The U.S. on Tuesday halted tax credits for all electric cars that were not produced in North America. The measure was part of the Inflation Reduction Act signed into law by U.S. President Joe Biden. A list of vehicles qualifying for the US$7,500 credits for final assembly in North America does not include Korean cars. The provisions affecting the availability of EV credits will be phased in over the coming years. Some 70 percent of all EVs sold in the U.S. are excluded from the list because they are manufactured outside North America, five Hyundai and Kia EVs among them. The U.S. is to unveil a new list in January next year, when additional provisions take effect, requiring a set proportion of EV batteries and other components to be manufactured in North America. That means Korean automakers and battery companies have to increase production in the U.S., and several have already pledged to do so.
Less than half the cars on Tuesday's list of 21 models are by foreign-based automakers like Audi, BMW, Mercedes-Benz, Nissan and Volvo. Tesla and GM are included but they will not qualify for the credit until next year because they have already met a quota of 200,000 units. Korean carmakers will remain at a disadvantage for some time. Hyundai's EV factory in the state of Georgia will not be completed until 2025. The Korean automaker accounted for nine percent of the U.S. EV market in the first half of the year, a distant second after Tesla's 70 percent. Hyundai's Ioniq 5 and Kia's EV6 beat Ford and Volkswagen on price competitiveness and quality. But without tax credits, Hyundai will have a hard time expanding its presence in the U.S. market. From next year, Korea's three EV battery makers -- LG Energy Solution, SK On and Samsung SDI -- are also expected be hit by new regulations on sources of raw materials and production locations. Under the act, EV buyers can get half the tax credits if their batteries are made with raw materials like nickel and lithium from North America or countries that have free trade agreements with the U.S. For the remaining half, batteries must have more than 50 percent of components produced in the U.S. Chinese components will be banned from 2023 and the use of battery raw materials from China from 2025. Korean battery makers will have no choice but to expand investment in the U.S. and seek sources of production materials other than China.