What Does The New Senate Deal Mean For Tesla, Toyota And Other Automakers?

Senate Majority Leader Chuck Schumer and Democratic Sen. Joe Manchin have agreed to vote on the “Inflation Reduction Act of 2022,” which has at its core measures to tackle inflation including paying down national debt and lowering energy and healthcare costs.

“After many months of negotiations, we have finalized legislative text that will invest approximately $300 billion in Deficit Reduction and $369.75 billion in Energy Security and Climate Change programs over the next 10 years," Manchin and Schumer said in a joint statement late Wednesday.

The full Senate will consider the bill next week.

The bill’s climate provisions envisage reducing the country’s carbon emissions by about 40% by 2030.

Proposals Related To Clean Vehicles

• Commercial vehicles weighing over 14,000 pounds are eligible for a tax credit of $40,000 or 30% of the vehicle cost, whichever is less.
• Vehicles with a gross weight less than 14,000 pounds are eligible for a $7,500 tax credit.
• The $7,500 tax credit can be availed for new clean energy vehicle purchases by those whose income is under $300,000 for joint filers, $225,000 for heads of households and $150,000 for others.
• Used clean vehicle purchasers would get a $4,000 tax credit.
• All EVs bought after Dec. 31, 2022 would qualify for the EV credit.
• The tax credit would run through Dec. 31, 2032.
• To be eligible for the tax credit, the vehicle should be made in North America.
• There are retail price caps of $80,000 for vans, SUVs and pickup trucks; $55,000 for others, including sedans; and $25,000 for used cars.
• Batteries have to contain a certain level of critical minerals extracted or processed in any country the U.S. has a free trade agreement with or are recycled in North America.

The bill also seeks to do away with the previous mandate that required qualified vehicles to have solely plug-in electric drive motors and the 200,000-vehicle per manufacturer cap.

The $4,500 bonus credit to cars made by companies with unionized labor has also been removed.

Related Link: These Automakers Have Vowed to Catch Up With Tesla And Wrest EV Leadership: Is That A Stretch Goal?

What This Means For Automakers: The proposed legislation is a win for non-unionized companies such as Tesla, Inc. TSLA and Toyota Motor Corporation TM.

The removal of the 200,000 ceiling could benefit Tesla, Toyota and General Motor Corporation GM, all of which have run out of their quota and were ineligible for the tax credit.

The retail price ceiling would mean that among Tesla’s sedans, only the Model 3 SR+ variant and Model Y Performance and Long-Range variants would be eligible for the $7,500 credit.

In anticipation of the thrust to indigenize battery manufacturing provisions, companies such as Ford Motor Company F and GM have set up battery plants. Their Asian suppliers have also strived to move their production close to the automakers.

Tesla stock was edging down 0.28% to $822.15 in premarket trading on Thursday, according to Benzinga Pro data.

Photo courtesy of Tesla.