When it comes to provisions for electric vehicles, the Inflation Reduction Act’s tax credits for passenger EVs — and the confusion over whether the law’s domestic-production and battery-sourcing requirements will bar most EVs from being eligible — have gotten the lion’s share of media attention.
But other components of the new law could have an equally important impact on the country’s push to electrify transportation — including the heavy-duty vehicles that are responsible for an outsized portion of the sector’s carbon emissions, as well as the charging infrastructure needed to keep EVs running.
One such provision promises to cut a fair chunk of the upfront cost of new electric vans, trucks and buses: a tax credit of 30 percent on the cost of commercial EVs, up to a maximum of $7,500 for light-duty vehicles and $40,000 for medium- and heavy-duty vehicles. EV charging systems would also be eligible for a 30 percent tax credit on up to the first $100,000 in costs per charger, or $30,000 at its top limit — a significant portion of their costs.
The law also provides $1 billion in grants for clean heavy-duty vehicles like school buses and garbage trucks, as well as other grants, such as $3 billion to reduce air pollution at ports, that could help boost heavy-duty EV adoption. Companies that build medium- and heavy-duty EVs can also seek access to billions of dollars in grants, loans and tax credits to support U.S. manufacturing and take advantage of provisions that privilege domestically produced vehicles and chargers.
For Kurt Neutgens, CTO and president of OrangeEV, these nationwide incentives could be “very helpful in making things move faster” toward electrification. His company makes electric terminal tractors, the heavy trucks that move cargo at warehouses, ports and other off-the-road working environments.
OrangeEV has delivered more than 450 trucks for use in more than 130 fleets since the first rolled off its assembly line in Riverside, Missouri in 2015, putting it in the lead for U.S. electric truck sales. While long-haul EV semitractors like those being built by Volvo and Daimler’s Freightliner and promised by Tesla and Nikola get more media attention, shorter-range workhorses like terminal tractors are easier to adapt to all-electric operations.
They’re also cheaper to fuel, maintain and operate than their diesel-fueled counterparts, yielding a lower total cost of ownership after a few years of operations. “With today’s fuel prices, the payback can be less than a year,” Neutgens said. “We’re not selling these trucks because they’re green — we’re selling them because they’re better for the bottom line.”
But that doesn’t mean that would-be customers aren’t faced with a big difference in upfront cost. A typical diesel-fueled terminal tractor can cost about $120,000, compared to about $270,000 for an electric model and the charging equipment to power it. In that light, “incentives can be a really good first-customer, first-purchase enhancer and accelerator,” he said. “Assuming we can get the $40,000 per truck nationwide,” along with tax credits for the chargers it sells with its trucks, “I think that would accelerate our growth considerably.”
Fast growth is what’s needed to cut trucking emissions at a pace commensurate with fighting climate change. Medium- and heavy-duty trucks make up less than 5 percent of vehicles on U.S. roads but account for a quarter of total transportation greenhouse gas emissions, according to the Environmental Protection Agency.
Neutgens said the roughly 60,000 terminal tractors in the U.S. are responsible for just under 1 percent of all carbon emissions in the country. “If you only make 1,000 or 2,000 a year, it takes a long time” to replace that existing fleet, he said. “We’re trying to get each truck out there as soon as possible.”
What nationwide incentives could do
A nationwide tax-credit structure could go a long way toward speeding up that buildout across the U.S. trucking industry, compared to the welter of state and local incentives that have driven the market for electric trucks so far, said Mike Roeth, executive director of the North American Council for Freight Efficiency.
“The fact that this has money for both trucks and chargers is huge,” Roeth said of the Inflation Reduction Act’s heavy-duty EV provisions. “It just gives more certainty for everybody,” from the trucking companies looking to shift to electric trucks to the utilities responsible for providing the power to charge them.
While grants have played a major role in determining where EV trucks have been deployed so far, “sometimes they can be very cumbersome to the end user,” he said. “They’ve got lots of strings attached” and tend to come in tranches of funding that can run out well in advance of demand from the industry.
They’ve also been limited to a relative handful of states, led by California and New York, that have directed the majority of the billions of state and utility dollars available for EV purchases and charging incentives. “Customers often say, ‘I want to buy [electric] trucks in this state, but not in that state,” Neutgens said.
Tom Taylor, policy analyst at Atlas Public Policy, noted that the Congressional Budget Office has estimated that the commercial EV tax credits in the Inflation Reduction Act are expected to direct $3.6 billion toward the cost of purchasing these vehicles over the legislation’s 10-year lifespan. That’s more than the $3 billion in federal and state spending on medium- and heavy-duty EVs thus far, and along with grants represents a “really significant injection of funds,” he said.
According to Taylor, Atlas Public Policy’s analysis indicates that the domestic content requirements that may bar many or all of today’s passenger EVs from being eligible for tax credits do not apply to the new commercial EV tax credit, although he acknowledges that “there has been some debate here.” The text of the Inflation Reduction Act that lays out the tax credits for commercial EVs and other “commercial clean vehicles” is separate from that which defines the “clean vehicle credit” for passenger vehicles and does not contain the domestic-content provisions of the latter section.
JoAnn Covington, chief legal officer at Proterra, agreed that the new tax credits are an important boost for business. Proterra is the biggest U.S.-based maker of electric transit buses, but it also makes batteries and drivetrains for other vehicle manufacturers, as well as charging infrastructure for vehicle fleets.
Last year’s infrastructure law contained billions of dollars for the purchase of EV charging equipment and public-transit and school buses, she said. The Inflation Reduction Act “opens up opportunities to accelerate adoption of battery-electric and zero-emissions vehicles to all the other commercial segments on the cusp of being electrified.”
Beyond tax credits, the new law provides major new sources of funding for manufacturing medium- and heavy-duty EVs in the U.S., Covington noted. These include $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles, as well as the $20 billion in lending authority authorized for the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program.
ATVM, part of the Department of Energy’s Loan Programs Office, loaned billions of dollars to Ford, Nissan and Tesla between 2007 and 2010, and it has recently started lending to battery manufacturers and battery materials processing facilities. Last year’s infrastructure law expanded ATVM’s authority beyond light-duty vehicles to include heavy- and medium-duty commercial vehicles, and the Inflation Reduction Act made funding available to those categories, “which will open up avenues for more investment in domestic production,” Covington said.
OrangeEV raised $35 million earlier this year to scale its annual manufacturing capacity from 200 vehicles to up to 1,500 vehicles, Neutgens said. While the company hasn’t yet decided if it will seek federal assistance for that scale-up, it’s looking into its options, he added.
The Inflation Reduction Act will also offer manufacturing tax credits to batteries, battery materials and minerals made and processed in the U.S. This could help grow supplies for automakers struggling to meet the law’s domestic-content requirements for EV batteries that would make them eligible for tax credits. This comes in addition to last year’s infrastructure law, which could similarly drive investment in U.S. production of EV chargers with its $7.5 billion in grants to support EV charging along major transportation corridors and in communities.
Tritium, an Australia-based manufacturer of fast chargers, is building a factory in Tennessee expected to be capable of producing 10,000 chargers per year when it opens later this year. Those chargers will be compliant with federal Buy America provisions of the law’s EV charging grant program, said Mike Calise, Tritium’s president of Americas.
Adding the new tax credits for EV chargers in the Inflation Reduction Act to the grants available under the infrastructure law adds up to a powerful cost-reduction combination, he said. “What was previously potentially prohibitively expensive now becomes affordable.”
Jeff St. John is director of news and special projects at Canary Media.