IRA subsidy will extend to buyers of non-U.S. commercial EVs

An EV being charged at a charging station in Seoul. [YONHAP]

Buyers of commercial electric vehicles (EV) in the United States will be able to apply for tax incentives even if those vehicles are not assembled in the United States.

The rule is effective Jan. 1.

The U.S. Treasury Department on Thursday released “additional information” on clean vehicle provisions under the Inflation Reduction Act (IRA). In the release, it said buyers of commercial clean vehicles acquired for use or leased by taxpayer and not for resale will be eligible to apply for the $7,500 tax credit.

“Taxpayers can claim a qualified commercial clean vehicles credit for purchasing and placing in service,” the Treasury Department said.

The Korean government, Korea automakers, Japan, Europe and automakers from Japan and Europe have been lobbying for the change.

Hyundai Motor is expected to benefit from the change as it has already announced an aggressive increase in the sale of leased EVs, from 3 to 5 percent of its North American sales to 30 percent.

A three-year grace period for the sourcing rules was not accepted by the Treasury Department. Hyundai Motors said in October that its EV plant in the state of Georgia will be completed in 2025.

In a statement released Friday, the Korean government said that many of its demand were met, adding that guidelines on battery materials are also important.

This issue will be decided in March.

In November, the Korean government requested that the IRA should allow for the purchase of key minerals from countries that do not have free trade agreements (FTA) with the United States and requested that the calculation for sourcing be done in a certain way. Rather than measuring ratios by input, the ministry asked that U.S. authorities use an overall ratio to test whether a product meets IRA sourcing requirements.

Currently, buyers of vehicles with EV batteries that have been manufactured in countries that have a free trade agreement with the U.S. will be eligible for the tax incentive.

Minister of Trade, Industry and Energy Lee Chang-yang said that the Korean government has been pushing heavily to counter issues that will affect Korean companies.

Under the terms of the IRA, buyers of EVs assembled in the United States are eligible for a $7,500 tax credit for vehicles purchased after Aug. 16, 2021, extending an existing program that offered a $7,500 tax credit for EV purchases regardless of origin.

Content requirements for batteries begin to phase in over a number of years. In 2023, 40 percent of critical-mineral value will have to come from the United States or countries that the United States has signed free trade agreements with to qualify for $3,750 of the credit. That number increases 10 percentage points a year to 80 percent in 2027.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]