Manchin’s Opposition Imperils Electric-Car Tax Credits as Prices Rise

(Bloomberg) -- Senator Joe Manchin’s apparent opposition to a push by Democrats and the White House to expand a popular consumer incentive for electric vehicles threatens to widen a gap between the prices for traditional and electric cars at a time when interest in climate-friendly technology is ticking up. 

The average transaction price of a new electric car was $60,054 in February, which was $1,820 more than the average manufacturer’s suggested retail price of $58,234, according to the latest data from Edmunds.com. The average industrywide transaction price, including EVs, was $45,596, or $680 above an average MSRP of $44,916.

Manchin, a swing vote and linchpin for any extension, on Thursday described as “ludicrous” the White House’s proposal to expand the popular tax credit, which currently offers buyers $7,500 off the price of a new EV. Manchin cited a large backlog of orders for EVs and other vehicles as carmakers wrangle with shortages of critical parts, suggesting the incentive was unneeded.

“There is a waiting list for EVs right now, with the fuel prices, but they still want us to throw a $5,000, or $7,000 or $12,000 credit for us to buy electric vehicles,” Manchin, a West Virginia Democrat, said during the Senate budget hearing featuring Transportation Secretary Pete Buttigieg. 

Manchin’s remarks were in response to Democrats’ efforts to revive a provision in the now-stalled Build Back Better Act. They would increase the current credit to as much as $12,500. A U.S. House-passed proposal would expand the credit and lift an existing cap of 200,000 vehicles per manufacturer, benefiting Tesla Inc. and General Motors Co., which both previously maxed out in 2018.

Manchin’s office declined to elaborate on the senator’s comments. He previously expressed concern about a Biden administration proposal to offer $4,500 in additional credits to carmakers who build EVs with union labor. 

Maxed Out

Absent Congressional action in the near future, GM and Tesla will remain maxed out on EV tax credits, and several other manufacturers, such as Toyota Motor Corp., Nissan Motor Co. and Ford Motor Co., are on the verge of joining them.

Analysts have said a loss of tax credits could make it difficult for automakers to capitalize on an the increase in demand for plug-in hybrid and electric vehicles spurred by gasoline prices surging past $4 a gallon.

“Price is a significant barrier to entry for the EV market,” Jessica Caldwell, Edmunds’s executive director of insights, said in an email. “EVs are not at price parity with their ICE (internal combustion) counterparts. Beyond concerns with infrastructure and range anxiety, bringing down the price is another hurdle the auto industry has to tackle for EVs to appeal to a wider range of consumers.” 

Carmakers sold a record 652,000 electric cars in 2021, but they made up only 4.4% of new car sales, according to an analysis by BloombergNEF. The percentage doubled from slightly over 2% in 2020. SUVs and pickup trucks comprised about 70% of total 2021 sales, according to Kelley Blue Book, showing the industry still has a long way to go before it comes close to achieving widespread adoption of EVs. 

Central Component

The White House sees EV tax credits as central to its broader climate goals. In addition to setting new fuel economy rules that require carmakers to average a fleetwide average of 49 miles per gallon by 2026, President Joe Biden has called for half of all vehicles sold in the U.S. to be capable of emissions-free driving by the end of the decade. 

Automakers have said Biden’s ambitious goals for EVs can only be achieved with bigger government investment in charging stations and other infrastructure, such as the expansion of federal tax credits for potential electric car buyers.

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