Electric Vehicles, Charging Get Jolt from Inflation Reduction Act
The Inflation Reduction Act (“IRA”) is now law, and with it, a suite of tax incentives and other provisions designed to enhance production and adoption of electric vehicles (“EVs”). The top-level headlines focused on the extension of the light-duty EV tax credit through 2032, which will allow millions more drivers to more easily switch to an EV for their next vehicle purchase. But the law has many more implications touching all major aspects of the EV economy, and now that the dust has settled, the Internal Revenue Service (“IRS”) has been tasked with implementing it. For example, new domestic assembly and battery sourcing requirements should spur U.S. mining and manufacturing, new credits and funding for commercial and government vehicles should increase the number of medium- and heavy-duty EVs on the road, and a rejuvenated charging infrastructure credit should supplement the $7.5 billion in funding from last year’s Bipartisan Infrastructure Law (“BIL”). In early October, the IRS sought public input on guidance implementing several EV and charging incentive provisions, and although those comment periods ended last week, the agency issued another request for comment on other provisions on November 3.
This piece discusses the IRA’s implications for sectors directly and indirectly linked to ground transportation in the United States. It summarizes the law’s key provisions in five areas of the EV space—tax credits (or rebates) for electric passenger cars and light trucks, tax credits for commercial EVs, tax credits for EV charging infrastructure, tax credits for EV production, and funding for electrifying public fleets. It also highlights key areas where IRS guidance—which must be issued before the end of the year—will shape the law’s implementation.
Personal Vehicle Incentives
The IRA extends and revises the $7500 tax credit for new, light-duty EVs. Here are the key points:
- Gone is the 200,000 vehicle per manufacturer cap; purchasers of new Tesla, GM, and Toyota EVs and PHEVs will once again be eligible for the full credit (subject to new conditions described below) starting in 2023.
- There are new domestic sourcing and assembly requirements for critical minerals and battery components requirements to qualify for the maximum available credit.
- There are also new income and MSRP eligibility limits, meaning the highest earners and most expensive EVs will not be eligible for the credit starting in 2023.
Two other aspects of the personal vehicle incentives are worth noting. First, the legislation also establishes a new tax credit for used EVs, subject to income and MSRP limits and a minimum vehicle age requirement (though no domestic sourcing or assembly requirement). Second, starting in 2024, the law allows EV purchasers to claim the credit as a rebate from the dealer at the point of sale, rather than wait and claim it the next year on their tax return.
The domestic sourcing and assembly requirements present serious challenges for manufacturers, particularly in the short term. The provisions mandating that none of the value chain can come from “foreign entities of concern” is an effective ban on Chinese EV parts and components starting in 2024 (battery manufacture or assembly) or 2025 (battery critical mineral extraction, processing, or recycling). The vast majority of EV battery minerals, components, and cells are currently sourced from China, according to a July 2022 analysis from the International Energy Agency. It is also not yet clear how the “value of the applicable” battery critical minerals or components will be determined, for purposes of the increasing year-over-year requirements for domestic or allied country sourcing and assembly. Finally, guidance is needed on how the minimum percentages based on value for the sourcing requirements on battery components and critical minerals will be calculated; the IRS is currently seeking feedback on which factors and definitions should be considered and whether any “existing regulatory frameworks” can inform these determinations.
These sourcing and assembly requirements (the “sticks”) follow prior moves by Congress and the Biden Administration to shore up domestic battery manufacturing (the “carrots”). Last fall, Congress provided over $60 million in funding for critical minerals research and development through the BIL. In February of this year, the Biden Administration announced a series of major investments in domestic production of key critical minerals and materials found in EV batteries. The following month, President Biden invoked the Defense Production Act for critical minerals production. The move enables the Department of Defense to undertake actions such as feasibility studies and modernization projects for mature mining, benefication, and value-added processing projects. It also allows for byproduct and co-product production at existing mining, mine waste reclamation, and other industrial facilities.
Commercial Vehicle Incentives
In addition to the personal vehicle incentives discussed above, the IRA provides a new credit for qualified commercial EVs through 2032. The credit amount for each qualifying vehicle is the lesser of 30% of the sales price or the incremental cost of the EV over a comparable internal combustion engine vehicle. This credit is capped at $7,500 for vehicles with a gross vehicle weight rating (GVWR) of less than 14,000 pounds and capped at $40,000 for heavier vehicles. Notably, there are no battery or mineral sourcing requirements for this credit, and the battery capacity requirements are modest.
These commercial EV incentives should hasten fleet electrification, and quickly. The incentives take effect in 2023 and are not conditioned on battery content or range, company size, or vehicle MSRP. Medium-and heavy-duty vehicles are disproportionately responsible for greenhouse gas (“GHG”), particulate matter (“PM”), and nitrogen oxide (“NOx”) emissions in the United States. These condition-free incentives will remove a substantial barrier to fleet electrification—high up front capital costs. However, one key question is how purchasers and the IRS determine a “comparable” ICE vehicle; the agency is currently seeking input on that issue, among others.
Charging Infrastructure Incentives
Another incentive brought back by the IRA is the tax credit for EV charging stations. While the current credit echoes the version that expired on December 31, 2021, there are some key changes.
The headline numbers for the revived credit are as follows: up to 30 percent of the cost of a “qualified alternative fuel vehicle refueling” station, subject to a limit of $100,000 per station. However, several geographic and labor conditions must be met first. As a threshold matter, only charging projects “placed in service in an eligible census tract” qualify. Eligible areas include only “low-income communities” as defined in Section 45D(e) of the Internal Revenue Code, and non-“urban areas” as defined in the most recent census. Then, similar to some of the limitations applicable to the ITC and PTC, described below, the full 30% credit is only available if certain prevailing wage and apprenticeship requirements are met. Otherwise, it is 6%. Importantly, Section 30C is clearly applicable to bidirectional charging infrastructure; such setups enable plugged-in EVs to supply energy back to the grid when they are not themselves charging.
The return of the charging credit is of course a net positive for developers, installers, and users of EV charging stations. The maximum value of the credit more than tripled, and the limit now applies to “single item[s] of” qualifying charging property at a given location, rather than “all qualified [recharging] property.” Now retailers, commercial fleet operators, and others can use this expanded incentive to install charging infrastructure on their property—so long as that property is within a qualifying census tract—enabling them to attract and retain customers and employees alike. This renewed credit thus pairs nicely with new charging infrastructure buildout on highway corridors made possible by the BIL.
With respect to production, the IRA extended the Advanced Manufacturing Production Tax Credit, which provides credits in the amount of $35 per kWh in each produced battery cell and $10 per kWh in each produced battery module, subject to certain capacity limitations. It also covers 10% of “applicable critical minerals” production costs incurred by the taxpayer. Production must take place in the United States and the credit phases out starting in 2029.
The IRA also added $10 billion to the Advanced Energy Project Tax Credit fund to build clean technology production facilities. Qualifying facilities include those that manufacture light-, medium-, or heavy-duty electric vehicles, as well as technologies, components, and materials for such vehicles, and associated charging or refueling infrastructure. Funding also applies to projects that re-equip, expand, or establish an industrial facility for processing, refining, or recycling of critical materials.
The IRS requested comment on several aspects of these incentives, including around qualifications for and verficiations of “applicable critical minerals.” The incentives in these two sections should facilitate domestic investment in new and retooled EV and charging infrastructure production facilities. Again, when taken together with other incentives in the IRA and in the BIL, the sum is greater than the parts.
Finally, the law allocates $3 billion for electrifying the United States Postal Service (“USPS”) fleet. Specifically, the legislation includes $1.29 billion for the purchase of zero-emission delivery vehicles, as well as $1.71 billion for the purchase, design, and installation of the infrastructure to support zero-emission delivery vehicles at facilities that the Postal Service owns or leases from non-federal entities.
The USPS funding is significant for two primary reasons. First, though it operates the nation’s largest public fleet, which amounts to roughly one-third of the entire federal fleet, the Postal Service’s operating expenses generally are not funded by tax dollars. By the $3 billion allocation, Congress is substantially expediting the turnover of the fleet to EVs. The agency’s previous efforts to electrify have been slow, to say the least, in large part due to lack of funding; last month, Chairwoman of the House Committee on Oversight and Reform Carolyn B. Maloney (D-NY) sent a letter to Postmaster General Louis DeJoy requesting information on USPS’s plans to use IRA and BIL funding to expand its EV fleet and help create a nationwide public EV charging network.
Second, depending on how USPS’s EV rollout goes—particularly with respect to charging concerns—other fleet operators could be emboldened to electrify more quickly. For example, Hertz announced in September it plans to purchase up to 175,000 EVs from General Motors over the next five years.
The law also allocates $1 billion to states, municipalities, Indian tribes, and non-profit school transportation associations to replace large heavy-duty vehicles with clean EVs. These rebates can be used for up to 100% of the costs for vehicles, infrastructure, training, and planning and technical activities to support electrification. School bus electrification money made possible by the BIL is already starting to flow—last month, Vice President Kamala Harris and EPA Administrator Michael Regan announced nearly $1 billion in rebate awards to replace existing aging school bus fleets with clean buses.
 Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818 [hereinafter “IRA”].
See IRS Notice No. 2022-46, Request for Comments on Credits for Clean Vehicles (Oct. 5, 2022), https://www.irs.gov/pub/irs-drop/n-22-46.pdf; IRS Notice No. 2022-47, Request for Comments on Energy Security Tax Credits for Manufacturing Under Sections 48C and 45X (Oct. 5, 2022), https://www.irs.gov/pub/irs-drop/n-22-47.pdf; IRS Notice No. 2022-51, Request for Comments on Prevailing Wage, Apprenticeship, Domestic Content, and Energy Communities Requirements Under the Act Commonly Known as the Inflation Reduction Act of 2022 (Oct. 5, 2022), https://www.irs.gov/pub/irs-drop/n-22-51.pdf. The agency also held a “virtual roundtable with key stakeholders from across the automotive industry” on November 4, 2022. U.S. Dep’t of the Treasury, READOUT: Stakeholder Roundtable on Clean Vehicles and the Inflation Reduction Act (Nov. 4, 2022), https://home.treasury.gov/news/press-releases/jy1083.
 IRS Notice No. 2022-56, Request for Comments on Section 45W Credit for Qualified Commercial Clean Vehicles and Section 30C Alternative Fuel Vehicle Refueling Property Credit (Nov. 3, 2022), https://www.irs.gov/pub/irs-drop/n-22-56.pdf.
 IRA § 13401(d).
Id. § 13401(a), (e) (codified at 26 U.S.C. § 30D(d)(1)(G), (d)(5)). The day the IRA was enacted, the Department of the Treasury and the Internal Revenue Service issued guidance in the form of frequently asked questions (FAQs) regarding eligibility for the new and revised tax credits. See Frequently Asked Questions on the Inflation Reduction Act’s Initial Changes to the Electric Vehicle Tax Credit, https://home.treasury.gov/system/files/136/EV-Tax-Credit-FAQs.pdf.
 IRA § 13401(f) (codified at 26 U.S.C. § 30D(f)(10), (f)(11).
Id. § 13402 (codified at 26 U.S.C. § 25E).
Id. § 13401(g) (codified at 26 U.S.C. § 30D(g)).
 Members of Congress have introduced legislation that would extend the phase-in for these sourcing and manufacturing requirements. See Senator Reverend Warnock Introduces Bill to Ensure Georgia Car Buyers, Automakers Fully Benefit from Cost-Cutting Tax Credits (Sept. 29, 2022), https://www.warnock.senate.gov/
newsroom/press-releases/senator-reverend-warnock-introduces-bill-to-ensure-georgia-car-buyers-automakers-fully-benefit-from-cost-cutting-tax-credits/; Reps. Sewell, Cleaver, and Swalwell Introduce Bill to Ensure U.S. Car Buyers and Automakers Fully Benefit from Cost-Cutting Tax Credits (Nov. 4, 2022), https://sewell.house.gov/
 Int’l Energy Agency, Global Supply Chains of EV Batteries (July 2022), https://iea.blob.core.windows.net/
 IRS Notice No. 2022-51 at 15.
 U.S. Dep’t of the Interior, Biden-Harris Administration Invests Over $74 Million in Federal-State Partnership for Critical Minerals Mapping (June 21, 2022), https://www.doi.gov/pressreleases/biden-harris-administration-invests-over-74-million-federal-state-partnership-critical.
 The White House, FACT SHEET: Securing a Made in America Supply Chain for Critical Minerals (Feb. 22, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/22/fact-sheet-securing-a-made-in-america-supply-chain-for-critical-minerals/.
 Presidential Determination No. 2022-11, https://www.whitehouse.gov/briefing-room/presidential-actions/
 IRA § 13403(a) (codified at 26 U.S.C. § 45W(b)(1)).
Id. (codified at 26 U.S.C. § 45W(b)(4)).
 The requirements for pure electric commercial EVs are 7 or 15 kWh, depending on the vehicle’s GVWR. Id. § 13403(a) (codified at 26 U.S.C. § 45W(c)(3)). For reference, Ford’s E-Transit van features a 68 kWh battery. The law also includes a 15% sales price/incremental cost credit for plug-in hybrid electric commercial vehicles that meet these battery capacity requirements. Id. § 13403(a) (codified at 26 U.S.C. § 45W(b)(1)(A)). For reference, Mitsubishi sells in Europe a cargo version of its Outlander PHEV, which features a 13.8 kWh battery.
See, e.g., Congressional Research Service, In Focus: Heavy-Duty Vehicles, Air Pollution, and Climate Change (updated May 9, 2022), https://crsreports.congress.gov/product/pdf/IF/IF12043.
 IRS Notice No. 2022-56 at 5.
 IRA § 13404(b) (codified at 26 U.S.C. § 30C(a), (b)).
 IRA § 13404(e) (codified at 26 U.S.C. § 30C(c)(3)).
 A “low-income community” is a census tract where (a) the poverty rate is at least 20 percent or (b) the median family income for the tract does not exceed 80 percent of the statewide median family income (or 80 percent of the metro area median family income, for tracts in a metro area). 26 U.S.C. § 45D(e)(1).
 The Census Bureau publishes the urban and rural classifications on its website, and is expected to finalize its urban area designations in December 2022 for the 2020 census. See U.S. Census Bureau, Urban and Rural (July 11, 2022), https://www.census.gov/programs-surveys/geography/guidance/geo-areas/urban-rural.html.
 Specifically, laborers and mechanics in the construction of a qualified charging station “must be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code.” IRA § 13404(d) (codified at 26 U.S.C. § 30C(g)(2)(A)).
 To meet the act’s apprenticeship requirements, employers must ensure that a set percentage of total hours worked on the project is performed by registered apprentices. IRA § 13404(d) (codified at 26 U.S.C. § 30C(g)(3)).
 The IRS sought comment on how contractors should be able to show that they paid the prevailing wage and what constitutes a good-faith effort to hire apprentices. IRS Notice No. 2022-51 at 12-13.
See IRA § 13404(b)(2)(A)(i).
Id. § 13502(a) (codified at 26 U.S.C. § 45X(b)(1)(k), (b)(1)(l), (b)(4)).
Id. (codified at 26 U.S.C. § 45X(b)(1)(m), (c)(6)).
Id. (codified at 26 U.S.C. § 45X(b)(3), (d)(2)).
Id. (codified at 26 U.S.C. § 48C(e)).
Id. § 13501(b) (codified at 26 U.S.C. § 48C(c)(1)(A)). The IRA also added $3 billion and $2 billion, respectively, to the existing Advanced Technology Vehicle Manufacturing (“AVTM”) and Domestic Manufacturing Conversion Grant (“DMCG”) programs administered by the Department of Energy. Id. §§ 50142, 50143. The ATVM program provides direct loans for “reequipping, expanding, or establishing a manufacturing facility in the United States to produce” qualifying advanced technology zero-emission vehicles. 42 U.S.C. § 17013. The DMCG program provides grants to automobile manufacturers and suppliers and hybrid component manufacturers to “encourage domestic production of efficient hybrid, plug-in electric hybrid, [and] plug-in electric drive,” vehicles, with priority given to “the refurbishment or retooling of manufacturing facilities that have recently ceased operation or will cease operation in the near future.” 42 U.S.C. § 16062.
 IRS Notice No. 2022-047 at 11.
 IRA § 70002.
 In January 2022, USPS announced a plan to acquire up to 165,000 Next Generation Delivery Vehicles, though its initial order only included 5,000 EVs due to funding constraints. 87 Fed. Reg. 994 (Jan. 7, 2022). Three months later, a number of states and environmental groups sued the agency, arguing it failed to properly consider EV alternatives in its National Environmental Policy Act (“NEPA”) analysis. Attorney General Bonta Files Lawsuit Against Postal Service for Faulty Environmental Review Used to Justify Purchase of New Gas-Powered Vehicle Fleet (Apr. 27, 2022), https://oag.ca.gov/news/press-releases/attorney-general-bonta-files-lawsuit-against-postal-service-faulty-environmental. In June 2022, USPS indicated it would supplement its NEPA review in part to study increasing the minimum number of EVs to be procured, see 87 Fed. Reg. 35,581 (June 10, 2022), and weeks later, the agency amended the scope of its supplemental review and announced that it expects that at least 40 percent of the total quantity of vehicles to be procured will be EVs. See 87 Fed. Reg. 43,561 (July 21, 2022). In August 2022, as the IRA was being finalized, Rep. Jared Huffman (D-CA) issued a press release arguing that the bill “adds to pressure on the US Postal Service to amend its controversial vehicle contract.” Lillianna Byington, Bloomberg Government, Deal Would Mean USPS Can’t ‘Drag Its Feet’ on Electric Vehicles (Aug. 3, 2022), https://about.bgov.com/news/deal-would-mean-usps-cant-drag-its-feet-on-electric-vehicles/.
 Letter from Representative Carolyn B. Maloney to Postamaster General Louis DeJoy (Oct. 11, 2022), https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-10-11.CBM%20to%20DeJoy-USPS%20re%20BIF%20and%20IRA%20Funding.pdf.
 David Shepardson and Joseph White, Reuters, GM, Hertz make deal to deploy up to 175,000 EVs (Sept. 23, 2022), https://www.reuters.com/business/autos-transportation/hertz-plans-order-up-175000-gm-electric-vehicles-by-2027-2022-09-20/. The news followed earlier Hertz announcements to purchase 65,000 EVs from Polestar and 10,000 EVs from Tesla in the preceding twelve months. Id.
 IRA § 60101 (codified at 42 U.S.C. § 7432).
 The White House, FACT SHEET: Progress on Biden-Harris Action Plan for Building Better School Infrastructure (Oct. 26, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/26/fact-sheet-progress-on-biden-harris-action-plan-for-building-better-school-infrastructure/.