The Biden administration will ask Congress to extend incentives that have spurred a U.S. electric-vehicle market that still trails EV adoption in economic rival China.
The proposed extension for breaks on EV purchases is part of a $2.25 trillion infrastructure and stimulus blueprint called “The American Jobs Plan” that Biden is set to announce in Pittsburgh Wednesday afternoon, some details of which the White House has released.
Biden’s proposal includes long-expected updates to roads, airports and other portions of U.S. infrastructure, but as part of his campaign promise, the plan looks to move the needle on fighting climate change. In addition to giving a boost to EV purchases, the plan calls for more charging infrastructure and electric school buses. Republicans in Congress say they’re worried the corporate tax proposals to fund the plan could slow an economy pulling out of the COVID-19 slump.
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Rebates and tax credit extension
Consumers and investors will note that Biden is asking Congress to sustain tax incentives that encourage more motorists to buy EVs. Those tax credits are currently valued at as much as $7,500 per purchase, but Tesla Inc.
TSLA,
+4.13%
and General Motors Co.
GM,
-1.63%
have already passed an existing 200,000-per-manufacturer ceiling at which the value of those credits phases down.
Biden is asking Congress to “give consumers point-of-sale rebates and tax incentives to buy American-made EVs, while ensuring that these vehicles are affordable for all families and manufactured by workers with good jobs,” the White House said.
Sen. Debbie Stabenow and Rep. Dan Kildee, both Democrats from legacy auto state Michigan, are working with the White House and Democratic leadership on a plan to drop the 200,000-vehicle ceiling.
Washington has also been mulling a change to the current tax-incentive structure to better target the tax credit to middle- and lower-income car owners — a shift that was part of the Biden campaign’s tax plans, according to the Tax Policy Center.
U.S. market share of plug-in EV sales is one-third the size of the Chinese EV market.
“The president believes that must change. He is proposing a $174 billion investment to win the EV market,” the White House said in its release. “His plan will enable automakers to spur domestic supply chains from raw materials to parts, retool factories to compete globally and support American workers to make batteries and EVs.”
Automakers are expected to cheer the proposal as they’ve tried and failed in the recent past to secure the EV tax credit extension with lobbying efforts.
Market reaction
“With potentially $200 billion or about 10% of this plan towards electric vehicle initiatives based on chatter out of the Beltway, we believe the Street ultimately needs to see two components to pass through the House and get enacted to ‘change the game’ for the EV sector in the U.S.,” said Wedbush analyst Daniel Ives.
“First, an expansion of the tax credits currently valued at $7,500 for EV vehicles to the $10,000 range or potentially higher in a tiered system. Other point-of-sale rebates could also be put into this wide ranging infrastructure bill to catalyze consumers to head down the EV path,” Ives said. “Second, we expect to see a lifting of the 200,000-per-manufacturer ceiling on the credits being phased out which will restore the EV tax credits for stalwarts Tesla and GM.”
Tesla shares, which had surged some 580% over the past year, have retreated early in 2021, down about 7% for the year to date. The stock was up 3% Wednesday as the EV incentive news hit markets.
Not to be left behind, legacy automakers have boosted investment in EVs and autonomous vehicles. In fact, GM has said it will phase out internal combustion engine vehicles within 15 years.
“Battery life is only going to be extended and with the trillions being invested globally by all those supporting the electrification of the transportation system the infrastructure for widespread adoption and usage of EV technology is only going to increase,” Blue Horizon analyst John Mitchel told MarketWatch’s Claudia Assis.
GM shares are up 199% over the past year and up 38% in the year to date. Truck-focused EV stocks Nikola Corp.
NKLA,
+0.11%
and Workhorse Group Inc.
WKHS,
+1.04%
have also seen high-flying gains cool early in 2021.
The Global X Autonomous & Electric Vehicles ETF
DRIV,
+1.03%
was trading higher early Wednesday.
Growth stocks — with EV counted in the group — have been hit by a rotation into value stocks that include airlines and restaurants, particularly as COVID-19 vaccinations spread.
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Other tax-based incentives for climate change laid out in Biden’s Wednesday announcement included the proposed expansion of a tax credit to create underground storage for carbon capture and an investment tax credit focused on electric transmission. Biden’s initiative would also give a 10-year extension to tax credits that have been a boon to wind, solar and other renewable energy projects.