US Announces Detailed IRA Electric Vehicle Guidelines: "Tax Credit Applies Only to North American Cars"

On the 31st (local time), the U.S. Department of the Treasury announced detailed guidelines for the electric vehicle (EV) tax credit under the Inflation Reduction Act (IRA). The preferential treatment for imported vehicles produced outside of North America, which had been requested by South Korea, Japan, and Europe, was not included.

According to the detailed guidelines on IRA EV tax benefits announced by the U.S. Treasury and reports from CNBC and Nihon Keizai Shimbun, the tax credit is limited to electric vehicles and plug-in hybrid vehicles produced or assembled in North America. The tax benefits will apply from April 18, when the eligible models are announced. Buyers can receive a tax credit of up to $7,500 (approximately 9.79 million KRW).

President Joe Biden of the United States
[Photo by Yonhap News]

Until now, the governments of South Korea, Japan, and Europe had criticized the IRA EV tax credit for applying only to EVs produced or assembled in North America, calling it an "excessive preferential measure" and demanding a review. In response, the Biden administration said it would review the matter, but the Treasury guidelines announced on this day excluded such provisions.

Nihon Keizai reported, "(Due to the U.S. Treasury announcement) Japanese, European, and Korean automakers will have to decide whether to sell EVs at significantly higher prices than U.S. companies or to produce locally in North America."

To qualify for the tax credit, vehicles must comply not only with the production region requirements but also with the critical mineral and battery component requirements set by the U.S. Treasury.

Among the IRA's EV tax credit provisions, the "critical mineral requirement" mandates that at least 40% of essential minerals used in the battery?including lithium, nickel, manganese, graphite, and cobalt?must be sourced from the U.S. or countries with which the U.S. has a free trade agreement (FTA). This percentage will gradually increase to 50% in 2024, 60% in 2025, 70% in 2026, and 80% in 2027.

Regarding the "battery component requirement" under the IRA's EV tax credit provisions, starting this year, at least 50% of the total value of all battery components must be produced or assembled in North America (increasing annually to 100% by 2029) for a tax credit of $3,750 (approximately 4.87 million KRW) to be granted.

Janet Yellen, U.S. Treasury Secretary, stated, "The IRA is a once-in-a-generation law that lowers costs for American consumers, builds a strong industrial base in the U.S., and strengthens supply chains." She added, "Today, the U.S. Treasury is taking an important step to help consumers save up to $7,500 on clean energy vehicle purchases, save hundreds of dollars annually on gas costs, create manufacturing jobs for Americans, and enhance energy and national security."