Treasury Signals Opening for Foreign Carmakers on EV Subsidy
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The U.S. Treasury Department signaled some imported cars will qualify for electric vehicle tax credits in the Inflation Reduction Act, a move that could assuage Asian and European allies’ concerns about the sweeping climate legislation.
The Treasury sketched out its interpretation of content requirements for electric vehicle tax credits Dec. 29, while delaying final rules until March so officials have more time to address the complexities of the law.
In a list of frequently asked questions, Treasury officials indicated that imported vehicles may qualify for a $7,500 consumer tax credit by leasing cars through a commercial EV clause in the law. Such a move could help foreign carmakers such as Hyundai Motor Co., which has complained that its electric models were excluded from the subsidy because it doesn’t currently manufacture them in North America.
Sen. Joe Manchin (D-W.Va.), who provided Democrats a pivotal vote on the legislation, fought to include new limits on who could claim the tax credits, which he previously dismissed as “ludicrous.” He argued that without tough rules mandating manufacturing in the US and rules on content, the act would subsidize production in China and by other U.S. adversaries.
The legislation, which provided a record $370 billion in spending to combat climate change, passed on a party-line vote.
Interpretation ‘Inconsistent’
In a statement Dec. 29, Manchin criticized the Treasury’s interpretation, and urged officials to pause implementation of the commercial electric vehicle clause.
Manchin
The take “bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law,” he said. “It only serves to weaken our ability to become a more energy-secure nation.”
Manchin’s content rules require that in order to qualify for the full $7,500 consumer tax credit, 40% of raw materials in an EV battery must be extracted and processed in countries that have a free-trade agreement with the U.S., and 50% of battery components must be made in North America, with the percentages increasing over time.
Hyundai and the Korean government aggressively lobbied the Biden administration to take a broader interpretation of the law’s commercial-vehicle clause, which allows vehicles to qualify for the $7,500 tax credit without meeting the strict content requirements on batteries and critical minerals that apply to vehicles sold at retail.
Hyundai didn’t immediately respond to a request for comment on the Treasury’s interpretation.
‘No Surprise’
Manchin has little grounds to complain about the Treasury’s reading of the law with regard to leased cars, said James Lucier, managing director of research firm Capital Alpha Partners.
“This is what happens when legislation does not go through regular order and you don’t have a committee looking at all the provisions,” he said.
The bill was largely crafted behind closed doors and at high speed between Manchin and Senate Majority Leader Chuck Schumer (D-N.Y.).
“It sounds like the Treasury guidance is doing exactly what the bill said and should come as no surprise,” Lucier said.
Treasury officials also outlined the process for carmakers to comply with the act’s content requirements on critical minerals and battery components. These may limit automakers’ eligibility for the full tax credit, but only once they go into effect in March.
Until then, existing rules that grant tax credits based on the size of an EV battery will apply. Cars will still be required to be assembled in North America to qualify, and be subject to price and income thresholds as prescribed by the act, a Treasury official said.
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That means automakers like General Motors Co. and Tesla Inc., which had reached a 200,000-unit cap on eligible EV sales under previous IRS rules, could enjoy an extension of the full credit on vehicles assembled in North America come Jan. 1 — until final rules are proposed in March.
GM and Tesla didn’t immediately respond to requests for comment.
Credit Limits
The auto industry has lobbied to loosen Manchin’s content requirements, saying the new provisions are too stringent for manufacturers to meet.
Also watching closely are governments whose EV industries appear locked out of some subsidies because they only apply to producers in North America.
European Union leaders — including French President Emmanuel Macron during a December visit to the White House — have complained that the legislation will damage EU industry already suffering from high energy costs due partly to the war in Ukraine.
Other critics include South Korea — home to the Hyundai and Kia Corp. car brands — as well as Argentina, the world’s fastest-growing producer of lithium, a critical battery material.
Mineral Suppliers
Treasury officials hinted that more countries that produce the minerals critical to battery production may be added as eligible suppliers under the law before the final rules are published in March.
“Treasury and the IRS expect to propose that the secretary may identify additional free-trade agreements for purposes of the critical-minerals requirement going forward,” officials said in the document. They “will evaluate any newly negotiated agreements for proposed inclusion during the pendency of the rulemaking process or inclusion after finalization of the rulemaking.”
To give car buyers more clarity, the administration published a list of vehicles automakers have indicated will be eligible for the tax credit on Jan. 1. The list will grow as carmakers submit eligibility data, an official said. It’s also created a website where consumers and dealers can enter a vehicle identification number to determine eligibility.
— With assistance from William Wilkes.
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