Build Back Better Could Reposition U.S. as Global EV Powerhouse

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Some time before the Christmas holiday, the U.S. Senate is expected to vote on President Joe Biden's Build Back Better Act. The House of Representatives already passed it. One contentious piece of it is the electric vehicle credits. As it is written now, BBB would raise the credits to consumers buying EVs to up to $12,500 from $7,500 — with no limit on the number of cars that would be eligible per manufacturer.

If all of it gets through the Senate, a testy matter that I'll address momentarily, it will be one of the most aggressive EV incentives in the world and definitely the greatest largesse for plug-in buyers in any major auto-producing nation. Currently, only Croatia and Romania have bigger government subsidies for EVs. That $12,500 is one-third the sticker of the cheapest electric vehicle.

The Act would give buyers a $7,500 tax credit if the EV is built in the U.S. A consumer would get another $4,500 if the car is assembled by union workers and $500 more if the battery is built in the U.S. The bill has rankled neighbors Mexico and Canada. Canadian Prime Minister Justin Trudeau has said it would give automakers incentive to build in the U.S. and not in the auto plants in southern Ontario.

Senator Joe Manchin of West Virginia doesn't like that the bill would give the United Auto Workers union a big advantage. Tipping the scales in that way, he said while visiting a Toyota engine and transmission plant in the state, is “wrong” and “not who we are as a country,” according to Automotive News. He is a crucial swing vote to get the bill passed in the split Senate.

At an event in Detroit on Nov. 29, in which Commerce Secretary Gina Raimondo and Michigan's democratic senators and representatives were talking about how to boost semiconductor production, I asked some of the state's delegation if the tax credits would survive the Senate and make it into law and if Biden was insistent on all of it passing. The union-built credit is particularly contentious.

Representative Dan Kildee told me Biden is “100% on board.” But maybe there is wiggle room on the union clause. Kildee also said that provision “is less about unions than it is about the wages and benefits they provide. If Manchin is interested in another approach, I'm happy to listen.”

Congresswoman Debbie Dingle, also a believer in the viability of the union-built credit, said the House is tougher than the Senate and it survived there. “I believe this will survive in some fashion,” she said. “Other countries do a lot.”

On that last point, she is correct. Germany has €9,000 in incentives, which is more than $10,000 a vehicle. France offers €6,000, which comes to more about $6,800. Korea offers more than $7,000 and China has been phasing credit schemes down and is at less than $3,000. Here's one reason Trudeau is edgy: Canada's incentives are just $3,995, according to a report from BloombergNEF. U.S. plants would be building all the new EVs.

Right now, the U.S. offers $7,500 in tax credits per EV sold. But automakers only have 200,000 of these to hand out before the perk starts to wind down and is phased out. GM and Tesla have burned through theirs. Ford, Toyota and Nissan are getting close and could run out next year, according to BNEF. Before long the U.S. will have some state credit schemes, but little else to spark sales. The new proposal also cuts checks for the credits to the dealer upon purchase to lower a buyer's payment rather than making consumers apply for the credits with a tax return months later.

How does this shake out? I'm betting that the union portion doesn't survive, but perhaps the overall credit gets bigger than $7,500. Either way, the U.S. government will become one of the biggest EV supporters in the world.

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