill.

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These provisions are part of broader reforms proposed under the Clean Energy for America bill, which seeks to overhaul current energy tax breaks, including consolidation of credits for renewable energy sources, incentives for energy sources devoid of carbon emissions and tax breaks for energy-efficient homes and buildings.

The bill also aims at phasing out or eliminating subsidies currently doled out to fossil fuels.

"This legislation represents a critical component of the American Jobs Plan's investments in climate action, providing long-term tax incentives for clean energy and clean vehicles to springboard the transition to 100 percent clean electricity by 2035, in line with President Joe Biden's commitments," said John Podesta, founder of the Center for American Progress.

Related Link: How The Biden Administration Could Benefit EV Players In The US

Thrust For EV Manufacturers: The removal of the EV cap for the tax credit will benefit Tesla Inc TSLA and General Motors Company GM. With the current ceiling, these companies do not qualify for tax credits, which in a sense penalizes them for being early entrants and delivering strong sales.

Tesla, a pure-play EV manufacturer, has cumulatively delivered more than 1.5 million vehicles thus far.

Companies such as Tesla and Volkswagen AG VWAGY, which do not have unionized labor will have to settle for less than the maximum incentives allowed. Those automakers assembling EVs outside of the U.S. are eligible to receive even less.
The new bill lays down a retail price limit of $80,000 to qualify for the incentive, leaving out some high-end models of the automakers from the scope of the tax credit.

The new bill is likely to encourage more traditional automakers, as well as existing and new EV makers, to invest more in green energy.

Ford Motor Company F announced Wednesday it expects about 40% of its global vehicle volume to be all-electric by 2030. The company also lifted its EV spending outlay to more than $30 billion by 2025.

The bill will now have to go through the full Senate and the House of Representatives.

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(Photo: Tesla)