Hyundai tackles Washington over loss of electric vehicle subsidies

The chair of Hyundai Motor has gone on an urgent trade mission to Washington this week, after the Korean car giant’s electric vehicles were excluded from generous consumer tax credits contained in a landmark US climate, tax and spending law.Chung Eui-sun, the billionaire scion of Hyundai’s founding family, is expected to raise his company’s concerns with US officials, as Korean car industry representatives express consternation at what they describe as “discrimination” against EVs produced in Korea.The Inflation Reduction Act, signed into law by US president Joe Biden earlier this month, envisages tax credits of up to $7,500 for EVs assembled in North America.Hyundai and its affiliate, Kia, have the second-highest share of the US electric vehicle market by sales volume, but they do not currently produce any EVs in the US, Canada or Mexico. A planned $5.5bn EV plant in the US state of Georgia, announced during Biden’s visit to South Korea in May, is not scheduled to begin production until 2025 — making it ineligible for the subsidies until then.“Upon the enforcement of the Inflation Reduction Act, Korean EVs are immediately out of US tax incentive . . . and it could have a huge impact on EV exports from Korea,” said a statement from the Korea Automotive Industry Alliance, which represents companies including Hyundai.The trade group wants EVs produced in South Korea to receive the “same incentives” as those produced in the US, Canada and Mexico.On Monday, the Korean minister for trade, industry and energy Lee Chang-yang said “the act is highly likely to violate WTO regulations as well as the Korea-US free trade agreement”.“We are actively reviewing whether to bring the case to the WTO,” Lee added. “We are conveying our concerns to the US via various channels and will send a senior trade executive to the country next week to confirm the intent of the US.”The Inflation Reduction Act is designed to eliminate from the US supply chain battery components coming from a “foreign entity of concern” — most notably China.From 2024, in order for a vehicle to qualify for a $3,750 tax credit, no battery component can come from a foreign entity of concern. The restriction will be extended from 2025 to critical mineral extraction, processing and recycling in order to qualify for a further $3,750 credit, or $7,500 in total.“For Hyundai, it’s a call to action: if you want to qualify for government subsidy, then bring forward your capacity in the US and do it now,” said Tim Bush, an analyst at UBS in Seoul.

He added that Hyundai was probably looking for a “waiver” of the rules as they currently stand. “As long as they’re making the investment [in the US] and there’s visibility that their manufacturing will scale, it’s fairly likely that an accommodation will be made.”In addition, the larger picture, said Bush, was that South Korea was “no doubt the biggest beneficiary” of the legislation because of the demand it would generate for the country’s leading battery-makers, as Chinese rivals were phased out of the US supply chain.Last month, SK On launched a $7.8bn joint venture with Ford to build three battery plants in the US, while LG Energy Solution and GM announced a $2.6bn investment earlier this year to build a third plant as part of their joint venture in Michigan. Samsung SDI has a similar partnership with Stellantis, the group behind Peugeot, Fiat Chrysler and Jeep.“I think they are aware that they are the biggest beneficiaries — maybe not Hyundai, but everybody else,” said Bush. “They just got their biggest competitors basically eliminated from the market.”