Soothing US Allies... IRA Subsidies Also Support 'Lease Use' of Korean Electric Cars

[Asia Economy New York=Special Correspondent Jo Seulgina] The Biden administration in the United States has decided to provide subsidies for Korean-made electric vehicles (EVs) excluded from the Inflation Reduction Act (IRA) support list when sold commercially, such as through leasing. This move is seen as an effort to appease so-called 'allied countries' following backlash from key allies in Asia and Europe over the law that grants benefits only to North American-made EVs.

[Image source=Yonhap News]

On the 29th (local time), the U.S. Treasury Department released additional guidelines regarding the EV tax credit provisions of the Inflation Reduction Act and clarified the definition of EVs eligible for the tax credit through a Frequently Asked Questions (FAQ) document.

The Treasury defined commercial EVs eligible for the tax credit as "vehicles purchased by taxpayers for direct use or leasing, not for resale," regardless of North American final assembly requirements. This definition includes EVs purchased by leasing companies for business use. However, the Treasury excluded vehicles from the tax credit if they are considered effectively sold, such as in cases of 'long-term leases' or leases with an option to purchase the vehicle at a discounted price after the lease ends.

According to these guidelines, commercial EVs manufactured by companies like Hyundai and Kia in Korea and exported to the U.S. can now enjoy the tax credit and compete on equal footing with other companies. The Inflation Reduction Act, which provides up to $7,500 in tax credits to EV buyers, had limited eligibility to North American-made vehicles. Consequently, the Korean government had been requesting the U.S. government to include commercial vehicles from domestic manufacturers in the support scope.

The Wall Street Journal (WSJ) evaluated that "the Biden administration has shown willingness to address concerns expressed by European and Asian allies." It suggested that the administration is attempting to appease allies worried about aligning with various international issues. Earlier, after protests from major allies and explicit criticism of the law by French President Emmanuel Macron during his state visit to the U.S., President Biden indicated a plan to adjust the law, stating, "There are some defects in the law that need to be amended."

Regarding this, Senator Joe Manchin, who led the enactment of the Inflation Reduction Act, criticized, saying, "It clearly contradicts the intent of the law," and accused the administration of "yielding to demands from companies exploiting loopholes." He had previously sent a letter to the Treasury Department arguing that subsidies should not be given to rental, leased, or shared EVs.

However, the most significant issue?the 'North American final assembly' requirement?remains intact. Detailed regulations related to this were not disclosed this time. The Korean government has requested the U.S. government to either relax the definition of North American final assembly or postpone the enforcement of this rule for three years so that Hyundai, which is building an EV factory in the U.S., can also benefit from the tax credit. However, it is widely expected that amending the law to delay the rule will be difficult. The U.S. government reportedly expressed a stance during consultations with Korea that relaxing the definition of North American final assembly is unlikely.

Additionally, the announcement of detailed provisions related to battery and critical mineral requirements?another key aspect of the Inflation Reduction Act?has been postponed until March next year. Even if the vehicle is finally assembled in North America, these requirements must be met to qualify for the tax credit.

According to the law, at least 50% (gradually increasing to 100% by 2029) of the EV battery components must be manufactured or assembled in North America to receive a $3,750 subsidy. For critical minerals used in the battery, at least 40% (gradually increasing to 80% by 2027) must be mined or processed in the U.S. or countries with which the U.S. has a Free Trade Agreement (FTA) to qualify for the $3,750 benefit.

This content was produced with the assistance of AI translation services.