Washington, DC—The Inflation Reduction Act of 2022 (IRA) will transform the U.S. energy sector through substantial investments that will lead us to roughly 40% emissions reductions by 2030. The historic passage of this legislation represents the largest investment in clean energy and climate action in U.S. history. 

The Zero Emission Transportation Association (ZETA) commends the Biden Administration and Congressional leadership for shaping this comprehensive effort to advance domestic manufacturing and electric vehicle (EV) deployment. While the IRA is a critical step forward for strengthening the EV industry, this is a complex piece of legislation that has raised questions about its impact on a host of sectors, especially transportation electrification. As a result, ZETA is pleased to provide further clarity on how these investments will advance the EV industry and what challenges remain ahead. 

Below, our team has provided a summary of key provisions and our analysis of the legislation’s impact on EV adoption.

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SECTION 30D CLEAN VEHICLE CREDIT

May 2024 Update: For more information on the final requirements under the 30D New Clean Vehicle Tax Credit see ZETA's post here. More information on the 25E Used Clean Vehicle Tax Credit is available here.

‍Beginning in 2023, EV manufacturers will no longer face a 200,000-unit-per-manufacturer cap on sales. 

ZETA Analysis:
Lifting this cap was a key component in the ZETA Policy Platform pillar on “Light-Duty EV Consumer Adoption.” This provision is critical for EV adoption because it helps make several of the most popular U.S. EV manufacturers eligible for the tax credit again. Tesla, Toyota, and GM had already passed the 200,000 sales cap, and Ford was well on its way, meaning that consumers were unable to purchase the vast majority of market-available electric vehicles and still receive the consumer credit.

This manufacturer cap created an advantage for imported vehicles at the expense of domestic manufacturers, many of whom had provided early leadership in electrification. With the artificial cap removed, manufacturers who once faced the prospect of being blocked from offering consumers a tax credit at all can once again work toward eligibility for 10 prospective years of incentives.

New vehicles will be eligible for a $7,500 tax credit delivered at the point of sale. The credit is composed of two halves: qualifying vehicles will receive $3,750 for meeting each of the critical mineral and battery component sourcing requirements.

The requirements are as follows:

• Vehicles produced after 2024 must not include any critical minerals extracted, processed, or recycled in a “foreign entity of concern.”
  Batteries must meet a gradually increasing threshold of critical minerals extracted and processed in countries with free trade agreements with the United States, beginning at 40% in 2023 and increasing by 10% each year through 2027 after which it remains at 80%. 
• Vehicles produced after 2023 must not include any battery components manufactured or assembled in a “foreign entity of concern.”
  The percentage of the value of the battery’s components manufactured or assembled in North America must exceed thresholds of 50% beginning in 2023, 60% in 2024 and 2025, then increasing by 10% each year through 2029, after which it remains at 100%.
• Manufacturers must also complete the final assembly of their vehicles in North America. 

ZETA Analysis: 

While the legislation lifts the manufacturer cap for the vehicle credit, it also creates challenging contingencies on both battery and critical mineral sourcing. This includes a provision that 0% of supply chain value can come from a list of “foreign entities of concern,” translating to a hard ban on Chinese EV parts and components. Overall, ZETA believes the provisions in the tax credit will incentivize the industry to onshore the EV supply chain. Still, key questions remain as to what rules of the road will be put in place to become compliant and how long it will take manufacturers to meet those tests. Fortunately, domestic supply chains will be further supported by strong industrial policy included in the bill, like the battery production tax credit, investment tax credit for minerals, and the Advanced Vehicle Manufacturing Credits outlined later in this summary. 

And the good news is that many U.S. manufacturers began the work to secure their supply chain years ago, and a tremendous amount of progress has been made by the Biden Administration, ZETA members, and other stakeholders to prepare the United States to onshore of our battery manufacturing processes. 

Last February, the Administration released its blueprint for Securing a Made in America Supply Chain for Critical Minerals to incentivize domestic processing. In addition, the Department of Energy has published several Requests for Information (RFIs) to solicit information about the commercial feasibility of critical and rare-earth minerals extraction and separation facilities. Earlier this year, President Biden also invoked the Defense Production Act for critical minerals production. Finally, the federal government provided $60 million in funding for critical minerals research and development through the Infrastructure Investment and Jobs Act. 

Shifting our supply chains away from Asia to comply with these credit requirements will not be easy for the EV industry. Movement in this direction, however, has long been underway. Securing a domestic supply chain is critically important for national security, energy independence, and manufacturing resilience. For a more comprehensive picture of the U.S. vehicle supply chain, ZETA developed an Investments Map illustrating where the industry currently stands. 

Consumers’ eligibility to receive the $7,500 credit will be limited by their Adjusted Gross Income (AGI). Vehicles will also be subject to Manufacturer Set Retail Price (MSRP) limitations to qualify for the credit. 

Maximum AGI for credit eligibility: 

• $150,000 for Single filers 
• $225,000 for Heads of Households 
• $300,000 for Joint filers. 

Maximum MSRP for credit eligibility: 

• $80,000 for vans, SUVs, and pickup trucks: 
• $55,000 for all other vehicles. 

‍ZETA Analysis: 

The benefits of widespread EV adoption are not limited to the driver. Replacing polluting gas cars with zero-tailpipe-emissions EVs also serves the public good by reducing public health costs, accelerating economic development, and driving decarbonization—all issues the federal government has previously spent billions of dollars to address. 

We believe that any limitations on the EV tax credit only narrow the public benefits of electrification but recognize that supply chain sourcing, AGI and MSRP conditions are aimed at serving ancillary policy goals. The AGI and MSRP caps carve out pieces of the market but leave the vast majority of vehicles and drivers eligible. The domestic content requirements and their implementation will have more severe implications for vehicle eligibility. ZETA will continue to work closely with the Administration to help achieve the dual goals of reducing emissions and growing domestic manufacturing.

Qualifying used clean vehicles will benefit from a tax credit of up to $4,000 or 30% of vehicle cost, whichever is lower. In addition, they are not subject to the same sourcing requirements as new EVs.

Maximum AGI for credit eligibility: 

• $75,000 Single 
• $112,500 Head of Household
• $150,000 Joint 

Maximum vehicle sale price for eligibility: $25,000

ZETA Analysis:
The used-EV incentive is a major win for electric vehicle adoption and the average consumer. In June 2022, battery-electric or hybrid electric vehicles were the top six fastest-selling used cars. Furthermore, an estimated 70% of car buyers are in the market for used vehicles, and the credit for used EVs will play a critical role in increasing access for a broad range of customers.

The used vehicle credit caps the price of eligible vehicles at $25,000. Several available used-EV models are currently below the credit eligibility threshold defined in the Inflation Reduction Act. As inflation comes down and more EVs enter the secondary market, the number of qualifying used vehicles will increase. 

For more information about the opportunities created by providing strong consumer incentives for electric vehicle purchases, read our October 2021 white paper “Driving Consumer Adoption of Light-Duty Electric Vehicles through Purchase Incentive.”

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SECTION 45W COMMERCIAL EV TAX CREDIT

Starting in 2024, clean commercial vehicles will be eligible for a tax credit equal to 30% of the vehicle cost or the difference between the cost of the clean vehicle and its gas-powered counterpart. 

The provision is subject to a series of limits: 

• $7,500 cap for vehicles lighter than 14,000 lbs (Class 1-3)
• $40,000 cap for vehicles heavier than 14,000 lbs (Class 4-8)
• Reduced credit of 15% for vehicles powered by an internal combustion engine.

In effect from December 31, 2022, through December 31, 2032

ZETA Analysis: 

This provision is a win for medium- and heavy-duty (MHDV) electrification and a realization of our Policy Platform, which called for a 30% investment tax credit for MHDEVs. ZETA has long advocated for fleet electrification and commends the bill authors on this investment due to its environmental and cost-savings benefits. 

Not only do federal incentives for purchasing commercial vehicles further encourage fleet electrification, but they are also an investment in cleaner air and healthier communities. Medium-and heavy-duty vehicles account for 24% of all transportation greenhouse gas (GHG) emissions despite comprising less than 10% of vehicles on the road. Furthermore, MHDVs contribute 57% of deadly particulate matter emissions, and commercial vehicles alone produce more than 60% of on-road NOx emissions. Enhancing the ability of fleet operators to tackle the upfront cost of electrification will play a critical role in cleaning the air on our nation's highways. 

For a more detailed look at the opportunities of electrifying America’s most polluting road vehicles, read our January 2022 white paper “Medium- and Heavy-Duty Electrification: Weighing the Opportunities and Barriers to Zero-Emission Fleets.”

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SECTION 30C ALTERNATIVE FUEL VEHICLE REFUELING INFRASTRUCTURE TAX CREDIT

Ten-year extension, and retroactive extension since 12/31/21 expiration of credit.  

Individual Credit: $1K or 30% of the installed cost or whichever is of lesser value. Census Tract Required; Prevailing Wage Not Required. 

Commercial Credit: Increases incentive eligibility from $30,000 per property to $100,000 per item. The maximum incentive is 30% up to $100K per charger (up from $30K per location), whichever is of lesser value.

Base and bonus structure: 6% base credit multiplied by 5 for projects that meet prevailing wage and apprenticeship requirements to get the full 30% tax credit. The maximum credit can only be fully realized if prevailing wage requirements for installation are met. 

Census Tract Requirement: Limits eligibility to infrastructure installed as defined by 45D(E) census tracts and non-urban census tracts: 

• A population census tract where the poverty rate is at least 20%, or 
• Non-metropolitan area: the median family income ≤ 80% of the statewide median family income
• Metro-area: the median family income ≤ 80% of statewide median family income or the metropolitan area median family income 

ZETA Analysis: 

This bill significantly enhances the amount of credit available for the installation of EVSE infrastructure and increases EV accessibility by targeting investments toward rural and lower-income residents. Including these provisions aligns with ZETA’s “National Charging Initiative” Policy Platform pillar, which called for the reformation of 30C.

The alternative fuel infrastructure provisions in the reconciliation package will incentivize individuals and commercial operators to install charging stations at their homes and private entities. For example, retailers, local businesses, or commercial fleet operators can use this incentive to install charging infrastructure on their property, enabling them to attract and retain customers and employees alike. Whereas the alternative fuel infrastructure provisions in the bipartisan infrastructure law, on the other hand, provide funding for alternative fuel infrastructure along federal highways to subnational governments through the Alternative Fuel Corridors and the Clean Corridors programs. 

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ADVANCED MANUFACTURING PRODUCTION AND ADVANCED ENERGY PROJECT TAX CREDITS

Section 45X Advanced Manufacturing Production Tax Credit provides $35 per kWh in each battery cell, $10 per kWh in each battery module, and additionally covers 10% of the costs of production of the applicable critical materials incurred by the taxpayer. Production must be in the United States (or a U.S. possession).

Phase out starting in 2029:

• 75% in 2030
• 50% in 2031
• 25% in 2032
•  0% in 2033

The Advanced Energy Project Tax Credit allocates a $10 billion investment tax credit fund to build clean technology manufacturing facilities. 

Funding applies to facilities for the production and recycling of 1) renewable energy, 2) energy storage or components, 3) grid modernization equipment or components, 4) and light-, medium-, or heavy-duty electric vehicles; including technologies, components, materials for such vehicles, and associated charging or refueling infrastructure. Funding also applies to projects that re-equip, expand, or establish an industrial facility for processing, refining, or recycling of critical materials, as defined in the Energy Act of 2020.

ZETA Analysis: 

Although American innovators have worked hard to enhance U.S. production capacity, decades of underinvestment have left the industry at a disadvantage compared to global competitors. The incentives in these two sections are critical for onshoring the full EV supply chain and are a central component of making this bill commercially feasible in light of the limitations applied to new EV credits. 

The Policy Platform’s plan to “Encourage Domestic Manufacturing” called on Congress to support an advanceable tax credit for revitalizing or reopening facilities, retooling, reshoring production, expanding U.S. facilities, and expanding manufacturing. Together, the Infrastructure Investments and Jobs Act and the Inflation Reduction Act provide support for nearly every part of the manufacturing process. ZETA is pleased to see a strong commitment to enhancing battery production, automotive manufacturing, and U.S. competitiveness, which will rapidly grow this sector. 

CONCLUSION 

The Inflation Reduction Act represents the culmination of years of hard work, coordination, and collective action by government officials, industry leaders, and other relevant stakeholders. ZETA’s policy platform was the most comprehensive federal EV policy platform ever assembled.  Between the bipartisan infrastructure bill, or Infrastructure Investments and Jobs Act, and the final passage of the IRA, we will have achieved a version of nearly every policy outlined in our platform. 

The Zero Emission Transportation Association and its members are incredibly proud of what has been accomplished by these two bills. ZETA will continue to advocate for electrifying our transportation system and help educate the public about the benefits of doing so.

Interested in how the IRA can help you? Visit the Treasury Department’s Resource Hub for more.