EV Industry Fears Build as Congress Spars Over Tax Perk

Companies like Tesla Inc. and General Motors Co. that have relied on an electric vehicle tax credit to boost sales now face mounting uncertainty amid scrutiny of the perk and resistance to expanding it.

Tesla and General Motors have already hit the number of vehicles that can be sold before the $7,500-per-vehicle credit for customers starts disappearing—meaning that Congress would have to expand the credit for the two U.S. companies to fully benefit from it again. The chance of that happening this year is slim: the credit has become a political football, with the Senate’s top tax writer blaming Democrats’ interest in the perk for the demise of year-end tax bill negotiations.

More than 1.4 million electric vehicles have been sold in the U.S. since 2010 and there are 48 models of electric vehicles to choose from, up from just a few a decade ago. The companies that count on the credit and the lawmakers that support it fear without a more generous perk, the industry in the U.S. will lose out to international car manufacturers.

“The tax credit as it exists now is not up to the task of protecting U.S. interests in the EV industry as it currently would favor imported vehicles over American ones,” said Mike Carr, a policy consultant who runs the EV Drive Coalition, an industry group that includes Tesla and General Motors.

Donald Trump’s administration poses a major hurdle. The White House doesn’t like the idea of expanding the credit, and Michigan’s status as a swing state in the presidential election and Senate adds another challenge, a lobbyist said. That’s because the EV credit could be used to bolster Democratic candidates in Michigan.

Scrutiny of the credit increased after an IRS watchdog said last fall that more than 18,000 taxpayers may have received $82 million in credits for plug-in vehicles for which they didn’t qualify.

Earlier this month, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Senate Democrats sparred over the credit, with Democrats pushing Grassley to hold an energy tax hearing and Grassley accusing Democrats of not negotiating in good faith at the end of last year. In January, Grassley and other Republicans demanded more accountability from the IRS in administering of the credit.

Tension Points

A bill (H.R. 2256) from Rep. Dan Kildee (D-Mich.)—excluded from the year-end funding package in December—would make a $7,000 credit available for vehicles sold above the existing 200,000 vehicle limit, up to 600,000. The bill was also included in a proposal that House Ways and Means Committee Democrats released to spur negotiations.

But expanding the credit would require Democrats to address the fact that the credit now disproportionately benefits households making through more than $200,000, a Senate aide familiar with the credit said. They would also have to address a perception that it only benefits California, the aide said.

The aide said those problems could be addressed by imposing a restriction based on car price, setting an income limit for the credit, or by imposing a fee similar to the gas tax on those using electric cars. Fighting the California bias could come by offering more charging infrastructure across the country, the aide said.

Ways and Means Chairman Richard Neal (D-Mass.) said he is open to ideas.

“I’d like to get it back to bipartisanship,” Neal said. “There ought to be something that we can all agree on.”

But a powerful Senate Republican sees it differently.

Sen. John Barrasso (R-Wyo.), the chairman of the Senate GOP conference, opposes any legislative effort to extend or expand the credit. A bill (S. 343) Barrasso introduced last year would end the electric vehicle tax credit and require that electric car drivers pay into the Highway Trust Fund, which is currently funded through taxes on gas and diesel fuel.

“He believes the tax credit has served its purpose and is no longer necessary,” a Barrasso spokesman said.

Nearly three dozen groups—ranging from the Black Chamber of Commerce to ALEC Action—have also urged lawmakers not to extend the electric vehicle tax credit.

Lawmaker Interest

Any change to the credit will depend on what capacity Congress has for deal-making this year—and the presidential election makes negotiations more complicated.

“We will continue to advocate for policies to ensure U.S. leadership in advanced automotive technology, including modifying the tax credit,” a GM spokeswoman said, while reiterating the company’s commitment to investing in the U.S. EV industry.

Tesla didn’t respond to requests for comment.

Democrats may use an expanded credit as a negotiating tool with Republicans, who want to see corrections made to the 2017 tax law, several people familiar with the discussions said.

Some are hoping for a happy medium: more enforcement of a more generous credit.

“We always would favor a more robust enforcement and investigation on any tax policy,” Kildee said. “And EVs wouldn’t be exempt from that. But you can’t let the exceptions, as bad as they are, determine we are not going to do something that’s inherently a good idea.”

—With assistance from Dean Scott.