How new US legislation will impact vehicle fleet industry
The US government’s multi-billion-dollar Inflation Reduction Act (IRA) - which is more related to climate and energy than reducing inflation – looks likely to become law within the coming days, bringing US fleets closer to transitioning themselves away from fossil fuels.
The $433 billion bill was passed by the Senate on Sunday (Aug 7), and it is now being reviewed by the House of Representatives. According to local media, it could be passed in the lower house as early as Friday (Aug 12) and the only step thereafter would be ratification by President Joe Biden.
Overall, the IRA seeks to accelerate US emission cuts, putting the country on a path to reduce greenhouse gases by 40% below 2005 levels by 2030.
To achieve this, $360bn has been earmarked to climate and energy-related measures, all of which will impact powertrain selection in American fleets and shape the country’s climate and industrial policy for years to come.
How will it impact the vehicle fleet industry?
Much of the new spending entails grants and loans aimed at supporting renewable energy-related manufacturing, including $62bn to support the manufacturing of electric vehicles (EV), batteries, solar panels, and wind turbines.
A total of $30bn has been earmarked for state and electric-utility projects and $27bn will go toward a “clean energy technology accelerator” aimed at reducing emissions. More specifically, the bill includes $9bn for federal green-energy procurement and this includes $3bn to buy EVs for the US Postal Service.
A tax credit of up to $7,500 on every new EV purchase ($4,000 for used EVs) up until 2032 is also included in the bill. However, although many new EV purchases could qualify for a new car credit, a domestic content requirement stipulation could reduce the number of vehicles actually qualifying for rebates.
Moreover, keep in mind that for vehicles to be eligible for the tax credit, sedans can cost no more than $55,000 and SUVs and trucks, no more than $80,000.
Also note that there are still some details within the proposal which could benefit the fossil fuel industry, namely incentives aimed at helping local oil companies develop their carbon capture and hydrogen businesses.
What about semiconductors?
Most new passenger cars today have more than 1,000 semiconductors controlling functions such as braking, cruise control, airbags, and entertainment systems. However, as most of you know, semiconductors have been lacking throughout the world for some time now.
With that said, President Biden – on Tuesday (Aug 9) - signed into law a spending package that allocates $52 billion to bolstering domestic chip manufacturing. It is part of the Chips and Science Act (CSA) which has a total price tag of some $280bn.
Of the $52bn, a total of $39bn has been earmarked for manufacturing incentives aimed at building and expanding semiconductor manufacturing plants.
While $19bn will be released in 2022, the remaining $20bn will be released from 2023-2026 ($5bn/y). The new law also earmarks $200bn in research for innovations such as artificial intelligence and quantum computing.
With CSA inked and the IRA signing around the corner, the US is very close to seeing its largest ever “one-two-punch” (technology and clean energy) investment announcement ever.
Fleet managers, study the fine print and start preparing yourself and your fleet for the imminent but gradual transition which looks likely to come.
To learn a bit about the portrait of global car manufacturers and their main strategies in 2022, download a free copy of our Global Fleet E-Book entitled Car Manufacturers’ Global Fleet Strategy.