More Electric Vehicles Could Soon Qualify For Tax Credits

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The Affordable Electric Vehicles for America Act is gaining traction, but there are still hurdles to overcome.

The Inflation Reduction Act passed in August has been a massive boost for the US economy, but it's also caused a lot of friction with America's trade partners, many of which feel that it is discriminatory and even illegal. A number of nations have pointed out that it is unfair for the US to impose what is essentially a tax on EVs produced outside of the US when American-made cars like the Tesla Model Y do not face the same restrictions in Europe.

In an effort to placate at least some international manufacturers, the Affordable Electric Vehicles for America Act was brought forward last month. This act would delay many of the requirements for an EV to gain access to tax credits and thereby allow more vehicles to qualify. And it could well pass, but will it? Thanks to the support of more Senators, it may.

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The new Act aims to delay the phase-in of the EV sourcing and manufacturing requirements from 2023 to 2026, which would give local and international automakers more time to ramp up local production and sourcing.

"The Affordable Electric Vehicles for America Act will lower costs and provide consumers more options when purchasing an electric vehicle while also supporting good-paying jobs across Georgia and our country," said Senator Reverend Warnock. "I'm focused squarely on helping car buyers save money and helping car manufacturers who do business in our state thrive. That's why I'm pleased to partner with Representatives Sewell and Cleaver to get this bill over the finish line."

Thanks to the restrictions of the IRA, Hyundai had to speed up its plans for a Georgian vehicle manufacturing plant so that the Ioniq 5 can still qualify for credits from next year, but with the AEVAA, this project will become less urgent, and other automakers will be able to take advantage too.

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That's all good and well, but there are other areas of the IRA that are still facing opposition. According to a report from Bloomberg, automakers are facing resistance to the act from their own suppliers. Companies like Ford and Toyota want the Act to be loosened to allow manufacturers to source EV components from more places; under the current legislation, batteries containing material from a so-called "foreign entity of concern" will make an EV ineligible for credits from 2024. An example of a "foreign entity of concern" is China, and the IRA was created in an effort to reduce America's reliance on the nation. But is this possible?

"The US cannot afford to outsource extraction and processing of hardrock minerals to foreign rivals," said the National Mining Association, adding, "China is home to more than 75% of the world's battery manufacturing capacity, and that dominance is built upon unrivaled control of mineral supply chains."

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Compounding the challenges here is that the South Korean government sent an official letter to the US regarding the IRA on Friday, once again noting that the IRA's rules may interfere with multilateral trade agreements that the US has signed as part of the World Trade Organization. According to Korea Times, the government there has been preparing legal arguments over the act and has hired a domestic law firm and an international one to file complaints with the WTO over the Korea-US Free Trade Agreement.

However, Korea's Industry Minister, Lee Chang-yang, recently noted that bilateral talks are where it is focusing, and these will be its chief interface for resolving concerns, with legal action remaining "a last resort."

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According to the White House, around $85 billion has been invested in EVs, batteries, and charging since 2021. If it can find a way to placate foreign automakers while simultaneously boosting local manufacturing, then that figure is only set to increase. The only question now is whether the Affordable Electric Vehicles for America Act will be passed. The midterm elections are fiercely contested, and the left and right will continue to be at each other's throats for some time.

And if you're wondering if an expensive EV will qualify for credits under the AEVAA, the answer is no. The delay of manufacturing and sourcing requirements is all that the Act aims to change as it looks to make EVs more accessible for working and middle-class Americans, so forget about getting a six-figure EV at a discount.

We'll continue to monitor this story as it develops.

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