In a surprising move to even Capitol Hill insiders, Senate Majority Leader Chuck Schumer and Democratic Senator Joe Manchin of West Virginia struck a deal on a reconciliation bill, which among other things includes $369 billion on energy and climate spending.
Of note for automakers like GM (GM), Tesla (TSLA), Toyota (TM) and others is new money for the expansion of the $7,500 federal EV (electric vehicle) tax credit.
Currently Tesla and GM are no longer eligible for the $7,500 federal tax credit for EVs because they have hit the 200,000 unit threshold for the credit. Other automakers like Toyota, Nissan (7201.T), and Ford (F) are also on the verge of losing the credit as well.
The new deal removes the 200,000 unit threshold, allowing GM and Tesla to once again receive those full benefits, however there are some limitations.
The tax credits are now more targeted towards lower priced EVs, and those people under a certain income threshold. According to the draft of the bill, the full $7,500 EV credit only applies to these vehicles:
Vans, SUVs, and pickup trucks costing less than $80,000
Others, meaning sedans and coupes, costing less than $55,000
The income thresholds for receiving the full tax credit are $300,000 in adjusted gross income for joint filers, or $150,000 for individual filers.
Also of note is the inclusion of a new federal tax credit of $4,000 for used EVs.
The full tax credit is also conditioned upon the vehicle being assembled in North America, and for battery components and materials coming from North America or countries with free trade deals with the U.S. The battery materials sourcing requirements will be phased in over time, according to the deal.
Next steps for passage
Democrats still have many questions to answer in the coming days before they can ensure that the deal — which requires the full support of Democrats —will actually get passed.
The first is whether Sen. Kyrsten Sinema (D-AZ) will support it. She has been critical of tax increases in the past and was apparently not included in the secret talks in recent weeks. She has yet to weigh in on the deal, and so far, her spokesman will only say, "We do not have a comment, as she will need to review the text."
A second question is whether all 50 senators will be available to push it over the finish line next week. The complicated reconciliation process requires all 50 Democrats to be present and voting multiple times, which could be jeopardized by a single absence. Thursday provided a reminder of the tenuous path ahead with the news that Sen. Dick Durbin (D-IL) has come down with COVID and will be isolating for the coming days.
Nonetheless, Schumer said Thursday that he expects the work with the Senate parliamentarian — which kicks off the process — will only take a few days and lead to a full Senate vote next week.
With additional reporting by Ben Werschkul in Washington, D.C.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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