As it exists, 15 electric vehicles are now eligible for the full Inflation Reduction Act tax credit is $7,500, because they went through final assembly in the United States. Those automakers with qualified vehicles – mostly American – are certainly breathing a sigh of relief right now. The rest of a lot of people are angry, and arguably have good reason to do so. Hyundai is one of them.
Hyundai Chairman Chung Eui-sun began a trip to Washington this week to urge the Biden administration to review the new criteria. Hyundai has moved quickly into electric vehicles, with some of the most attractive and accessible offerings on the market – especially Ioniq 5 and Kia EV6. Hyundai has also invested billions of dollars in American electric vehicle production, but the problem is that those facilities won’t be ready for several years. The Korean auto giant will temporarily lose serious market share to rivals.
The country’s trade officials and auto industry players are expressing their displeasure. Follow Financial Times:
“After the implementation of the Inflation Reduction Act, Korean electric vehicles immediately do not enjoy US tax incentives. . . and it could have a major impact on electric vehicle exports from South Korea,” said a statement from the Korea Automobile Industry Alliance, which represents companies including Hyundai.
The trade group wants electric vehicles made in Korea to receive “the same incentives” as electric cars made in the US, Canada and Mexico.
On Monday, South Korea’s Trade, Industry and Energy Minister Lee Chang-yang said “the move is most likely in violation of WTO rules as well as the Korea-US free trade agreement.”
“We are actively considering whether to take the case to the WTO or not,” added Lee. “We are conveying our concerns to the US through various channels and will be sending a senior trade executive to the country next week to confirm US intentions.”
Currently, final assembly in the US is all that is needed for automakers and consumers to make those subsidies, but that will change starting in 2024. At the time, 60% of battery components had to be manufactured or assembled in North America. That percentage is expected to increase in the following years, reaching 100% by 2029.
It is interesting to note how different manufacturers deal with this problem. Despite General Motors’ objections, it’s considered one of the lucky ones in this scenario, as it sells some already built EVs right here. GM also passed the old 200,000 vehicle limit in December 2018, so this will mark the first time that models like Flash can be had with a sizable federal discount over many years.
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Toyota, by contrast, also recently triggered the phase out, but doesn’t have any U.S.-built EVs at the moment. It was slow to deliver its first volume battery-electric car, the BZ4Xand waste all its previous credits on plug-in hybrids. Toyota is breaking even, for now.
Tesla is in a similar boat for different reasons. While the automaker makes its entire range for North America in the US and has long crossed the 200,000-vehicle threshold, many of its models are too expensive to match the new bill’s MSRP limit taking effect next year – $55,000. for sedans and $80,000 for SUVs.
But Hyundai is in a particularly difficult position. At the right time, the company has made a big splash with EVs with models that are getting very good reviews and proposed large-scale tax cuts, the federal government turned everything upside down. Financial Times note that Korea will generally win big due to the changing criteria – SK Innovation and LG Energy Solution are already operating or planning to build battery plants in the United States in the coming years. But the best Hyundai can hope for at the moment is the exit of the Biden Administration. Again, from Financial Times:
“For Hyundai, it’s a call to action: if you want to qualify for government subsidies, then do your best in America and do it now,” said Tim Bush, a analyst at UBS in Seoul said.
He added that Hyundai is probably looking to “abandon” the rules while they still exist. “As long as they invest [in the US] and it is likely that their production will scale, most likely an accommodation will be created. “
