Europe to remain a key target for Chinese electric cars

According to the proposed regulatory guidance published by the US government, EVs containing certain items made in China would not qualify for a consumer tax credit. That means Chinese electric cars are going to remain expensive in the US compared to locally produced EVs like Tesla. That also means that Europe will remain the only large overseas market for Chinese EV manufacturers.

Chinese electric cars are not welcome in the US

The tax credit is part of the Inflation Reduction Act of 2022. The US government promotes the use of electric vehicles as an important part of its reducing carbon dioxide emissions policy. That’s why buying an EV in the US comes with a tax credit of up to $7,500. The Chevrolet Bolt, Ford F-150 Lightning, Tesla Model 3, and Tesla Model Y are among the EVs eligible for a full $7,500 credit. A base-model Bolt 1LT should cost just $19,995 after the tax credit. As you might have noticed, I didn’t mention Chinese electric cars.

Vehicles must have an MSRP below $80,000 for an SUV and $55,000 for a sedan, wagon, or hatchback. Chinese electric cars should fit into that category like a glove, but there are some politically motivated obstacles. The credit depends on where EVs are made, where their battery components and minerals come from, how much they cost, and how much buyers earn.

To qualify for half of the tax credit ($3,750), a portion of a vehicle’s battery components must be produced or assembled in North America. To get the second $3,750, a portion of critical minerals used in the battery must be extracted or processed in the U.S. or in a country that is a U.S. free-trade agreement partner, or they must have been made from materials recycled in North America. These percentages go up every year starting in 2024, which is also when vehicles with components from countries that have been designated as “foreign entities of concern” will no longer be eligible for a tax credit.

Tesla may not be eligible for a tax credit in 2024

Some rules are made just to ban Chinese electric cars or parts from entering the US. The aforementioned regulatory guidance says EVs containing certain items made in China would not qualify for a consumer tax credit. That’s a significant obstacle for Chinese electric cars trying to enter the US market. This would also apply to Chinese-made battery components in 2024 and Chinese-sourced critical minerals starting in 2025.

American officials had long expressed an intention to exclude Chinese items from the US market. However, the supplies of rare metals and other critical commodities will remain dependent on China, and it is questionable whether the US car industry will be able to build EVs under the restrictions.

Because rules are getting stricter in 2024, even some US-made vehicles won’t be eligible for the tax credit, not just Chinese electric cars. Tesla made a disclaimer on its website warning buyers that some of its vehicles may no longer be eligible for a tax credit in 2024. That’s because US EV makers are buying components and battery cells from China.

‘No Chinese electric cars’ policy will backfire

Although directives about battery and mineral sourcing are meant to provide an incentive for manufacturing in the US, they won’t do any good for the US EV industry. The vast majority of minerals required to build EV batteries are found almost exclusively in China. Most of the EV battery factories are based in China, too.

The US not having local sources of minerals nor the advanced battery technology on its soil means more complex and more expensive domestic production. That will result in more expensive US-made EVs, making this whole ‘no Chinese electric cars’ policy absurd. In the end, American drivers will stick to their cars with internal combustion engines because of the lower price, giving a death blow to the US EV industry.

Chinese electric cars still have Europe

American animosity towards EVs made in China is certainly a blow to Chinese EV manufacturers, but that hard pill will American car buyers have to swallow in the end.

In the meantime, there is a large and promising market for Chinese electric cars: the European Union. Chinese brands like MG, BYD, and Geely are already getting a foothold here, with many more to come. Chinese EVs are better built and more affordable than European or American competition, and buyers – given enough time – value those qualities above any other.

Source, Featured image: BYD