Why The EU EV Sector Fearing USA’s Tax Breaks Strategy For The Consumers

People buying electric vehicles in the US are largely speculated to be given various tax breaks and the guidance upon the same will be provided by the U.S. Treasury Department. Experts therefore added that this situation will be closely monitored by the European policymakers and automobile industry to evaluate the current trends and challenges of their industry. The spokesperson at the Treasury clearly stated that they will not identify any particular vehicle, but they will broadly specify the subsidy criteria. 

US citizens who will purchase electric vehicles are qualified to grab a tax credit of $7,500 as per the Inflation Reduction Act (IRA). This will be provided when the final assembly is being done in North America only and the tax credit also depends on the 50 percent of the battery components being manufactured in North America and the rest 40 percent of the important minerals must be from the US or from any country that has free trade agreements. These shares escalated by 10 percent points per annum. 

The Directorate-General of the European Commission Eurostat mentioned that the EU exported around $39 billion worth of cars to America back in 2022, while 65 percent of cars are exported from Germany with less than 9 billion euros worth of cars coming the other way, as per Reuters report. Eurostat further added that 9 billion worth in car parts are exported to the US by Europe as compared to only 2 billion euros of imports. ACEA, the automobile industry body in the EU, believes that the car industry in the region offers more than 12 million direct and indirect jobs. 

Analysts opined that the policymakers and the car-makers in the EU want to understand the terms “final assembly” and “battery components” are defined in a narrow or broad manner. For instance, the trade officials in Europe are in deep thought whether the local content requirement for battery components implies all components or some particular ones. BusinessEurope confederation deputy director general and trade expert Luisa Santos told the media, "The IRA threatens to disrupt existing supply chains, which have a lot of synergies. It is putting into question the transatlantic model businesses have built with investments that support trade on both sides of the Atlantic."

In December 2022, it was permitted by the US treasury that EVs assembled outside North America can avail for tax credits provided they are leased by the consumers. In the first few months of 2022, EV’s leasing decreased by 12 percent from 50 percent in 2020, as per data from the U.S. National Auto Dealers Association.