As inflation drives up EV prices, automakers plead for tax credit extension

Like many other purchases in the US right now, buying an EV is getting more expensive.

After months of record-breaking battery-materials prices and historic inflation, automakers are passing costs on to consumers. This month, Tesla and GMC announced significant price hikes on EV models. Rivian, Lucid, and GM raised prices on EVs earlier this year.

Several EV manufacturers are now hoping that the federal government will intervene.

Ford, GM, Stellantis, and Toyota sent a joint letter to US lawmakers on June 13 asking that Congress lift a cap on a tax credit aimed at incentivizing adoption of zero-emissions vehicles, as the cost of producing EVs remains high. The companies cited “recent economic pressures and supply chain constraints” that are driving up EV prices for customers, per Reuters.

Setbacks on subsidies

Congress passed a $7,500 federal tax credit for EV purchases in 2008. The incentive was meant to help EVs compete with internal combustion engine vehicles and allow manufacturers to reach scale. For that reason, lawmakers included a cap on the tax credit: After an automaker sells 200,000 EVs, buyers are no longer eligible for the federal financial support.

GM and Tesla have already hit that limit. Ford and Toyota are likely to reach it later this year. Recent proposals to increase the EV credit and eliminate the per-automaker cap died with the Build Back Better bill.

Now, time could be running out to extend the federal tax credit, if Democrats lose their razor-thin majority in Congress in the November midterm elections. Republicans largely oppose the tax credit.

At least 47 state governments and utilities offer incentives of their own for residents who purchase EVs. California and New York have some of the most generous programs, including rebates of up to $2,000.

Meanwhile, the cost of EV battery materials like lithium, cobalt, and nickel remain high, pushing battery prices up for the first time. Coupled with other supply-chain challenges, automakers are facing commodities costs that could amount to double what they predicted for 2022 at the end of last year—and many are looking to customers to help cover the difference:

• Tesla raised prices across its entire vehicle lineup this month. With a $6,000 increase, the Model X saw the largest jump.
• GMC announced that the base cost for Hummer EV reservations after June 18 will increase by $6,250, citing the price of commodities, tech, and logistics.
• While GM plans to cut the cost of the Chevy Bolt, which grappled with a major recall last year due to battery issues, it’s increasing the price tag on luxury EVs like the Cadillac Lyriq.The automaker expects $5 billion in commodities costs this year—double what it originally estimated.
• Ford raised the price of its 2022 electric Mustang Mach-Es back in December, but the automaker’s CFO said last week that higher materials costs have already zeroed out the profits the company expected to make on those EVs. Ford estimated at the end of Q1 that it will spend about $4 billion on materials this year, which is double its previous forecast.

Big picture: Without additional financial incentives, the US risks falling further behind Europe and Asia when it comes to EV adoption. By 2025, EVs could make up 39% of new car sales in China and 40%–50% of sales in the UK, Germany, and France, according to BloombergNEF. As of now, EV market share in the US is on track to reach only ~15% by that year.