S. Korea's 'Commercial' Electric Vehicles Receive Only 5% Subsidy... Hyundai Motor "Not a Major Beneficiary" (Comprehensive)

'Allying Allies' Amid Global Backlash
Hyundai Motor Group's Commercial Volume
Only 5% of Total... No Major Benefit
"Will Expand Lease Programs"
North America Final Assembly Rules Remain

U.S. President Joe Biden is attending the Detroit Auto Show this September and is test-driving the GM Chevrolet Silverado electric pickup truck.

[Asia Economy New York=Special Correspondent Seulgina Jo, Reporter Choi Daeyeol] The Biden administration in the United States has decided to provide subsidies for Korean-made electric vehicles (EVs) that were previously excluded from support under the Inflation Reduction Act (IRA) when sold commercially, such as through leasing.

As backlash arose from various countries over the law that only benefits North American-made EVs, the administration has taken steps to appease so-called 'allied countries,' allowing Korean-made EVs to also receive benefits. However, since only about 5% of Hyundai Motor Group's sales are commercial vehicles, it is expected that the overall benefit will be limited.

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, regardless of North American final assembly requirements, as vehicles "purchased by taxpayers for direct use or leasing rather than resale." This includes EVs purchased by leasing companies for business use within the scope of commercial EVs. However, the Treasury excluded vehicles from the tax credit if they are effectively sales, such as in cases of 'long-term leases' or when there is an option to purchase the vehicle at a discounted price after the lease ends.

Last month, Kia exhibited its dedicated electric vehicle EV6 at the LA Auto Show.

According to these guidelines, commercial EVs manufactured by automakers such as Hyundai and Kia in Korea and exported to the U.S. can now enjoy tax credits 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. Accordingly, the Korean government had requested the U.S. government to include commercial vehicles from domestic manufacturers in the support scope.

Hyundai Motor Group stated regarding the new guidelines, "We believe that Korea's opinions have been reflected, and we plan to actively utilize this by expanding leasing programs, etc." They added, "We will work closely with the Korean government to find various measures to minimize the negative impact caused by the IRA." Among the EVs sold by Hyundai, Kia, and Genesis in the U.S., only about 5% are sold commercially through leasing or similar methods. Commercial sales involve selling to rental or leasing companies and are relatively less profitable compared to individual customers. Due to production disruptions after COVID-19, supply has been insufficient compared to demand, and most automakers, including Hyundai, have focused their sales strategies on individual customers.

The Wall Street Journal (WSJ) evaluated the guidelines by saying, "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 who need to align with various international issues. In this context, Senator Joe Manchin, who led the enactment of the Inflation Reduction Act, criticized, saying, "This clearly contradicts the intent of the law," and "It is yielding to companies trying to exploit loopholes in the law." He had previously sent a letter to the Treasury Department arguing that subsidies should not be given to EV rental cars, leased vehicles, or shared vehicles.

Production line at BMW plant in South Carolina, USA

However, the most significant issue, the 'North American final assembly' requirement, remains unchanged. Detailed regulations related to this were not disclosed this time. The Korean government had 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 postponing the rule would require legislative amendments, making it difficult. The U.S. government reportedly expressed a stance during consultations with Korea that relaxing the definition of North American final assembly would be difficult.

Additionally, the detailed announcement regarding the 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 receive the tax credit benefits. According to the law, at least 50% (gradually increasing to 100% by 2029) of the battery components must be manufactured or assembled in North America to receive $3,750 in support. For critical minerals 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.

Meanwhile, Hyundai Motor Group is reportedly preparing promotional activities such as expanding programs to increase commercial EV sales networks in line with the new guidelines. They plan to increase commercial sales volumes to double digits in the mid to long term. An industry insider said, "According to the regulations released so far, even automakers producing EVs locally find it difficult to meet requirements related to battery assembly or raw material composition such as minerals," adding, "After specific guidelines are finalized early next year, there will be a clear divide between companies in terms of success or failure."

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