A big part of the Inflation Reduction Act (IRA) is to promote electric vehicles, and that could have major ramifications for Georgia.
Georgia has committed billions in incentives to EV and battery makers and has a huge stake in the industry’s future. SK Battery America is building EV batteries in Commerce, while Hyundai and Rivian have committed to constructing enormous factories near Savannah and an hour east of Atlanta, respectively.
The bill, approved by the U.S. House on Friday, features tax credits aimed at making EVs more attainable while also prodding automakers to build their vehicles and batteries in North America.
Automakers say the legislation’s strict supply chain requirements could hamper its goals and prevent the majority of battery-powered vehicles from qualifying for the credits.
But EV industry observers are largely bullish that long-term the law will stimulate investments that give consumers more vehicle choices and secure the industry’s future.
How do the EV tax credits work?
EVs are generally more expensive because of their high-tech batteries and the low supply of vehicles.
The IRA provides a $7,500 per vehicle tax credit for pickups, SUVs and vans priced less than $80,000. The ceiling is $55,000 for other vehicles. An individual buyer’s annual income is also capped at $150,000 to qualify.
Currently, tax credits do not have a sales price cap, but instead only apply to the first 200,000 vehicles produced by a manufacturer. The new bill removes that restriction — a cap that Tesla, Toyota and General Motors have already hit. Imported vehicles, which are currently eligible for tax credits, are also excluded under the bill.
Automakers fear the price caps put some manufacturers at a disadvantage. Another set of rules related to sourcing of raw materials and where vehicles are assembled also limit how many vehicles qualify.
How do sourcing requirements work?
Tax credits can only be used on new EVs that have their battery minerals and components sourced within North America or with certain other countries. If any of those materials, such as lithium, are sourced from “foreign entities of concern,” which includes China and Russia, the vehicle will not qualify.
Only a fraction of EVs today reportedly meet all of the bill’s requirements. The sourcing requirements would go into effect next year. Some industry experts fear the plan could backfire if few EVs remain eligible.
“Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive,” John Cozzella, president and CEO of the Alliance for Automotive Innovation, said in a statement.
A $4,000 credit for used EVs has no sourcing requirement.
Why are domestic battery supply chains a challenge?
The bulk of the world’s mineral refining is done in China, which has cornered the market for key minerals like lithium, cobalt, nickel, graphite and manganese.
Experts say it won’t be easy for domestic supply chains to pick up the slack, but it’s central to Biden’s policy.
International conflicts have hindered supply chains in the past, said Stephanie Luque, co-founder of EV infrastructure firm EnviroSpark, and “moving as much of that process to our shores as possible is in the long-term best interest of Americans.”
A $675 million Biden administration research program aims to improve critical material supply chains, including for EV batteries. The program aims to increase domestic production and mining.
What do Georgia’s EV companies think?
Hyundai and Rivian generally support the IRA’s climate goals, but criticized the tax credit changes.
Hyundai, which operates an EV manufacturing facility in Alabama and plans a $5.5-billion EV factory on Georgia’s coast, said “the current legislation severely limits EV access and options for Americans and may dramatically slow the transition to sustainable mobility in this market.”
Rivian, which plans a $5 billion plant near Social Circle, said its R1T pickup trucks and R1S SUVs would no longer qualify for tax credits due to their high price. The California-based automaker doesn’t plan to offer vehicles for less than $80,000 until 2025, once its Georgia factory is operating.
Rivian executive James Chen told the AJC the IRA “as currently drafted this legislation will pull the rug out from consumers considering purchase of an American made electric vehicle.” He called for a longer transition period for current credits.
Luque said the IRA subsidies will help the industry take a leap forward, ultimately expand the number of eligible EV models and secure the industry’s future.
Notes of disclosure
Cox Enterprises, owner of the AJC, owns about a 4% stake in Rivian and supplies services to it. Sandy Schwartz, a Cox executive who oversees the AJC, is on Rivian’s board of directors and holds stock personally. He does not take part in the AJC’s coverage of Rivian.
This coverage is supported by a partnership with 1Earth Fund, the Kendeda Fund and Journalism Funding Partners. You can learn more and support our climate reporting by donating at ajc.com/donate/climate/