US tax credit could boost electric vehicle production in Canada

Canadian carmakers breathed a sigh of relief on Thursday after U.S. lawmakers scrapped part of a massive incentive package for electric vehicles that would exclude vehicles assembled in Canada from the bill. proposed consumption tax credit.

The $7,500 credit for “clean vehicles” – including battery-electric, plug-in hybrid and hydrogen fuel cells – is part of the proposed new spending on energy-related initiatives. The amount and climate in the Inflation Reduction Act is $369 billion.

U.S. Senators Chuck Schumer and Joe Manchin, both Democrats, reached an agreement late Wednesday to include the credit and a host of other tax and investment measures aimed at expanding the field. clean energy and promote electric vehicle adoption in the bill, which hopes to revive an economy that is struggling to escape inflation below 9.1%.

The deal was a surprise, coming less than two weeks after Manchin, a centrist Democrat who needs to vote to get the bill through the equally divided Senate, said he would not support it. an expansive climate bill that President Joe Biden hopes will pass until inflation is brought under control.

In a composite photo, US Democratic Senator Chuck Schumer, left, speaks at a media conference.  Democratic U.S. Senator Joe Manchin, right, speaks to reporters outside the Senate Committee hearing room.
Democratic U.S. senators Chuck Schumer, left, and Joe Manchin have agreed to remove a restriction that would likely limit the proposed electric vehicle tax credit to American-made electric vehicles. If it passed, it would now apply to cars made anywhere in North America. (J. Scott Applewhite / The Associated Press)

Canada has lobbied hard to be included

Flavio Volpe, CEO of the Canadian Association of Auto Parts Manufacturers, said the significance of the proposed amendment cannot be overstated and, along with the hundreds of millions of dollars that the Canadian government is making investment in electric vehicle manufacturing and batteries, should give the electric vehicle sector the boost it needs.

“This couldn’t be a bigger vote of confidence in the North American auto sector,” he told CBC’s Katie Simpson. “All of these new investments in Canada now have an incredible runway for reviving Canada’s automotive sector.”

About 5.6% of new car sales in the US are electric, and about 12.6% are electric and plug-in hybrids. In Canada, it’s 5.8 and 7.7, respectively.

Volpe said the “Buy American” restriction in the original Build Back Better bill poses a worse threat to the Canadian auto industry than any trade restrictions imposed by the previous Donald Trump administration. has applied.

While Canadian consumers will not directly benefit from the tax credit, it is hoped that encouraging electric vehicle consumers in the US will spur manufacturers to make new investments in Canada and transform the industries involved. , such as mining for important minerals, to help meet growing demand on both sides of the border.

It means “job security for anyone who exports cars and parts to the US,” says Volpe, from Canada, which “accounts for 85% of our exports”.

Volpe is part of a group of Canadian industry representatives, government officials and diplomats who have been relentlessly lobbying Manchin and other US lawmakers to demand that Washington bring in Canadian-owned cars. assembly to credit and recognize the seamlessness of automotive parts across borders and supply manufacturing and production chains.

“We are an integrated market, especially in the automotive sector. There are absolutely no borders here,” he said.

Minister says good news for workers

Canadian International Trade Minister Mary Ng welcomed the news.

“This is good news for Canadian workers, our jobs and our manufacturing industry,” she said in a statement.

“As the bill passes Congress, we will continue to support the importance of maintaining these integrated supply chains and developing a greener and more prosperous future for North America.”

“This is good news for Canadian workers, our jobs and our manufacturing industry,” said Mary Ng, Minister responsible for economic development, international trade, small business and export promotion. (Adrian Wyld / Canadian Press)

The proposed legislation includes a separate $4,500 credit for used electric vehicles and a $10 billion investment tax credit to build clean technology manufacturing facilities.

To qualify for the consumption tax credits, vehicles must cost $55,000 or less for new cars and $80,000 or less for pickups, SUVs, and trucks. They must also contain batteries with a certain percentage of materials sourced from countries that the United States considers free-trade partners. That could be good news for the Canadian miners that supply those vital minerals.

To qualify for the credit, U.S. consumers must earn no more than $150,000 if they apply for the tax credit individually, or $300,000 for joint filers. For used cars, the qualifying limits are $75,000 and $150,000, respectively.

Will require increased battery production

Analyst Sam Fiorani of Pennsylvania-based AutoForecast Solutions emphasized that most electric vehicle deals to date have benefited manufacturers, not buyers, and that’s likely not going to change because those incentives are meant to inspire companies to develop new products.

“Until a few years ago, [GM] sold their Chevy Bolts for a $7,500 offer. After the offer ended, the price of the Volt dropped by $7,000 almost immediately,” he said. So all those incentives are going to General Motors, not to the end user.

“We can expect that to continue.

However, the price cap will eventually help put more entry-level electric vehicles into the hands of more people, Fiorani said, although it will take time to get more cheaper models on the market, which is already facing stiff competition. scarcity situation.

“It will take a long time to build the infrastructure to provide batteries, the battery is the most expensive part of the entire vehicle,” he said.

Senate vote scheduled for next week

Under the amendment, the credit will no longer be limited to manufacturers with sales of 200,000 electric vehicles or less, which will benefit large companies like Tesla, GM and Toyota, which have already sell more than that.

The vehicles would not have to be assembled in union factories as originally proposed, a provision that would allow unions on both sides of the border to hopefully survive.

Lana Payne, secretary and treasurer of Unifor, which represents auto workers in Canada, said: “During the transition to net zero, we have an obligation to make sure workers are not fend for themselves”.

“Protecting and advancing workers’ rights during this transition is not just an option for governments and legislators; it is essential to ensuring a fair transition. “

Workers install batteries into the chassis of a Ford Focus electric vehicle at the Michigan Assembly Plant in Wayne, Mich. The original bill would require vehicles to come from union factories to be eligible for the credits. (Rebecca Cook / Reuters)

Unifor praised the lifting of the US assembly requirement and said it was the result of active lobbying by unions, industry and the government.

Unifor Automotive Council President John D’Agnolo said: “The reality is that car manufacturing in Canada and the United States is deeply integrated and our production volume is tied to a large sales market. much more than in America”.

Other investments that could attract manufacturers to the US

Louise Blais, who was also involved in negotiations to put Canada on the credit list during her time as Canada’s consul general in Atlanta, Ga., called it a “big win” and said it wasn’t must be one of the lobbying efforts that will succeed.

But she warned that Canadian manufacturers and the government must consider a number of other incentives that would pour into energy and climate-related projects and industries if the bill were passed.

The proposed law includes $20 billion in loans to build new clean-vehicle manufacturing facilities and $30 billion in additional manufacturing tax credits to accelerate production of solar panels. U.S. solar, wind turbines, batteries, and critical mineral processing as well as $2 billion in cash funding for retooling is available. automobile factory.

Refined tellurium, on display at the Rio Tinto Kennecott refinery in Magna, Utah, is used in the production of solar panels. This is one of the important minerals in high demand as countries around the world invest in green technology and cleaner energy sources. (Rick Bowmer / The Associated Press)

“There are a lot of provisions that will really encourage manufacturers to produce clean technology like solar panels and other technologies in the United States,” said Blais, who is now a senior adviser to the Canadian Business Council. Ky. and Quebec.

“So we really need to look closely at this in Canada and make sure we don’t lose our competitiveness in some of these areas as a result of this.”

The law is still far from being passed. The US Senate is expected to vote on it next week before it moves to the Democratic-controlled House of Representatives.

Manchin is key to the bill’s success in the evenly-divided Senate, but it will still need a total of 60 votes to avoid Republican galloping tactics, and Republicans could be tempted to block it. legislation to not give Democrats victory before the midterm elections in November.

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