Hyundai Official Says EV Tax Credit Could Force Company to Change Course at Ga. Factory

As carmakers, battery companies and critical minerals supply chain players await news from the Treasury Department on the details of how vehicles and batteries will become eligible for electric vehicle tax credits, a major South Korean carmaker sounded the alarm that the new Inflation Reduction Act could make its planned Georgia plant unprofitable.

Robert Hood, vice president of government affairs at Hyundai Motor Company's Washington office, said during a Wilson Center webinar that the company has contractual obligations with the state of Georgia in order to receive generous incentives, and those obligations include hiring and producing on a certain schedule. The plant, which will produce EVs and is slated to open in the middle of 2025, is projected to produce 800,000 cars annually with 8,000 employees.

"We have to grow our market sales of our EVs year over year, timed with when this plant is to come on line," Hood said Dec. 15. "And if those sales don’t move, it will really start to question whether this plant is economically feasible."

Until the Georgia factory opens, the EVs will be exported from South Korea, and although Korea has a free trade deal with the U.S., those cars could not qualify for the credit, which could be worth as much as $7,500 to a buyer.

Hood noted that the previous version of the tax credit, as written by House Democrats, offered a five-year transition period.

"All we’re asking for as a company is a transition period," he said. "Despite these policies hurting us, we continue to move forward with this investment."

He added, "All we’re asking -- don’t penalize us for doing what you wanted us to do. We just can’t do it as fast as the ink drying on the bill."

The tax credits are not just based on where a car is assembled -- those assembled in Canada, the U.S. or Mexico are eligible -- but also on the sourcing for the advanced batteries and the critical minerals in those batteries. Half the credit is based on the batteries, half on the minerals.

"The worst case is if they delay the battery rules, but all the other rules" are released, Hood said. There's an expectation that many U.S.-assembled cars cannot yet qualify because their battery and mineral supply chains are not sufficiently North American. But if the battery rules are delayed because the Treasury Department is still grappling with the complexity of the issues, Hood worries cars from Tesla and General Motors, which had previously "graduated" from the EV tax credits, would regain eligibility while Hyundai would be out in the cold.

"If there needs to be a delay, delay everything," Hood said. But he added that Hyundai does want to know how the battery rule of origin will be structured as soon as possible.

"We need to understand those battery rules, particularly as we need to redesign our supply chains. That's going to be a monumental task," he said. "We need to know what the rules are, so we design that [battery] plant to be compliant. We’re still hoping for a Hail Mary before the end of the year."

Tami Overby, a senior advisor at Albright Stonebridge Group, said she visited major companies in Korea on a recent visit, and she said battery companies, Hyundai and Kia are all watching how the IRA will shake out.

She said she's optimistic that the administration will implement the law in a way that trading partners will find equitable.

She quoted National Security Adviser Jake Sullivan: "We believe there are ways for us, within the context of the law as it’s written, to ensure this is a win-win and not a zero-sum game."

Some of the anxiety is not supported by the legislative language. For instance, the critical minerals piece says the minerals must either be mined or processed in a country that the U.S. has a free trade agreement with. Overby said a businessman in Seoul told her his company had invested in lithium mines in Argentina and nickel mines in Indonesia to guarantee a supply of inputs for electric batteries that would ultimately be sold in cars in the U.S.

"My board is looking at unwinding these investments," she said the man told her. However, unless the Treasury department interprets the word "or" differently than what it's understood to mean, mining in countries like Argentina is no problem as long as the processing is done in a free-trade partner such as Chile or Korea. Still, many in the industry aren't sure of that, and have asked Treasury to clarify that processing or mining in a qualifying country is enough (see 2211080014).

Tori Smith, director of international economic policy at the pro-free-trade American Action Forum, said, "While I agree the administration has certainly been more vocal in trying to find a solution, I’m not quite as optimistic that a solution is possible."

She said she believes Treasury could find flexibility in the critical minerals segment, choosing a generous definition of an FTA, but she said that the assembly rule violates World Trade Organization principles, because although it aligns with the USMCA region, it is not part of the trade agreement.

She said she thinks if Korea filed a complaint under its FTA with the U.S., she thinks it would be successful.

She asked: "Are we focused on getting clean vehicles into peoples' garages or are we focused on competing with China?"

Ed Gresser, a former assistant USTR for trade policy and economics, said he believes that the administration would not have structured the credits in this way if it had the authority, but since the bill had to get through the Senate without any Republican support, the last one or two votes strongly shaped the bill. The last vote was from moderate Democrat Sen. Joe Manchin, D-W.Va.

Manchin told International Trade Today recently that he did mean for the critical minerals language to be limited to FTA partners. "It's all about America, that's all." He said he didn't want the new transportation mode to be "dependent on China or other foreign supply chains from parts of the world that will not work with us." China currently dominates processing of critical minerals.

Manchin said he doesn't think that Europe can't be trusted, but said they should negotiate a free trade agreement with the U.S. if they want their companies to benefit.

But Manchin's attitude is not necessarily the majority view among senators. Hood said, "We’ve had meetings with many many senior officials in the administration as well as folks in Congress -- they’re all very sympathetic to the struggle."

Gresser said that administration officials "are very much aware of the dissatisfaction of the other countries and are trying to find a way through."

He said even though think tank members like himself talk about areas of stress in the trading system, such as the U.S. defiance after the World Trade Organization said its Section 232 tariffs on metal were illegal, it's also important to remember the U.S. is importing more than ever. He said imports from Korea grew from $70 billion to $120 billion, and overall, there is $500 billion in import growth this year.