Democratic Senate Majority Leader Chuck Schumer and Senator Joe Manchin surprised everyone when they suddenly announced they had struck a deal on a reconciliation bill, including $369 billion devoted to energy and climate spending.
One provision investors are talking about is the expansion and extension of the $7,500 federal tax credit given for purchasing an Electric Vehicle and how it will affect various EV companies like GM (GM), Tesla (TSLA), Toyota (TM) and others.
At present Tesla and GM vehicles are no longer eligible for the $7,500 tax credit because the law governing it only made it available when purchasing EVs from companies that had sold 200,000 or less units, and they have exceeded that in total production. Other EV makers, such as Toyota, Nissan, and Ford are rapidly approaching that cutoff as well.
The new deal struck by Manchin and Schumer will remove the 200,000 threshold. That will allow buyers of Tesla and GM vehicles to access the credit, however there will be some new limitations they will need to comply with.
For starters, the tax credits are now only available for lower priced EVs. To get the credit, you will now have to purchase either a van, SUV, or pickup truck that costs under $80,000, or a sedan or coupe which costs under $55,000. There are also new income limitations to qualify for them. You will need to make under $300,000 in adjusted gross income for joint filers, or $150,000 for individual filers. In addition, there is now a $4,000 tax credit for the purchase of used EVs.
The new rules also stipulate the vehicle purchased must be assembled in North America, and the battery components and materials must come from North America, or a nation which has a free trade agreement with the US, although the battery materials strictures will be phased in over time.
There is still much to be done before the deal becomes a signed law. The first hurdle will be if Senator Kyrsten Sinema (D-AZ) will support it or not. She has a history of being critical of tax increases such as the agreement features, and she was excluded from the negotiations surrounding the bill. Given the makeup of the Senate, the Democrats cannot afford even a single defection. When asked, a spokesman would only say, “We do not have a comment, as she will need to review the text.”
Another concern is if the Democrats can muster all 50 Senators for all of the multiple votes which will be required to take the bill over the finish line. The reconciliation process will require all 50 Democrats to be present to vote, on multiple occasions. Even a single absence could cause the bill to fail. On Thursday Dick Durban came down with Covid, and will now be isolating in the coming days. Patrick Leahey, Senator from Vermont, is expected to be available following his recent extended absence due to falling, and requiring hip replacement surgery and rehabilitation. But any such absence could spell disaster for the bill.
The votes are expected to take place sometime next week.
