Why European manufacturers will have to produce their electric cars in the United States

In the United States, the conditions for granting the ecological bonus for the purchase of an electric car have just been radically modified. Tesla and General Motors are rubbing their hands together, but European and Chinese manufacturers will be forced to come and produce their cars locally.

Joe Biden, the President of the United States, signed the Inflation Reduction Act this week. This aims to reduce inflation while promoting the use of cleaner energy. That’s why the $7,500 green bonus earmarked for electric cars has been radically modified. Some manufacturers are winners, but others are total losers.

One limit removed, two more added

The first good news is the pure and simple deletion (as of January 1, 2023) of the limit of 200,000 vehicles sold per manufacturer, after which it was impossible to claim the bonus. We can say that Tesla is delighted with this change, since the manufacturer exceeded the limit in 2019. It is also the case of General Motors (GMC, Chevrolet and Cadillac) whose customers are no longer entitled to the bonus. The bonus, in the form of a tax credit, but which can now be deducted from the price of the car at the dealership, is expected to last for an additional 10 years.

On the other hand, the new American bonus now includes several conditions. the first is linked to the applicant’s income ($150,000 per year for a single person), but also at the price of the vehicle (maximum $55,000 for a car or $80,000 for trucks). The second, which will make a lot of paint run, is linked to the country of manufacture of the car.

Cars made in the USA or nothing!

In fact, to be eligible for the bonus, the car must be produced in the United States. More precisely, the car must be assembled on site. Thus, it is possible to bring the parts from abroad and carry out the final assembly in the United States. But from 2023 onwards, everything will be even more complicated, as it will be necessary battery and “critical” minerals (aluminium, graphite, lithium, nickel, etc.) are obtained locally, either by extraction or recycling. They can come from abroad, except from “worrying” countries. We then imagine that China and Russia will be excluded while many raw materials come from the Middle Kingdom.

A list of eligible cars has been released by the US government. European manufacturers are poorly represented, with, for example, for Audi only the Q5 rechargeable hybrid and not the Q4 e-tron, e-tron and e-tron GT. The American Automotive Innovation Alliance estimates that 70% of the 72 electric cars sold in the US become ineligible for the bonus with the new regulations like the relay Automotive News Europe. A blow to manufacturers and consumers.

Assumed but gradual protectionism

In detail, if in 2023, 60% of battery components must come from the United States or a country authorized by the US Treasury, this number will gradually increase, until reaching 100% for cars produced in 2028. With this mechanism, Joe Biden hopes to pressure American industrialists to find new ways to source lithium, cobalt and aluminum. A strategy that bothers Europe and that sees this as a discriminatory measure.

With cars built in the United States obligatory to take advantage of the bonus, foreign manufacturers, and especially the big names in Europe and China, will have to build American factories. And that is already what is planned with in particular the production of the Volkswagen ID.4 that started in Tennessee or Hyundai that announced 10 billion dollars of investment to produce in Alabama and Georgia. While most batteries and metals are made in China for now, the trend is reversing, as evidenced by the many factories and mines planned in Europe.

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