The U.S. Senate is pushing a plan that would expedite the timing of the elimination of tax credit benefits for electric vehicle buyers, which is expected to negatively impact electric vehicle manufacturers. Recently, Hyundai Motor Group, which aimed to target the electric vehicle market by establishing a large-scale factory dedicated to eco-friendly vehicles in the state of Georgia, has found itself in a difficult situation.
According to Reuters on the 17th (local time), Republican senators on the Senate Finance Committee proposed an amendment that would eliminate the $7,500 (about 10.3 million won) tax credit benefit for electric vehicle buyers 180 days after the legislation is enacted. This bill also includes a provision to remove the $4,000 tax credit benefit for used electric vehicle buyers after 90 days.
The tax credit benefit for electric vehicle buyers was introduced by the previous Biden administration. The Biden administration provided a $7,500 tax credit benefit to those buying electric vehicles that meet origin requirements, based on the Inflation Reduction Act (IRA). Initially, this law was set to remain in place until 2032, but following Donald Trump's victory in the U.S. presidential election last November, the Republican Party has repeatedly expressed its intention to eliminate it in the near future.
The bill proposed by the Republican senators on the same day expedites the elimination of the tax credit benefits for electric vehicles, which had previously passed through the U.S. House of Representatives. On the 22nd of last month, the House passed a bill that would maintain the tax credit for electric vehicle buyers until the end of this year, but manufacturers with cumulative electric vehicle sales in the U.S. below 200,000 units would have the benefit eliminated by the end of next year.
The bill proposed in the Senate will go through discussions in committee before a vote occurs. The Republican Party holds 53 of the 100 total seats in the Senate. After passing the Senate, it will require a vote in the House before being signed by President Trump, completing the legislation that could see the tax credit benefits disappear by the end of the year.
Within the automotive industry, there are concerns that the elimination of the tax credit benefits for electric vehicles in the U.S. will further shrink the electric vehicle market. The electric vehicle market has faced sluggishness in recent years, and if prices rise, there is a high likelihood that sales will decrease further. JP Morgan predicted that without the tax credit, the annual operating profit of the U.S. electric vehicle manufacturer Tesla would fall by about $1.2 billion (approximately 1.65 trillion won).
Hyundai Motor Group also now faces the need to adjust its production and sales strategy for the U.S. market. The group invested $7.6 billion (approximately 10.5 trillion won) to build the Metaplant America factory in Georgia, capable of producing 300,000 eco-friendly vehicles annually, which began operations last October. If the tax credit is eliminated early, Hyundai Motor Group is likely to struggle to realize the local production benefits it expected from the Metaplant America.
The Metaplant America can produce hybrid vehicles in addition to electric vehicles. Hyundai Motor Group is considering reducing the production ratio of electric vehicles in this plant and rapidly increasing the production volume of hybrid vehicles to enhance profitability in the U.S.
Recently, the growth rate of electric vehicles in the U.S. market has slowed, while the demand for hybrid vehicles has rapidly increased. According to CNBC, hybrid vehicle sales in the U.S. reached 1.61 million last year, a 37% increase compared to the previous year. During the same period, 1.56 million electric vehicles were sold. In 2023, electric vehicle sales (1.41 million) surpassed hybrid vehicle sales (1.18 million).
There are many challenges that need to be addressed to mass-produce hybrid vehicles at the Metaplant America. Hyundai primarily manufactures most of its hybrid models sold in the U.S. domestically for export, so shifting this to local production requires discussions with labor unions.
An industry source in the finished vehicle sector noted, "With high tariffs on imports and the early elimination of the electric vehicle tax credit, producing hybrid vehicles in the U.S. has become a necessary task," adding that, "In the long term, it is crucial to reduce investments in electrification and expand investments in hybrid vehicle development as part of the research and development strategy."