Proposal introduced to repeal Inflation Reduction Act’s electric vehicle tax credits

Earlier this week, Republicans in the U.S. House of Representatives introduced a draft of a reconciliation bill that would undo multiple components of 2022’s Inflation Reduction Act, including incentives related to electric vehicles (EVs).

The proposal would repeal a $7,500 tax credit for new EVs and the $4,000 credit for used ones as of December 31. However, EV manufacturers that haven’t yet sold 200,000 vehicles will still have access to the credits for an additional year.

“Advanced technology cars, trucks, ports, and the supply chains that support them are essential to building American energy dominance,” said Genevieve Cullen, president of the Electric Drive Transportation Association (EDTA), in a statement. “The proposed cuts and rescissions hand our competitors, like China, an enormous market advantage while threatening U.S. manufacturing and putting thousands of current and future jobs at risk. Federal investment is catalyzing billions in private investment across the electrification value chain, strengthening U.S. influence in the global market, enabling vital infrastructure development, and expanding consumer choice.”

A tax credit for battery production has been left in place, but a new provision would withhold the credit from vehicles produced with components from some Chinese companies or through licensing agreements with Chinese firms. This provision would impact several major automakers including Ford and Tesla, which regularly outsource battery production to Chinese manufacturers.

The elimination of incentives still has some way to go before becoming a certainty. While the proposal has the support of House leadership and the President, it’s likely to have a tougher time in the Senate, where Republicans have a slim majority. In addition, 38 House Republicans have indicated their support for keeping the Inflation Reduction Act’s clean energy incentives, according to Washington consulting firm ClearView Energy Partners.

Regardless of the outcome, EV adoption isn’t necessarily doomed, as they’re becoming increasingly affordable. The latest edition of the International Energy Agency (IEA)’s annual Global EV Outlook, released this week, projects that more than one in four vehicles sold globally this year is set to be electric despite economic uncertainty. The report also indicates that EVs’ market share is on course to exceed 40% by 2030. While the elimination of EV incentives, if implemented, would be a bump in the road, it may remain just that – a bump – rather than a mountain.