Honda and Kia and Polestar, 2024. Hyundai and Toyota, 2025.
Those are likely the earliest years that these foreign automakers will be able to offer electric vehicles with the aid of a hefty federal tax credit — and it could be longer. In the meantime, they are left to fret that their customers will wander off to competitors that can sell EVs at a lower price.
The winners of those wanderers are likely to be America’s homegrown automakers, a migration that could shape the pace of EV adoption and which companies dominate, considering that almost half of vehicles made in the United States currently are from foreign automakers.
Earlier this week, the Treasury Department published a list of the 14 EVs that can snare the tax credit, which carries a value up to $7,500. All of the qualifying automakers were American, specifically General Motors Co., Ford Motor Co. and Tesla Inc.
One foreign automaker may be joining them. On Tuesday, Volkswagen Group of America, the subsidiary of the German auto giant, said it “has submitted documentation to the IRS” to have its sole EV in the United States, the ID.4, qualify for the full credit.
The reason behind the diverging trajectories for foreign and domestic manufacturers is simple: U.S.-based automakers started sooner than foreign rivals in assembling EVs and building their supply chains in this country. The others are racing to catch up.
Automakers that won the credit did so by assuring the federal government that components of their batteries are sourced in North America, or that they acquired the critical materials for the battery from the United States or its allies. Each of those two requirements earn an automaker half of the $7,500 tax credit. The details of how the American companies met these rules are considered trade secrets. Both credits are based on content percentages that escalate each year.
The broad strokes of why some automakers qualified are obvious. GM, for example, is already producing batteries from Ultium Cells LLC, its partnership with battery maker LG Chem Ltd. Tesla has been making its own batteries domestically for years.
Foreigners’ hard path
Automakers from abroad have a longer road to add EVs to their existing American industrial base.
Hyundai Motor Co., for example, is spending more than $10 billion to build both an EV auto plant and a battery factory in Georgia, but the combination isn’t expected to produce vehicles until the first half of 2025. That same year, Toyota Motor Corp. says it will start producing EVs in Kentucky.
Other manufacturers can be a bit more nimble. South Korea’s Kia Corp.; Japan’s Honda Motor Co. Ltd.; and Polestar, a Swedish-Chinese joint venture, all say they will produce vehicles from their plants in the U.S. Southeast by next year. German automakers Mercedes-Benz and BMW haven’t set firm timelines.
Volkswagen is better-positioned than most foreign carmakers, as it broke ground on an EV production plant in Tennessee in 2019 and started producing vehicles last summer.
The tax credit opportunity also is blurry for foreign carmakers because key details of the program are yet to be determined.
Significant questions remain over what countries and suppliers are allowed under the federal government’s tax scheme. For example, it’s unclear whether the United States will strike a trade partnership with Indonesia — which would greenlight a flood of critical minerals — and what the exact rules are around trade relations with China (Energywire, March 24).
“We don’t know what countries are going to be cool,” said a spokesperson for an automaker who asked for anonymity to speak frankly. “And we don’t know what countries aren’t going to be cool.”
The tax credits are part of the landmark Inflation Reduction Act, which Congress passed last summer. The auto provisions were designed to encourage the industry to grow their EV battery supply chains in the United States or in allied countries, and away from China, which today assembles and makes the parts for most of the globe’s EV batteries.
The challenges of examining supply chains to meet the tax-credit rules have tripped up even automakers like Nissan Motor Co. Ltd., the Japanese automaker that has been building one of America’s first mass-market EVs, the Leaf, since 2011.
“Although the Nissan LEAF is assembled in Tennessee, Nissan has not yet been able to certify that it meets new battery component and critical mineral requirements,” the company said in an emailed statement. “We are working closely with our suppliers and are hopeful that LEAF will qualify for at least partial credit in the future.”
Hurry up, slow down
Competing pressures could cause foreign carmakers to build EVs and get the tax credit sooner, or later.
On the one hand, automakers often fall short of their original schedules for producing EVs because of the challenges inherent to producing a whole new kind of car. On the other, the tax credits create a powerful incentive to hurry.
“I don’t think it will be years” before foreign automakers begin checking the regulatory boxes so they can offer the EV tax credit, said Joel Levin, the executive director of Plug In America, a nonprofit EV advocacy group.
“I think it will be a year,” he added. “Call us back in six months, you might find there’s a lot of new vehicles that qualify.”
In the meantime, it is unclear how this jagged landscape of tax credits will affect the car-buying habits of Americans, who have an affinity for foreign auto brands, from luxury German models to reliable and affordable Japanese cars.
Last year, just under 45 percent of vehicles made in the United States were from foreign automakers, according to figures compiled by Autos Drive America, a trade group for foreign automakers that make vehicles in the United States. That’s down from 47 percent a year earlier.
But it is apparent that the EV era is fraying the bonds that tie automaker to driver.
Automakers first out of the gate to offer EVs, such as GM, Ford and Kia, have seen many of those bought by customers new to the brand. These switches, known in the auto industry as “conquests,” are important because brand loyalty results in repeat sales.
Blunting the impact
Two factors could diminish the urgency of the foreign automakers’ waiting time: the vehicles’ price and how the customer acquires it.
Several foreign brands offer mostly upmarket vehicles that are priced too high to qualify for the tax breaks. The credits are subject to sticker prices of $55,000 for cars and $80,000 for trucks and SUVs.
Automakers that mostly exceed those limits include German marques like BMW, Mercedes and Audi AG, along with upscale divisions of Asian automakers, like Lexus, Infiniti and Genesis. Both BMW and Mercedes are spending heavily to build auto plants, but their first EVs will be luxury models that sit above the price caps.
The other factor is a tax loophole for leased vehicles. None of the critical mineral, battery assembly or price caps apply to vehicles that are acquired by lease.
This is a factor that is quickly changing the behavior of foreign automakers.
Hyundai, for example, is directed many more of its EV customers to leases. In 2022, only 5.5 percent of the automaker’s U.S. customers opted for a lease; in the first quarter of this year, that rose to 12.5 percent, according to Automotive News.
The use of leasing to avoid stringent sourcing requirements has raised the ire of Sen. Joe Manchin (D-W.Va.), who co-authored the Inflation Reduction Act. He has accused the Biden administration of moving away from the bill’s intent as it fills in the gray areas.