Opinion

Federal Tax Credit Should Not Subsidize Electric Vehicles Made in China

President Joe Biden continues to release plans for his “Build Back Better” agenda. The president has already issued both an executive order expanding “Buy American” policies and a new “American Jobs Plan.” These efforts, along with his proposal to convert the federal vehicle fleet to American-made electric vehicles, could help to boost domestic U.S. manufacturing, particularly in the automotive sector.

Biden’s goals will be harder to achieve, however, without addressing China’s goal of dominating the EV industry. Congress should pay particular attention to Beijing’s heavy subsidies for its EV producers, since it’s currently weighing a proposal to extend the U.S. tax credit of $7,500 per electric vehicle. If EVs from China are included in the tax credit, Washington could end up helping Beijing achieve its wider aims.

The electric vehicle tax credit is a sizable incentive for consumers to purchase either an American or foreign-made EV. Congress created the $7,500 tax credit in 2008 to encourage America’s manufacturers and consumers to invest in EVs. The credits aren’t unlimited, however. Once a manufacturer sells 200,000 EVs in the United States, the credit is quickly phased out. Both Tesla and General Motors have already passed the 200,000 mark for EV sales, which means they can’t benefit from further tax credits.

Tesla and GM are probably the most recognized American EV manufacturers. But three other U.S. car companies — Rivian, Lordstown Motors and Bollinger Motors — are launching EVs this year. All three are hoping to gain a foothold in the emerging EV market — and they’ll need every bit of the $7,500 tax credit to help them stay afloat.

Beijing is banking heavily on the EV market too — and has made EVs a major part of its “Made in China 2025” industrial policy. China is already prepping a fleet of EVs for the U.S. market, which means Chinese EVs could soon be sold across the United States, including the Polestar, a new car made by China’s Geely Auto Group.

Polestar isn’t the only Chinese EV headed for the United States. Chinese EVs are already arriving in the United States — and at prices subsidized by Beijing in order to absorb the current 25 percent tariff on Chinese imports. In fact, Beijing is spending billions of dollars to artificially underprice its new EVs.

One example is Chinese car maker Kandi. In February 2019, Kandi received federal approval to sell its K27 and K23 models in the United States. The K27 is expected to list for $17,499. That means, if Congress allows the EV tax credit to cover Chinese autos, the K27’s sticker price could be a stunningly low $9,999.

Biden is right to pursue policies to boost America’s EV industry. And replacing the roughly 645,000 vehicles in the federal fleet with American-made EVs could support thousands of good-paying auto jobs nationwide.

Consumers are also expected to start buying plenty of EVs in the years ahead. But China should not be subsidized by U.S. taxpayers as it attempts to seize America’s EV market. If the $7,500 tax credit is extended to Chinese EV imports, there could be more Chinese cars sold in the United States by 2030 than American-made cars.

Washington should renew the EV tax credit so that Tesla and GM aren’t excluded when facing competition from China. However, China’s EV imports should not be eligible for a tax credit. It makes no sense to subsidize Chinese competitors already intent on overtaking domestic American industry.

Rebuilding American manufacturing requires sensible long-term planning. Washington must not allow U.S. EV production to disappear in the face of China’s aggressive practices.

 

Michael Stumo is CEO of the Coalition for a Prosperous America.

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