Upon enacting the Inflation Reduction Act in the recent month, the electric vehicle tax incentive is undergoing a crucial overhaul that will revolutionize the purchasing process of battery-operated vehicles for Americans. However, this transition has stirred up a mix of sentiments, predominantly revolving around confusion and exasperation among new vehicle buyers trying to comprehend the new regulations.
Nevertheless, there seems to be growing resentment from car manufacturers, suppliers, and other nations towards the updated mandates. Nations like South Korea are starting to argue that the freshly imposed tax credit regulations verge on protectionist requirements from past eras that grant local automakers an unfair advantage in the market.
via Hyundai
The South Korean Minister of Foreign Affairs, Park Jin, engaged in discussions with U.S. Secretary of State Antony Blinken last week regarding this issue, as reported by Korea Times. During the meeting, Park allegedly conveyed to Blinken the concerns expressed by automakers and their suppliers over the new regulations putting Korean companies at a drawback compared to domestic automakers who might be better equipped to comply with the tax credit prerequisites.
For a vehicle to qualify for the new EV tax incentive, it must be manufactured in North America as a primary requirement. The criteria also include specific material sourcing regulations for the vehicle’s battery pack, encompassing both mineral and non-mineral components. A certain proportion of these resources should originate from the U.S. or a nation with which the U.S. maintains a free trade treaty, and this proportion escalates over time. Moreover, if a mineral is procured or processed in a country of particular concern such as China, the vehicle becomes ineligible for the tax credit instantly, irrespective of being assembled in North America and fulfilling other sourcing requirements. According to Reuters, roughly 58% of lithium, 64% of cobalt, and 70% of graphite are sourced from or processed through China.
Park reportedly urged Blinken for a more lenient implementation of the EV tax credit. The South Korean minister also highlighted that the Inflation Reduction Act could potentially breach the U.S.-Korea Free Trade Agreement and other regulations overseen by the World Trade Organization. Additionally, a spokesperson from the European Commission criticized the Act for being “discriminatory” towards international manufacturers and suppliers.
In the immediate future, automakers are contemplating the necessity to revise production strategies to hasten the enhancement of their production facilities on American soil. For instance, Hyundai is slated to inaugurate a colossal $5.5 billion plant in 2025, though it might need to alter that schedule to retain competitiveness. Similarly, Korean battery manufacturers—like LG, Samsung, and SK—might need to reconfigure their mineral procurement and processing facilities to remain compliant.
It is crucial to note that this predicament isn’t solely tied to South Korea; however, the South Korean government seems to be one of the most vocal critics. Local automakers might also need to reorganize their supply chains to secure or achieve eligibility for the tax credit, a move that will inevitably impact global supply chains and non-Korean battery producers alike. As it currently stands, companies looking to capitalize on a portion of the consumer’s tax credit before its 2032 expiration need to act promptly.
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