Biden’s EV subsidies are creating winners and some seriously sore losers at home and abroad

Japan’s Honda and South Korea’s LG have together earmarked upwards of $4 billion to build a battery factory in Ohio, which will employ 2,200 people.

The multibillion-dollar big push comes mere months after president Joe Biden announced electric vehicles (EV) incentives that make manufacturing in the US more attractive than ever. Among other things, the Inflation Reduction Act (IRA) gives buyers access to $7,500 in tax credit for new vehicles, as long as it satisfies these key criteria:

🔋 A vehicle’s battery components are manufactured or assembled in North America

💎 A vehicle uses critical minerals that were extracted or processed in the US or countries with which the US has a free trade agreement, or uses critical minerals that were recycled in North America

🏗️ The final assembly must take place in North America.

The IRA’s focus on ramping up production in the US is largely meant as a disincentive for sourcing critical parts and materials from one country—you guessed it, China.

For instance, when the IRA specifies that no EV made after 2024 can be powered by a battery with critical minerals that are “extracted, processed, or recycled by a foreign entity of concern,” they’re pointedly targeting the Asian manufacturing powerhouse, which controls 80% of global lithium refining needed to power EV batteries.

While more local manufacturing is great news for made-in-America EVs, there are clear losers on all sides. Effectively, the IRA’s subsidies will elude automakers who source raw materials from China, or assemble their vehicles outside US borders, or both. As a consequence, their products risk becoming uncompetitive.

The whole world is worked up about the IRA

🇨🇳 China took issue, obviously. The country’s ministry of commerce, while threatening retaliatory action, said the IRA “discriminates against similar imported goods and is a suspected breach of the World Trade Organization principles,” according to Bloomberg.

But it wasn’t the only country that was miffed. Several EV industries in other nations worry about becoming collateral damage.

🇰🇷 South Korea views the rule as a “betrayal” to its companies like Hyundai and Kia. The Korean Confederation of Trade Unions labeled the measures “unilateral” and “US-centric.” President Yoon Suk-yeol has relayed his concerns about it to Biden more than once.

🇯🇵 Japan’s carmakers who don’t manufacture in the US would also not fit the bill for EV tax credits. A Japanese lobby has expressed its worry about the inequitable incentivization.

🇩🇪 Automakers from Germany, like Porsche and Volkswagen, would no longer be eligible for the credits either.

🇪🇺 Over the European Union, there’s growing alarm that the law could drive European firms to move production to the US. The IRA is giving Americans “an unbalanced subsidy,” Margrethe Vestager, the EU’s top competition enforcer, told the Financial Times.

🇬🇧 The UK and 🇸🇪Sweden too, worry companies could move across the Atlantic, taking coveted manufacturing jobs with them.

Quotable

“We have not sworn off market opening, liberalization, and efficiency. But it cannot come at the cost of further weakening our supply chains, exacerbating high-risk reliances, decimating our manufacturing communities, and destroying our planet. The need for correction is clear, and industrial policy is a part of that re-balancing effort.” —US trade representative Katherine Tai

Manufacturing—and jobs–are moving to the US

Companies in and outside the US are finding ways to milk the incentives. To name a few,

But of course, these plans do nothing to allay the fears of losing manufacturing jobs in other regions—they only add to them.

Working-level staff from several of countries’ embassies to the US met to work together on tackling the rule change, Korean publication Hankyoreh reported in early September. South Korean Trade Minister Ahn Duk-geun said the country will explore “forms of intergovernmental cooperation on matters such as taking various legal procedures” with Europe and Japan if necessary.

Fewer EVs eligible overall

While the narrow manufacturing criteria hurts EVs made outside the US, other parts of the IRA are alarming for foreign and local producers alike. It squeezes the eligible buyer pool, according to Fitch ratings:

💸 Single filers who make <$150,000 per year or joint filers with household incomes <$300,000

🚦 Passenger cars that cost <$55,000, and trucks, SUVs, and vans that cost <$80,000.

🚗 Some used EVs will be eligible for a $4,000 tax, which could cut into sales of new ones.

By the digits

$7.5 billion: Biden’s 2021 Bipartisan Infrastructure Law to build out a national network of 500,000 EV charging stations across the US. Of that funding, $900 million was allocated to build a network of EV chargers in 35 states in September

5%: EV market share milestone the US crossed in July, considereda tipping point before rapid growth

$50 billion: Ford’s planned spending on expanding EV plans through 2026

$35 billion: General Motors’ planned spending on its EV business through 2025

30%: less labor required to build EVs versus internal combustion engine cars, as per Volkswagen

6,000: EV fast-charging stations across the US

41,000: EV charging stations of all kinds

70%: share of EV models US automakers say won’t qualify for the bill

Another crack in the US EV revolution

As automakers worry about the US green vehicle movement leaving some of them behind, so do citizens.

Consider the case of Indiana. The National Association for the Advancement of Colored People (NAACP) has complained that the state’s draft plan for the rollout of EV chargers ignores people of color––it doesn’t designate any chargers in Black-owned businesses and the new infrastructure is focused on highways that cut through neighborhoods, rather than the neighborhoods themselves.

“We want the economic benefits of these chargers too, the modernized grids so we don’t have so many power outages, to get our school buses off diesel,” Denise Abdul-Rahman, Indiana state chair for the NAACP’s environmental justice program, told the Guardian. “We don’t want two Indianas and two Americas, one with roundabouts and clean air and charging stations and another riding around in fossil fuel cars and breathing in all the pollution. We want a just transition.”