Congress appears close to passing a long-awaited extension—and expansion—of the federal EV tax credit.

Legislation containing the expanded tax credit is on the verge of being passed by the Senate, after a deal was struck between Majority Leader Chuck Schumer and Senator Joe Manchin, who has opposed most of his party's agenda. If passed by the Senate, the measure would still need to survive a vote in the House of Representatives to be enacted.

Part of a $369 billion package of bills addressing climate and energy policy, the legislation extends the current $7,500 EV tax credit and adds a new $4,000 credit for used cars—but with several conditions.

To be eligible, vehicles will need batteries with raw materials extracted or processed in a country with which the United States has a free-trade agreement, and battery packs must have a large amount of components sourced from North America.

The legislation also introduces price caps of $55,000 for new cars and $80,000 for pickup trucks and SUVs, as well as income caps for buyers. For new vehicles, those caps are $150,000 for single-filing taxpayers and $300,000 for joint filers. For used cars, the caps are lowered to $75,000 for single filers and $150,000 for joint filers. But the legislation also allows taxpayers to receive credits at the point of sale.

The latter could be a game-changer. U.S. buyers prefer point-of-sale rebates by a wide margin, and would even take a lower one versus a tax credit they need to wait for, a recent survey found.

2023 Toyota bZ4X Limited AWD

The revised tax credit would also scrap the 200,000-unit cap that currently triggers a phaseout of eligibility for automakers, and which several manufacturers have already exceeded. Toyota hit the 200,000 cap one calendar quarter sooner than it had previously expected—which gave the situation a little more urgency.

Chances were looking slim for an EV tax credit extension for a long stretch, but since dropping a bonus for union-made vehicles it appears to have more support—perhaps most importantly, from Manchin. That was after automakers rallied to revive the effort in June.

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