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Important US tax credits will not be available for global automakers

Following the legislation's elimination of a significant tax credit for the production of electric vehicles, Audi, Porsche, and Kia claim that their US customers will pay more as a result of the Inflation Reduction Act.

The Inflation Reduction Act has drawn criticism from a number of automakers based in the EU and South Korea because it disqualifies electric vehicles built outside the US from a significant production tax credit that is typically passed on to consumers as well.

The proposed legislation also includes provisions to revoke tax credits based on the use of Chinese-origin critical minerals and battery components in the manufacture of electric vehicles.

The IRA's clause most likely discriminates against foreign-made cars and might even go against WTO regulations. Tax credits continue to be a key motivator for the adoption of net zero economies and the demand for electric vehicles.

According to reports from several US car dealerships, the IRA provision was implemented at a time when there is a growing demand for electric vehicles. However, this legislation may harm European auto exporters to the US market.

In a recent press conference held in Washington, DC, Miriam Garca Ferrer, spokesperson for trade and agriculture at the European Commission, stated, "We think it is a discriminatory law in that it is against foreign production in relation to US production."

Additionally, the US House of Representatives received a letter from the Korea Automobile Manufacturers Association (KAMA) requesting legal modifications to the tax incentives. US manufacturers of electric vehicles are still able to benefit from the IRA up to $7,500.

In its letter, KAMA asked that the list of vehicles that qualify for US tax credits under the bill include imports of electric vehicles that use batteries and battery components made or assembled in South Korea.

The bill does permit credits for customers with legally binding contracts for vehicles that have not yet been delivered, despite the worsening long-term outlook for US global automakers. This period ends with President Biden's signing of the legislation.

In a letter to its US auto dealers, Kia stated that, unless customers have written, legally binding contracts, all of its electric and plug-in vehicles will no longer qualify for tax credits once the bill is signed.

The business is advising auto dealers to tell waiting list clients to sign contracts before Biden signs in the upcoming days. According to the letter, the tax policy on electric vehicles is extremely disruptive to the industry as a whole.

A trade group called the Alliance for Automotive Innovation, which includes the Volkswagen Group, General Motors, Toyota, and Ford among its members, also declared last week that the law would disqualify 70% of the market's electric vehicles from the credit.

However, the removal of the $7,500 tax credit cap on buyers of electric vehicles could be a boon for regional US automakers. As a result, many automakers have already created long-term investment plans to build factories in southern US states where there are additional tax and labor benefits.

As production priorities shift to battery-powered appliances and electric vehicles, local automakers are also making sizable investments in Spring Hill and other towns near Detroit.

The biggest beneficiaries of the IRA legislation may be Ford Motors, General Motors, and Tesla. According to the Center for Automotive Research, the amount of investment by automakers in the southern US has increased more than seven times, from about $3 billion in 2020 to close to $23 billion in 2021.

There may be a number of counter-tax measures implemented in Europe and Asia as foreign automakers are priced out of the US due to access to tax credits for the production of electric vehicles and batteries. To combat the decline in business for several companies in the quickly expanding American market, nations may resort to unilateral measures.



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