Automakers and Suppliers Disagree Over US Government's Proposal to Limit EV Tax Credits

Automotive manufacturers are persuading the US government to reconsider a proposal limiting the tax incentives for electric vehicles (EVs). But to their surprise, Bloomberg reported that local suppliers oppose this request.

Issue with Tax Credit

The parameters of the $430 billion Inflation Reduction Act (IRA) should be modified, according to auto industry titans such as Ford and Toyota. The reason being is to allow manufacturers to acquire electric vehicle components from a wider variety of locations.

Beginning in 2024, under the recently passed legislation, electric vehicles whose batteries include material from a so-called "foreign entity of concern" will no longer be eligible for consumer tax credits. These materials, however, are essential to the mass deployment and production of EVs.

The mining businesses in the US that provide the car industry with raw materials disagree with the automakers' stance. They think the statute is justified since it encourages car manufacturers to buy from local suppliers.

The Business Competition

The gap between automakers and suppliers came to light when the US Internal Revenue Service (IRS) asked for public comments on the EV tax credit provisions in the new legislation.

The split decisions of two groups also exemplify the competing goals of businesses operating at various points along the supply chain concerning a contentious issue.

In recent years, there has been a significant rise in the use of EVs, partly due to consumer incentives that lower sticker costs while remaining much higher than those of gas-fueled cars.

Reactions from US Automakers

In comments to the IRS that were made public late on Thursday, Nov. 3, Ford encouraged the US government to exclude domestic suppliers from the foreign entity limits regardless of ownership. Additionally, it asked to allow most non-US corporations as long as 50% or less of ownership does not match the criteria of a foreign entity of concern.

Similarly, the Alliance for Automotive Innovation, a lobbying group representing automobile manufacturers like Ford, requested the IRS to completely reflect the complexity and structure of the battery supply chain while establishing guidelines. The group expressed a need for "flexible guidance," according to Bloomberg's report.

Toyota, for its part, argued that clearer standards were needed for production and sourcing. It added that Japan must be specifically mentioned as a country eligible for tax benefits.

"America's allies, most notably Japan, are at the core of America's strategy to address vulnerabilities in critical supply chains," the company stated in its letter to the US government on Friday.

Suppliers' Concern

The argument put out by US mining businesses is that broadening the definition of "domestic material" would open loopholes. If approved, automobile manufacturers may purchase crucial components, for example, nickel from Russia or rare earths from China.

"To allow non-US raw material to be included would create outcomes that were clearly not intended by Congress," said the MiningMinnesota, representing firms in the state.

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Written by Trisha Kae Andrada