US moves to appease allies on EV subsidies
Electric vehicles assembled outside North America could qualify for subsidies if purchased for lease
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The Biden administration on Thursday signaled its willingness to address some of the concerns expressed by European and Asian allies over a new U.S. tax credit program for electric vehicles.
The program requires all vehicles to be assembled in North America to qualify for consumer tax credits, but the Treasury Department released documents paving the way for some vehicles assembled overseas to qualify for incentives through a separate commercial EV scheme if they are purchased for lease by businesses, not for resale.
The documents were released to clarify which vehicles will qualify for the program that provides up to $7,500 per vehicle in tax incentives under the Inflation Reduction Act. According to one document, which the Treasury Department released in question-answer format, the commercial EV program also provides $7,500 in tax credits for cars and SUVs.
The Kia EV6 is seen on display at the New York International Auto Show at the Jacob K. Javits Convention Center on April 15, 2022 in New York City. South Korea, where KIA manufactures the EV6, is among the countries contending that U.S. requirements (Michael M. Santiago/Getty Images / Getty Images)
The European Union, South Korea, Japan and the U.K. have complained that the local-vehicle assembly and battery-content requirements discriminated against their companies and that they might violate international trade rules. Most EVs from foreign manufacturers don’t qualify for the consumer tax credit as they are assembled overseas.
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The number of North American-built vehicles eligible for tax credits will increase significantly after Jan. 1. The new program replaces a previous scheme that provided up to $7,500 for electric or plug-in hybrid vehicles as long as the manufacturer hadn’t sold more than 200,000 vehicles. Under the new program, the cap will be lifted, allowing vehicles from top U.S. EV manufacturers, including Tesla Inc. and General Motors Co., to qualify for incentives again.
Sen. Joe Manchin (D., W.Va.), an author of the Inflation Reduction Act, criticized the latest announcement, saying the Treasury Department’s interpretation "bends to the desire of the companies looking for loopholes and is clearly inconsistent with the intent of the law." He urged the department to pause the implementation of the program until the department issues guidance that reflects the law’s intent.
Sen. Joe Manchin, D-W.Va., speaks to reporters outside the West Wing of the White House in Washington, Tuesday, Aug. 16, 2022, after President Joe Biden signed the Democrats' Inflation Act. (AP Photo/Andrew Harnik / AP Newsroom)
The law, Mr. Manchin said, intends to "bring our energy and manufacturing supply chains onshore to protect our national security, reduce our dependence on foreign adversaries and create jobs right here in the United States."
The Alliance for Automotive Innovation, a top U.S. lobbying group for the industry, said the new guidelines represented a positive development for broad adoption of EVs in the U.S. Auto makers including Rivian Automotive Inc. and Bayerische Motoren Werke AG (BMW) said they were reviewing the guidance.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| RIVN | RIVIAN AUTOMOTIVE INC. | 10.06 | -0.25 | -2.42% |
| BMWYY | NO DATA AVAILABLE | - | - | - |
In addition to the local assembly rule, the new program requires EVs to have at least 40% of their critical minerals for batteries sourced in the U.S. or countries that have free-trade agreements with the U.S., starting in 2023. That threshold is set to rise to 80% by 2026.
At least 50% of the parts and components in the batteries also must be manufactured or assembled in North America by 2024, with that percentage rising gradually to 100% by 2028.
The Treasury Department also suggested it might expand the list of countries eligible for the critical minerals requirement, an issue that has particularly irked allies, such as the EU and Japan, that don’t have traditional free-trade agreements with the U.S.
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One of the documents released Thursday pointed out that because the legislation doesn’t define what a free-trade agreement is, the Treasury Department might consider other types of trade agreements to expand the eligibility. The department didn’t provide examples of such agreements, but trade lawyers have suggested that the 2019 bilateral trade agreement with Japan and the World Trade Organization’s government procurement agreement could be candidates.
Following a meeting with French President Emmanuel Macron in early December, President Biden said the U.S. could offer what he called tweaks to the program to make it easier for European countries to participate.
President Joe Biden listens as French President Emmanuel Macron speaks before a toast during a State Dinner on the South Lawn of the White House in Washington, Thursday, Dec. 1, 2022. (AP Photo/Andrew Harnik / AP Newsroom)
The final decision on the critical minerals requirement won’t be available until the Treasury Department proposes rules on battery contents in March. The department said last week it would delay the issuance of the battery-content rules, while allowing other aspects of the program to go into effect on Jan. 1 as scheduled.
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Once the battery rules are issued, many, if not all, North American-built vehicles eligible for the full $7,500 credit on Jan. 1 are expected to see the incentive amount decrease because of high hurdles imposed by the critical minerals requirement.