Joe Biden plans to sign a new law on tax credits for electric vehicles on Tuesday, August 16. The new rules are stricter. And now they benefit cars built on American soil. Thus, this new law should deal a serious blow to European manufacturers who export their products to the American market.
New electric vehicle law in the US
President Biden wanted to re-energize the energy transition. The day after his election, the Democratic president launched a major climate and clean energy plan. After more than a year of negotiations, the US Senate finally voted on the bill on Sunday, August 14th.
Part of the new law concerns a tax credit for electric vehicles in the United States. This is part of the inflation control strategy. And the new law gives consumers in the US an additional benefit of up to $7,500. But one condition is being discussed: to be eligible, the electric vehicle must be manufactured on American soil.
And country of origin is not the only problematic criterion. From January 1, 2023, the new law will also include other parameters, such as the origin of battery components. The White House wants to better regulate the origin of some of the key minerals whose production has become an environmental as well as economic issue.
“Discriminatory” law according to the European Union
From the EU side, the new law is going badly. Many European manufacturers rely on the US electric vehicle market. And the new conditions for obtaining a tax credit will serve them in many ways. Audi has already said that only one of its vehicles can meet the new criteria.
Something worries the European Commission. His press secretary, Miriam Garcia-Ferrer, made no secret of her concern. “The European Union is extremely concerned about this bill affecting transatlantic trade. We believe that this discriminates against foreign builders compared to American ones.”
Concern also for US manufacturers
And American automakers are also unhappy with the new law. Major manufacturer group The Alliance for Automative Innovation estimates that 70% of electric, plug-in hybrid or fuel cell vehicles currently sold in the US market will not meet the new criteria. So, without the tax credit, their sales are likely to drop significantly.
John Bozzella, group president, has already presented an alternative. He wants the origin criteria for battery components to include more manufacturing countries. According to him, the United States could accept states that have signed collective defense treaties with the United States. He specifically mentioned the NATO countries and even Japan. Such a track would be more profitable for European manufacturers.
New: Incentive for Used Electric Vehicles
The other part of the new law that is making automakers cringe concerns used cars. A new Democrat law provides a tax credit for used electric vehicles. US households looking to buy a used car will be able to take advantage of a $4,000 tax credit.
This financial assistance should give a welcome boost to the used electric vehicle market that is starting to take off in the United States. But by making used electric vehicles even more competitive at purchase price, new vehicles could also face a slowdown in sales.