Japanese Automakers Slam US EV Tax Credit Changes

US tax credits for new EVs could see Japanese automakers pull their EV products out of the world’s biggest market costing thousands of related jobs.

That’s the warning from the Japanese government, reports Reuters. In a comment submitted to the US Treasury Department, Japan raised a number of concerns about the tax credits in the Inflation Reduction Act (IRA), which is designed to build more resilient supply chains as the States aims to reduce exposure to China.

The statement comes after months of concerns raised by Japanese automakers claiming the IRA places them at a disadvantage because it favors US companies and products. It also claimed the requirements to be eligible for the tax credit are “not consistent” with the shared policy between the Japanese and the US governments to build resilient supply chains by working with allies and partners.

“It would be possible that Japanese automakers hesitate to make further investments towards electrification of vehicles,” the government said. “This could cause negative impacts on the expansion of investment and employment in the US.” Similar concerns have also been raised by both European and South Korean automakers.

Under the law, rules governing the current $7,500 EV tax credit aimed at persuading consumers to buy the vehicles will be replaced by incentives designed to bring more battery and EV manufacturing into the US. The domestic content requirements will ratchet up over the next six years. New restrictions on battery sourcing and critical minerals, along with price caps and income caps, take effect in the New Year and could make current EVs ineligible for the full credit.

The Japanese government also warned limitations on the range of vehicles that benefit from the EV tax credit will narrow the options available to consumers at affordable prices and interfere with efforts to achieve the Biden administration’s climate goals. Even some US automakers have expressed apprehension about some aspects of the law. Ford said the US Treasury Department should limit the definition of a “foreign entity of concern” to ensure more EVs can qualify for consumer tax credits.

— Paul Myles is a seasoned automotive journalist based in Europe. Follow him on Twitter @Paulmyles_

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