Although an attempted expansion of the federal EV tax credit has failed—multiple times, in recent years—in a renewed effort, automakers are asking Congress to please try again.
In 2009, Congress set a 200,000-vehicle cap of qualifying vehicles—including plug-in hybrids—for each automaker, and the framework hasn’t changed since then. General Motors and Tesla have already reached that limit, and Toyota is close to it. Once automakers hit that cap, their eligibility for the credit is gradually phased out.
In a letter to Senate and House of Representatives leadership Monday, the CEOs of GM, Toyota, Ford, and Stellantis asked for tax credits to be extended to anyone buying a qualifying vehicle—until a sunset date for all EV products regardless of the automaker.
2022 Ford F-150 Lightning
Automakers reportedly don’t want the cap lifted until “the EV market is more mature,” but didn’t give a specific timeframe. The automakers summed that the credit has allowed companies to offer more affordable products in greater volume, spurring EV adoption. “However, recent economic pressures and supply chain constraints are increasing the cost of manufacturing electrified vehicles which, in turn, puts pressure on the price to consumers,” they argued.
In its current form, the tax credit awards up to $7,500 depending on the size of a vehicle’s battery pack. So in addition to all-electric vehicles, plug-in hybrids like the Toyota RAV4 Prime and Chrysler Pacifica Hybrid qualify.
But in the absence of a proposed revamped and renewed EV tax credit—offering up to $12,500 per vehicle—we’re left with the existing tax credit and its 200,000-unit cap for the foreseeable future. The second quarter after an automaker hits that cap, its tax credit is halved to $3,750, then drops to one-fourth of the full amount ($1,875) two quarters later. It remains at that level for two full calendar quarters after that before disappearing.
2023 Toyota bZ4X Limited AWD
Since then, the EV tax credit expansion has become more politically charged. A version proposed as part of last year’s infrastructure bill was pushed to a reconciliation spending bill that never happened—because of widespread resistance from Republicans and at least one Democratic Senator—West Virginia’s Joe Manchin.
Part of the pushback to that version—which also included a used EV tax credit—was a requirement that EVs be union-made to get the top credit amount. This was opposed by Tesla, Toyota, and Volkswagen, which build (or plan to build) EVs in non-union factories.
This is noteworthy as it represents an allied front that spans those companies that primarily use a unionized American workforce, including GM and Ford, with Toyota, which primarily uses a non-unionized domestic workforce. Will these bridges build an expanded credit? We’ll soon see.