Democrat Proposal of EV Tax Credits Divides Automakers

Should the spoils go only to cars and trucks made by union labor in the United States?

Midsection of mid adult woman charging electric car
Maskot / Getty Images

It’s not surprising that a Democratic proposal to expand incentives for electric vehicles has run into opposition. It’s aimed at boosting domestic producers at the expense of foreign competition from companies such as Toyota, which said the proposal “will discriminate against nearly half the autoworkers in the country and put the environment second to unrelated agendas.”

Honda added, “If Congress is serious about addressing the climate crisis, as well as its goal to see these vehicles built in America, it should treat all EVs made by U.S. auto workers fairly and equally. We urge Congress to remove discriminatory language tying unionization to incentives from its budget reconciliation proposal.”

The maneuvering made plain that lobbyists shape legislation. If the ultimate aim was just to get affordable electric vehicles to consumers, then all manufacturers would probably get the same subsidy. But jobs are a big consideration here. 

The proposal from the House Ways and Means Committee would deliver an income tax credit of up to $12,500 for cars that are made in the U.S. by union labor, and keep the credit at $7,500 for other companies. The biggest beneficiaries are the Big Three, Ford, GM, and Stellantis. 

But even some of their cars wouldn’t qualify for the added subsidies—the Mustang Mach-E electric is built in Mexico. And GM said in April it would invest $1 billion in Mexican operations, and start building EVs there in 2023. But a provision of the bill that’s protective of those investments keeps the $7,500 credit for foreign-made cars until 2027. 

The Mustang Mach-E is made in Mexico but the bill would keep its $7,500 subsidy for five years.
The Mustang Mach-E is made in Mexico but the bill would keep its $7,500 subsidy for five years.


Under the bill, GM and Tesla would also benefit from the removal of the 200,000-vehicle cap that currently keeps their buyers from getting credits. Representative Dan Kildee (D-MI) told Reuters, “It puts American manufacturers in the lead, which is where we want them, and it reduces emissions faster than any other policy that we could put in place.” 

But not all American manufacturers would benefit. Startups Rivian and Lucid, for example, both qualify as making cars in the U.S., but neither have unionized workforces. Tesla isn’t unionized either, and Elon Musk took to Twitter to claim the bill was “written by Ford/UAW [United Auto Workers] lobbyists….Not obvious how this serves American taxpayers.” Rivian says it pays its workers above UAW scale—so these things aren’t as simple as they appear. 

The bill as proposed is quite complex, with detailed provisions limiting the credits for higher-priced cars and for high-income earners. Would the cap on the price of the car be based on its base price or as ordered with options? 

All this prompted Rivian Vice President of Public Policy and Chief Regulatory Counsel, James Chen, to exclaim, “The House’s proposed expansion of the federal EV tax credit is a step in the right direction, but risks confusing potential buyers. Americans should not need an accounting degree to determine if they qualify for the tax credit. Rivian supports a straightforward expansion without artificial limits to encourage EV adoption to as many households as possible.” 

Rivian’s factory in Normal, Illinois is definitely in America but it’s not unionized.
Rivian’s factory in Normal, Illinois is definitely in America but it’s not unionized.


There are alternative ways of looking at the issue. The Senate voted for a non-binding resolution in August that would ban credits for cars costing more than $40,000 (that’s most of them!) and for taxpayers making more than $100,000 annually. Another approach, from Senator Debbie Stabenow (D-MI), passed the Finance Committee in May and imposed a base price limit of $80,000. It adds $2,500 for union-made cars to the existing $7,500, and another $2,500 for vehicles made in the U.S. Stabenow added, “China has hundreds of companies making electric cars, and they have help—over $100 billion of help so far from the Chinese government.”

What would EV advocates like to see? In a September 2 letter, a group that included the Alliance for Automotive Innovation, Autos Drive America, Electric Drive Transportation Association (EDTA), and Zero Emission Transportation Association (ZETA) simply advocated for the existing credits to be expanded and extended “to help manufacturers reach the economies of scale needed to achieve parity with today’s gas-powered vehicle market.” The groups have disparate agendas, which makes for some pretty vague statements. 

On its own, ZETA is negative. The bill’s caps on income and retail price “will undermine the efficacy of the EV incentive,” the group said. “These restrictions miss the point of the tax credits: Consumer incentives are designed to accelerate EV adoption…These restrictions will lead to fewer EVs on the road and materially narrow the public benefits of transportation electrification.”

Plug In America wants Congress to fully fund President Joe Biden’s $174 billion transportation electrification funding package. But that’s unlikely. The group likes the proposed legislation as a good compromise: “The language that the House Ways and Means Committee is currently considering has taken months of negotiation among many different stakeholders, including environmentalists, consumer groups, automakers, labor, dealers, and others, and we are supportive of the language as it currently stands.”

Obviously, the United Auto Workers likes the House proposal. Back in April, the union said it was working with Biden and Congress to ensure that extended incentives “subsidize the jobs of U.S. workers.” It could have written the proposed legislation. 

And Ford is happy, too: “This legislation will help more Americans get into EVs, while at the same time supporting American manufacturing and union jobs,” said Kumar Galhotra, Ford's president of the Americas, in a statement.