In the long run, the Biden administration expects the tax credits will boost American manufacturing, and the future EVs Hyundai builds in Georgia will qualify for the credits. But in the near term, the changes could hurt sales for brands like Hyundai and Kia, which weren’t expecting to lose the current credits before ramping up U.S. production.
In a statement, Hyundai would only officially acknowledge it was concerned about the effects of the EV tax credit changes.
“We are disappointed that the current legislation severely limits EV access and options for Americans and may dramatically slow the transition to sustainable mobility in this market,” Hyundai spokesman Ira Gabriel said in a statement.
But the pending changes have sparked a “five-alarm fire” within the company and at high levels of the South Korean government, an official close to the negotiations that brought Hyundai to Georgia told The Atlanta Journal-Constitution. The situation even prompted a recent visit by the country’s trade minister to lobby Washington for a remedy.
The official, who was not authorized to speak publicly about Hyundai’s thinking, said it was unlikely Hyundai would completely scrap plans to build its new Georgia plant along I-16, about 30 minutes west of Savannah. Hyundai officials have said the factory, which will make EVs and batteries and open in 2025, could employ roughly 8,100 workers.
However, the official cautioned that all options are on the table and that the size of the factory could change.
“To make a change of that kind of magnitude, it would be a nuclear option that nobody wants,” the official said. “But the company is going to have to make some tough calculations.”
Hyundai is not alone: Only a few EVs on the market today will meet the strict new material sourcing and assembly requirements for tax credit eligibility. But that will change in the years ahead as automakers have committed tens of billions to build new North American EV plants.
California EV startup Rivian is also planning a $5 billion Georgia factory about an hour east of Atlanta. Rivian and Hyundai were wooed with state and local incentive packages valued at more than $1.5 billion and $1.8 billion, respectively.
The White House said Tuesday that it has been engaged with Hyundai, Kia and other automakers to discuss their concerns about the law.
Biden officials defended the law and pointed out that previously, only the first 200,000 vehicles sold by a manufacturer could qualify for federal tax credits, a cap that Hyundai was likely to hit soon. That ceiling will lift next year under the new law and the tax credits have been extended for 10 years.
“Even if it’s tough in the first couple of years, in the overall life of the program, it’s going to be a huge net win and reward companies that are making those investments,” a White House official, who was not authorized to be named, told the AJC.
Discouraging overseas production
The new law — known as the Inflation Reduction Act (IRA) — was narrowly passed by Congress without a single Republican vote. It tackles many issues Democrats have long sought to address, like implementing major health care and tax reforms.
And after previous legislative efforts to address climate change were stymied by Republicans, the law also contains the largest-ever package aimed at limiting global warming. The bill commits $369 billion to accelerate the nation’s transition away from fossil fuels. It includes a raft of incentives to encourage companies to build their EVs, batteries and solar panels in the U.S., and offers savings for customers that buy American-made products.
The measure was supported by U.S. Sens. Jon Ossoff and Raphael Warnock, and Warnock has made it a key part of his reelection campaign.
Most Georgians who want to swap their gas guzzler for an EV will be able to access a $7,500 tax credit for pickups, SUVs and vans priced less than $80,000, while the cap is $55,000 for other vehicles.
There are a few catches, including new income caps of $150,000 for single individuals and $300,000 for joint filers. But the big issue for Hyundai is that for a vehicle to be eligible for the credit, its final assembly must be completed in the U.S., Canada or Mexico.
Currently, all of Hyundai Motor Group’s EV models are built overseas, which could put the company at a competitive disadvantage in the all-important U.S. market.
Kevin Ketels, an assistant professor of global supply chain management at Wayne State University in Detroit, said that with few models qualifying for the credits anyway, he doesn’t think Hyundai will see its market share evaporate.
“I think most automakers are in the same boat,” Ketels said. “There’s a lot of opportunity and there’s a runway in order to grab that market share, and I think they (Hyundai) would be better served by aggressively moving forward.”
Still, Gov. Brian Kemp’s office said it has been in talks with Hyundai and shares the company’s concerns.
“We will continue to urge those on the federal level to make adjustments to the law so that Georgia jobs are not put at risk,” Kemp spokesman Andrew Isenhour said in a statement.
Republican U.S. Rep. Buddy Carter, who represents Bryan County where Hyundai plans to build, blasted the law. Like Kemp, Carter also tied the law to Warnock, who is locked in a tight reelection fight with Republican nominee Herschel Walker. But Carter made no mention of Ossoff, who also voted for the IRA.
“I don’t want to jeopardize the largest investment ever in the state of Georgia,” Carter said.
Credit: Nathan Posner for the AJC
Credit: Nathan Posner for the AJC
Warnock’s office said the senator is working with Georgia automakers, other members of Congress and the Biden administration to “explore possible legislative and regulatory solutions that will help ensure Georgia consumers and automakers can fully benefit from the EV tax credit.”
A spokesman for Ossoff, who has worked to deepen trade ties between Georgia and South Korea, said the senator is also working with automakers “to ensure implementation of the legislation maximally benefits Georgia.”
Shortly after the AJC story published online, Warnock aides set up a meeting with Kemp’s office to discuss electric vehicles, according to the governor’s aides.
Democrats have said the EV tax credits’ domestic assembly requirement will create jobs and stimulate a robust U.S.-based supply chain for critical minerals used in batteries and other EV components. Right now, automakers are heavily reliant on China for those materials.
The provision was also critical to securing the backing of all 50 Senate Democrats needed to pass the bill, especially the votes of moderates like Senators Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Az.).
For now, Hyundai is seeking a legislative amendment to create a grace period of 18 to 24 months, allowing its vehicles to qualify for the credit until the company’s Bryan County plant is up and running, the official close to the Hyundai-Georgia negotiations told the AJC.
The U.S. Treasury Department also must review and issue guidance for implementing the law’s tax credits. That guidance is expected to be issued by the end of this year, and the official said Hyundai is hopeful that could provide another avenue for relief.
Ketels from Wayne State, said even though there may be speed bumps, Georgia will ultimately be a winner from this legislation.
“For any region of the country that has seen investments like Georgia has, it (the Inflation Reduction Act) is a positive,” he said.
A note of disclosure
Cox Enterprises, owner of the AJC, owns about a 4% stake in Rivian and supplies services to it. Sandy Schwartz, a Cox executive who oversees the AJC, is on Rivian’s board of directors and holds stock personally. He does not take part in the AJC’s coverage of Rivian.