Daily Management Review

Japan's Government Expresses Concern Over American EV Tax Credits


On Saturday, the Japanese government issued a warning about new electric vehicle tax credits in the United States, saying they might ultimately discourage further Japanese investment there and hurt employment in the largest economy in the world.
The government expressed a number of concerns regarding the tax credits in the Inflation Reduction Act (IRA), which is intended to create more resilient supply chains as the United States seeks to reduce exposure to China, in a comment submitted to the U.S. Treasury Department.
The government of Japan and the nation's auto lobbying group have been worried for months that the IRA disadvantages Japanese automakers in the crucial North American market. These worries have culminated in the statement.
The prerequisites to qualify for the tax credit, according to the government, are "not consistent" with the shared policy of the Japanese and American governments to create resilient supply chains by cooperating with partners and allies.
"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 U.S."
Japan joins South Korea and the European Union in voicing their opposition to the law. According to the foreign ministry of South Korea, a three-year grace period would allow its automakers to continue receiving EV incentives in the United States.
The law will replace the regulations governing the current $7,500 electric vehicle tax credit with incentives aimed at increasing battery and electric vehicle manufacturing in the United States. Over the next six years, the domestic content requirements will increase.
Beginning on January 1, new limitations on the sourcing of batteries and critical minerals, as well as price and income ceilings, go into effect, potentially disqualifying all current EVs from receiving the full $7,500 credit.
Last month, the Internal Revenue Service and the U.S. Treasury Department began requesting public feedback on the new law.
According to the Japanese government, restricting the types of vehicles eligible for the EV tax credit will limit the options available to American consumers at reasonable prices and may make it more difficult to meet the climate goals set forth by the Biden administration.
At a meeting in September in Los Angeles, Japanese Industry Minister Yasutoshi Nishimura raised issues with the law with US Commerce Secretary Gina Raimondo. According to the Nikkei newspaper, Nishimura informed his American counterpart at the meeting that the legislation might be against international law.
The Japan Automobile Manufacturers Association, a major Japanese auto lobby, said in August it was concerned about the law and would keep a close watch on developments.
Even some U.S. automakers have expressed apprehension about some aspects of the law.
Ford Motor Co said on Thursday the U.S. Treasury Department should limit the definition of a "foreign entity of concern" to ensure more electric vehicles can qualify for up to $7,500 in consumer tax credits.