America's New EV Incentives are a Goddamn Mess

Two posts in two days? Don't worry, I won't usually hit you up this often.

You only had to look at the name of this thing to know it was going to be a disappointment. The Inflation Reduction Act of 2022 has the sort of timely, meaninglessly broad title designed to capture the hopes of anyone still struggling to figure out why two large pizzas and a couple-dozen wings suddenly costs $99. Reducing inflation? Sure, we can all get behind that, but most economic models predict this Act will have effectively zero impact. In reality, this is one of those melanges of special interests appeasements that seem to be the only thing the government can pass these days. 

Now, I can’t imagine any of you were looking for a political newsletter when you subscribed to this thing, so I'll end that element of the diatribe and continue on to that which you might actually want to read about: what the Act actually means for the US EV scene and why it is so very busted.

Disclosure statement: I do love EVs. I've driven them, owned them, raced them, and categorically proven they're better for the environment. If you're ambivalent about EVs I get it, because so many of them to date have been simple appliances. If you actively hate EVs... well, that I don't get, but I do have some good news, because you're going to love the the Inflation Reduction Act of 2022.

It is a proper disaster. It's taken me many readings of the Act itself and more than a few explainers just to get my head around it. (Andrew J. Hawkins’ explainer on The Verge is nincely terse, or check out my former colleague Brian Cooley’s at CNET if you want a little more.) Given it's my job to understand this stuff, that it took me awhile to grok it is not a good sign.

The federal incentive amount of $7,500 on qualifying EVs remains. Just about everything else, though, gets tossed out the window. Here are the most significant changes:

• The old 200k production cap that cost Tesla and Chevrolet their incentives is done. Or will be done, anyway, once that aspect of the Act fully goes into effect on January 1. Manufacturers can then go wild and sell all the cars they want. (I like this.)

• Eligible cars must cost less than $55,000, while trucks and SUVs must be less than $80,000. (I mostly like this.) 

• Recipients of the tax credits must have an Adjusted Gross Income $150,000 for an individual and $300,000 for those filing jointly. (I kinda hate this part.)

• Cars eligible for the credit must now be fully assembled right here in the good ol' US of A and, crucially, must not use battery components from "foreign entities of concern" after 2024. That basically means China. (I really, really hate this part.)

Let's dive a little deeper. 

The Production Cap

The first change is a good thing. After all, what's the point of incentivizing EV proliferation if you're going to kneecap any manufacturer that actually succeeds at selling the damned things? 

The Cost Cap

I'm mostly behind the second change, too. Anyone buying a $136,000 Porsche Taycan GTS Sport Turismo or $147,500 Mercedes-Benz AMG EQS has two things. First, they have my undying respect for buying such a sweet ride. Second, they have plenty enough disposable income and don't need a paltry $7,500 kick-back from Uncle Sam.

That said, the price cap distinction between car and SUV is pointless. Why should I be able to get a rebate on a $79,000 luxury SUV but not a $69,000 luxury sedan? 

Also, this seems like a good time to remind that the average new car transaction price in the US is up to $48,000 as of this summer, and only about 6% of those cars are EVs. Suddenly that $55,000 cap feels a little low.

The Income Cap

The third major change is where things start to get weird. On the surface this seems like a good thing, because it's real easy to just see a $150,000 salary as being plenty comfortable. However, as someone who's managed virtual teams of employees living in some of the richest and the poorest areas of the country, I am here to tell you that salaries are complicated.

Everyone knows that American greenbacks go further in some places than others, but it's easy to forget just how much further. An income of $150,000 in San Francisco, California is the equivalent of $75,000 in Pierre, South Dakota according to Nerdwallet. You can do the math a dozen different ways, pick your municipality, but I wouldn't consider a single parent making $75k a year to be so comfortably wealthy that they should be excluded from help in buying an EV, yeah? 

On top of that, the $150k figure is incredibly arbitrary. It reeks of politicians desperately trying to ensure they don't look like they're helping fat-cat elites buy fat-cat elite cars. 

The Assembly Requirement

Okay, here's the part that really has me scratching my head. Even the government is confused, because they initially listed the Mercedes-Benz EQS as being eligible despite it actually being assembled in Germany. They've since revised that to say "EQS SUV," which will indeed be made in the US (Alabama to be specific), but not until next year.

Battery components sourced from "foreign entities of concern?" Good luck closing that sale.

This is only going to get more confusing when the battery component requirements start going into effect in 2024. Imagine working at a car dealership and constantly having to explain why the seemingly American-made EVs sitting on the dealership lot aren't eligible for rebates. Battery components sourced from "foreign entities of concern?" Good luck closing that sale...  

Worse, it's short-sighted. This is, far and away, my biggest frustration. This part of the Act really only cares about final assembly. Beyond those eventual battery requirements, all the other component manufacture, resource acquisition, and R&D can happen anywhere in the world.

The Act, then, is really only prioritizing factory work here in the US. Having more jobs for more Americans is a wonderful thing, but if we're going to punish foreign cars in the name of job creation, why not incentivize jobs higher up the chain? A modern car is a rolling server room full of complex systems beaming gigabits of data back to HQ gleaned through hundreds of sensors. Its the development of these systems that are the most complex and so the most lucrative aspects of automotive development. Shouldn't we prioritize that? 

Again, this just feels like a political gesture, added to make 'Merican politicians show that they're helping 'Merican companies against the rest of the world.

A Better Plan

I try not to complain about things without proposing a better solution, and while this ship has most assuredly sailed, I'll go ahead and take a moment to say what I wish we'd simply put a set percentage discount on EVs, decreasing as the value of the car increases. Something like 15% off up to $50,000, 10% off up to $75,000, and then nothing over that. 

That'd be simple to calculate and beneficial to all, but where’s the political theater in that?