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What the Inflation Reduction Act means for electric car buyers and auto companies

MARY LOUISE KELLY, HOST:

One of the key provisions in the Inflation Reduction Act that President Biden signed into law this week aims to make electric vehicles more mainstream. But instead of making it easier to qualify for a $7,500 tax credit, the administration is placing more restrictions on vehicles and buyers. NPR's Arezou Rezvani is here to explain why. Hi, Arezou.

AREZOU REZVANI, BYLINE: Hi.

KELLY: All right. So explain why. If I want to buy an electric vehicle, how does this bill help me?

REZVANI: Well, long-term, it's meant to drive prices down. Electric vehicles have always been very expensive. Right now the average price of an EV is $66,000. And that price point is one reason why EV sales have been low despite strong interest. Last year, for example, only about 3% of all auto sales were electric. So what this law intends to do is push automakers to produce more affordable options and expand their customer base. That's why this tax credit has an income cap. If you make more than $150,000 as a single person or double that as a couple, you won't get this tax credit. And, again, it's because they want to incentivize automakers to really start catering to a wider range of buyers, not just high-income earners.

KELLY: You mentioned the income cap. That's one requirement to get this tax credit. Walk me through. There are other caveats.

REZVANI: OK. So there are quite a few. Hang with me.

KELLY: OK.

REZVANI: If you want to qualify for the full $7,500 today, the car has to be assembled in North America. And this one requirement alone has already disqualified dozens of EVs from the tax credit. Automakers like Hyundai or Toyota are out, but certain Ford models, certain Rivian models, the Nissan Leaf - they're among cars that still qualify for now. Other provisions take effect in January, and they will disqualify even more cars from the tax credit. So electric sedans have to be $55,000 or less. It's a bit more for bigger cars. There's also a price cap for used cars. Finally, those all-important EV batteries - not only must some of the components be in North America. A lot of what's in those batteries have to come from the U.S. or a trading partner.

KELLY: So it sounds like these restrictions will disqualify so many cars, which seems counter to the goal of getting more electric vehicles out there...

REZVANI: Right.

KELLY: ...Getting more people to buy them. What's the thinking?

REZVANI: Well, this is part of a really big push to reorient the supply chain and bring production back to the U.S. The administration wants to reduce dependency on China. I talked to Michael Fiske from S&P Global about this, and he really views this initiative as a matter of national security.

MICHAEL FISKE: We've seen a lot of the challenges that have come from being reliant on the Middle East for oil for the last, you know, half century or more. Now I think there are some valid concerns about becoming overly reliant on Asian countries for the processing and manufacturing of batteries and battery-related materials for the next decade or 50 years.

KELLY: And, Arezou, just briefly, what about the car companies? Where are they in all this?

REZVANI: It's going to be very challenging for them to make this shift. You know, just finding new countries to do business with for those minerals in the batteries - that's a big undertaking. It will take time. But long-term, if automakers do bring production to the U.S. and attract more customers, that could really catapult the EV market into the mainstream in ways we haven't seen before.

KELLY: All right. Arezou Rezvani, thanks so much.

REZVANI: You're welcome. Transcript provided by NPR, Copyright NPR.

Arezou Rezvani is a senior editor for NPR's Morning Edition and founding editor of Up First, NPR's daily news podcast.
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