The climate and energy package approved by Congress on Friday aims to achieve two goals that are not always compatible: Make electric vehicles more affordable while freezing China out of the supply chain.
Auto industry representatives have been griping that the proposed $7,500 tax credits for electric vehicle buyers come with so many strings attached that few cars will qualify. Buyers can’t have very high incomes, the vehicles can’t cost too much, and the cars and their batteries have to meet made-in-America requirements that many carmakers cannot easily achieve.
“It’s going to be a lot harder for cars to qualify and for consumers to qualify for a federal tax credit for the purchase of an E.V.,” said John Bozzella, president of the Alliance for Automotive Innovation, which represents large U.S. and foreign automakers.
Some companies will benefit more than others from the sweeping legislation, known as the Inflation Reduction Act, which Democrats in the House approved on Friday, clearing the way for President Biden to sign it into law.
The new credits favor companies, like Tesla and General Motors, that have been selling electric cars for years and have reorganized their supply chains to produce vehicles in the United States. A joint venture between G.M. and LG Energy Solution will soon open a battery plant in Ohio, part of a wave of electric vehicle investment by automakers and suppliers.
Vehicles sold by Tesla and G.M. will regain eligibility for incentives that the carmakers had lost because they had sold more than their quota of 200,000 electric cars under current law. The legislation eliminates that cap.
The legislation could be thornier for companies like Toyota and Stellantis, which owns Chrysler, Jeep and Ram, because they have not started making or selling large numbers of battery-powered vehicles in the United States.
The legislation effectively penalizes newer electric car companies, like Lucid and Rivian, whose vehicles may be too expensive to qualify for the credits. The incentives apply to sedans costing no more than $55,000 and pickups, vans or sport utility vehicles costing up to $80,000.
Lucid’s cheapest sedan starts at more than $80,000. Rivian’s electric pickups start at $72,500 but can easily top $80,000 with options. The company said it was exploring whether customers could lock in the incentives by making a binding purchase agreement before the new law took effect.
Even automakers that might lose access to tax credits could benefit from the law in other ways. The bill contains billions of dollars to help carmakers build factories and establish local supply chains. Dealers will profit from a provision granting $4,000 credits to used electric vehicles, with few strings attached.
What’s in the Climate, Health and Tax Bill
“We have to look at this law in its totality,” said Margo Oge, former director of the Office of Transportation and Air Quality at the Environmental Protection Agency. “Is it perfect? No. It will create jobs, and it will be good for the climate.”
And once automakers make changes to their supply chains required by the bill, they will be able to offer customers generous incentives for the rest of the decade and then some. It may take a few years, but eventually the legislation will help make electric cars cheaper than gasoline and diesel vehicles, analysts say.
“The consumer tax credit was certainly not written in a way I would write it,” Senator Debbie Stabenow, a Michigan Democrat, told reporters this week, referring to the $7,500 incentive. But in the interest of getting the bill passed, she said, she acceded to the wishes of Senator Joe Manchin III, the West Virginia Democrat. Mr. Manchin has said it makes little sense to subsidize electric vehicles because demand is so strong that there are long waiting lists for many models.
Still, Ms. Stabenow added, “There are a lot of wonderful things in here for us.”
A feature of the bill that has generated the most complaints would require that by 2024 at least 50 percent of the components in an electric car battery come from the United States, Canada or Mexico. The percentage rises to 100 percent in 2028. And the share of the minerals in batteries that have to come from the United States or a trade ally will climb to 80 percent in 2026.
Some industry executives said it would take car companies five years to revamp their supply chains enough for their products to qualify for tax credits.