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Toyota Motor Corp. is getting closer to using up a key U.S. tax credit for hybrid and electric vehicles, a situation company leaders say will raise its costs and hinder the adoption of climate-friendly cars.

The law currently allows automakers to offer a $7,500 tax credit to buyers of fully or partly electric cars, but caps that credit at 200,000 vehicles per company. Toyota sold 183,000 fully or partially electric vehicles by the end of 2021 and the company reported sales of another 8,421 plug-in hybrid and electric cars in the first quarter, according BloombergNEF.   

The Japanese manufacturer will become the third manufacturer to hit the limit, General Motors and Tesla already maxed out on these credits.   

Automakers are now lobbying for an extension of the cap. Toyota and Tesla have vocally opposed an effort by the Biden administration to offer an additional $4,500 in credits to unionized carmakers, a position favored by GM, Ford Motor Co. and Stellantis.  

Absent Congressional action, Toyota must halve the value of its credits every six months until hitting zero. This phase-out process begins two quarters after the automaker reaches the cap. At the current pace of sales, Toyota could run out of credits for car buyers as soon as next October. That would mean the automaker would need to reduce its tax credits to $3,750 as of Jan. 1, 2023.