First US$4,000 tax credit for used electric car purchase passes but new Teslas don't qualify for the larger $7,500 rebate

Tesla may continue to benefit from government largesse as the Senate just passed the US$740 billion bill on tax reform, climate change, and healthcare spending mitigation. The giant US$370 billion climate section contains newly minted credits for purchasing either a used electric vehicles, or a new one, that will mostly benefit established names like Tesla. General Motors and Ford with their budding EV efforts are also expected to benefit, while those that are just starting with an electric car or two, like Toyota or Honda, may miss out.

The bill aims to dole out a US$4,000 tax credit for buying a pre-owned EV by lower-income and middle-class drivers for the first time, as well as the more orthodox government credit for new electric cars at up to US$7,500, again in the form of tax credits. The new car subsidy used to be standard for the first 200,000 electric vehicles that an automaker sells, but this cap has now been lifted so that Tesla can again take advantage of the government rebates. Here are the new electric vehicle tax rebate eligibility requirements:

• Used electric car price: up to US$25,000 (must be older than two years).
• New electric car price: up to US$55,000.
• New electric pickup or SUV price: up to US$80,000.
• Income level for new EV subsidies: up to US$150,000 for single or US$300,000 for joint filers.
• Income level for used EV subsidies: up to US$75,000 for single or US$150,000 for joint filers.

The EV buyer incentives are scheduled to run until 2032 this time around, or two years after most legacy carmakers would have already switched to electric vehicles completely, according to their announced plans. While the vehicle production cap may have been lifted in the new bill, and such a 10-year period for getting up to US$7,500 in government subsidies on your electric car purchase may seem overly generous, the new conditions for receiving the tax credit are rather stringent.

First off, the critical materials that go into EV batteries as well as their assembly have to be sourced either locally or through a country the US has a fair trade agreement with for a carmaker to qualify. Given that the vast majority of batteries or their components are coming from China, the White House climate bill aims to reverse that trend and do what the Chinese government has been doing for a decade - build a strong US supply chain for electric vehicles by incentivizing both automakers and EV buyers.

Unfortunately, the new climate bill scales the local sourcing requirements so quickly, starting them as soon as 2023, that no electric vehicle maker will be able to qualify for the tax rebates, including Tesla. Its Gigafactories rely on Chinese materials and components, so the vehicles churned out by them would be ineligible for the US$7,500 subsidy under the current conditions.

At present, the US manufacturing capacity of cathode and anode components or of lithium-ion batteries are at a fraction of a percentage point or in the single digits. Thus, Tesla and the rest of the EV gang would have to get really creative to qualify for the record climate change bill's seemingly generous tax subsidies, at least as far as new electric car sales are concerned.

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