Japan Issues Warning, Asks U.S. for Flexible EV Tax Credit Scheme

Matt Posky
by Matt Posky
japan issues warning asks u s for flexible ev tax credit scheme

Over the weekend, the Japanese government issued a formal complaint suggesting that the United States’ updated tax credit scheme for electric vehicles could prohibit future investments from the Land of the Rising Sun. Complaints were reportedly directed to the Treasury Department and revolved around the Biden administration’s Inflation Reduction Act and how it seemed at odds with previous efforts to build trade between America and Japan. But things are always a bit more complicated than that and we cannot overstate the relevance of Japanese auto lobbying groups that want the most favorable regulatory terms they can negotiate.

Eastern automakers have been pretty vocal on the matter in general. Last week, South Korea's foreign ministry said it was seeking a three-year grace period on the law to enable its automakers to keep receiving American EV incentives. European brands have also been complaining a little. But they arguably have less to lose than Asian brands due to the fact that the United States seems keen on distancing itself from Eastern (mainly Chinese) suppliers that presently dominate global battery production.

Last month, Japanese Industry Minister Yasutoshi Nishimura noted concerns about the law to U.S. Commerce Secretary Gina Raimondo while visiting California. This was followed by reports that Nishimura told his U.S. counterpart at the meeting the legislation may violate international laws. Now, the rest of the island nation’s leadership seems to be gearing up for some pushback.

"It would be possible that Japanese automakers hesitate to make further investments towards electrification of vehicles," the government was quoted by Reuters as saying. "This could cause negative impacts on the expansion of investment and employment in the U.S."

Japan even suggested that the Biden administration may fail to meet its climate and electrification goals if it doesn’t soften the standards. But that may happen anyway, as we’ve already seen the new rules make a lot of preexisting plug-in vehicles ineligible to receive new subsidies. That’s been unwelcome news for manufacturers, though it doesn’t necessarily equate to bad news for everyone.

Keep in mind the tax incentive scheme came into existence roughly a decade ago as a way to help spur the early adoption of electric vehicles. In his 2011 State of the Union address, President Barack Obama even said the arrangement would be essential in making the United States the first country in the world to have over a million EVs on the road. But it was always framed as a temporary measure that would end once individual manufacturers met their respective vehicle quotas.

That changed once the Biden administration came into office, which had stressed a desire to move the country away from fossil fuels and double down on all-electric vehicles. We quickly began seeing massive EV subsidies tied to infrastructure bills and planned to reset the preexisting tax credit scheme so that automakers could continue benefiting indefinitely. Now called the “Clean Vehicle Credit,” vehicle quotas have been done away with, replaced by new monetary incentives going beyond the base $7,500 in tax credits for buying a battery electric vehicle (and certain plug-in hybrids). Though there’s also a new qualification process for both the consumer (based on income) and manufacturer (based on price and where the vehicle was built). This has made things more complicated for everyone involved and could cause further confusion as the bar for qualifying vehicles will continue to rise in the coming years – especially in regard to battery content requirements.

EVs that go to market before 2024 must have at least 40 percent of their battery component assembled in North America to take advantage of any government incentives. But that number goes up by 10 percent every single year.

While your author has been overwhelmingly critical of the plan since its inception, the one aspect he did like was the fact that there would be content requirements that would presumably spur investments in domestic production. Without it, there are few tangible benefits for the American people and the government would effectively be funneling taxpayer money back into the industry under the assumption that EVs (including those assembled thousands of miles away and shipped to the U.S.) would somehow solve a myriad of deep-seated societal problems. Those content requirements seem to be the only items with the potential to do some real good and Japan doesn’t like it because any betterment would be localized to factories operating inside North America.

But even domestic nameplates have cried foul in recent months. Ford also told the Treasury Department that it would like to see more EVs qualifying for the $7,500 in consumer tax credits and reportedly suggested changing the definition of a “foreign entity of concern” in the legislation to make that possible. The bottom line is that just about every company under the sun wants favorable regulatory treatment. As the only American brand that openly opposed every facet of the updated tax credit plan, Tesla is the only outlier. However, it could be argued that the company believed that such widespread incentivizing would gradually undermine its dominant role in the electric vehicle market.

The Japanese government issued a formal appeal to the Department of Treasury and the Internal Revenue Service on November 4th, saying it held "serious concerns" regarding the current EV tax credit plan. Leadership sees itself as a longtime ally of the United States and thereby worthy of better treatment, alleging that the current scheme “precludes” Japanese businesses from benefiting.

"Taking into consideration the objective to work with allies and like-minded partners to establish resilient supply chains, allies including Japan should be accorded treatment no less favorable than countries in the North America region,” read the letter.

Considering the United States' long-and-complicated history with Japan, there’s certainly an argument to be made there. But it also seems unlikely that the country would cut ties with the only nation it exports more goods to than China.

[Image: S.Jettar/Shutterstock]

Become a TTAC insider. Get the latest news, features, TTAC takes, and everything else that gets to the truth about cars first by  subscribing to our newsletter.

Join the conversation
4 of 14 comments
  • SCE to AUX SCE to AUX on Nov 08, 2022

    "...it could be argued that the company believed that such widespread incentivizing would gradually undermine its dominant role in the electric vehicle market"

    Tesla has nothing to fear for a long time. Their competitors haven't committed everything to take the EV hill, which is what's needed to truly compete. Some entries will take a few bites of the EV pie - a mathematical certainty - but Tesla will continue to dominate for at least the next decade.

  • CoastieLenn CoastieLenn on Nov 08, 2022

    This is the same country that told it's people that they couldn't have the COVID vaccine that the rest of the world was using because it wasn't designed, tested, and manufactured in Japan, right? That the same country, right? Yeah, f'k right clean off, Japan.

    Living in Hawaii, Japanese businesses and companies have basically taken over the residential real estate market and have in large part forced the astronomical pricing increases that have native Hawaiians (only ~10% of the island of Oahu as of the 2020 census, mind you) living in small, multigenerational homes and unable to branch out on their own. This island specifically is 62% populated by people of Asian decent, the majority of those are Japanese with a large contingent of Pilipino and Chinese. Many of these large 20+ story apartment buildings that have been built in downtown Honolulu in the last 5-6 years are majority unoccupied and those units are majority owned by Japanese businesses.

    • CoastieLenn CoastieLenn on Nov 10, 2022

      @EB- I didn’t comment that to debate the validity of the vaccine, but simply to outline how protectionist they are with almost literally everything in their country, and can almost simultaneously throw a hissy fit when tax law in other countries effects their manufacturing base to a lower advantage than the manufacturers domestic to that country. Hypocrisy is what I was pointing out.

  • IH_Fever EV charger on a GM lot, probably with a Cummins generator to keep them running. A regular melting pot haha
  • Tassos Wake me up when VW (or any other loser "Legacy" automaker comes up with a "BETTER TESLA" BEV AT THE SAME PRICE. SO far, VW has FAILED MISERABLY AND LOST BILLIONS DOING IT. Its models are way underwhelming and inferior, and cost not much less than the model 3. ANd DESPITE the SCANDALOUS $7,500 tax credit, which is an INVERSE ROBIN HOOD, takes from the average household and gives it to the average BEV buying family, which has an income of $170k+, VW STILL FAILED.ALso notice the so-called "Mobility Officers" at FORD AND Renault QUIT. another HUGE SCAM, Autonomous Vehicles, they wasted 100s of billions (all idiot legacy makers together) and predicted billions of profits, but so far they DROWN IN A SEA OF RED INK with NOTHING to show for it. Morons will be morons, and the ones in this forum will cheer for their failures "AWESOME, WV, Indeed"! LOL!!!
  • Jwee More range and faster charging cannot be good news for the heavily indebted and distracted Musk.Tesla China is discounting their cars. Apart from the Model 3, no one is much buying Tesla's here in Europe. Other groups have already passed Tesla in Europe, where it was once dominant.Among manufacturers, 2021 EV sales:VW Group 25%, Stellantis at 14.5%,Tesla at 13.9%Hyundai-Kia at 11.2% Renault Group at 10.3%. Just 2 years ago, Tesla had a commanding 31.1% share of the European EV marketOuch. https://carsalesbase.com/european-sales-2021-ev/@lou_BC, carsalebase.com changed their data, so this is slightly different than last time I posted this, but same idea.
  • Varezhka Given how long the Mitsubishi USA has been in red, that's a hard one. I mean, this company has been losing money in all regions *except* SE Asia and Oceania ever since they lost the commercial division to Daimler.I think the only reason we still have the brand is A) Mitsubishi conglomerate's pride won't allow it B) US still a source of large volume for the company, even if they lose money on each one and C) it cost too much money to pull out and no one wants to take responsibility. If I was the head of Mitsubishi's North American operation and retreat was not an option, I think my best bet would be to reduce overhead by replacing all the cars with rebadged Nissans built in Tennessee and Mexico.As much as I'd like to see the return of Triton, Pajero Sport (Montero Sport to you and me), and Delica I'm sure that's more nostalgia and grass is greener thing than anything else.
  • Varezhka If there's one (small) downside to the dealer not being allowed to sell above MSRP, it's that now we get a lot of people signing up for the car with zero intention of keeping the car they bought. We end up with a lot of "lightly used" examples on sale for a huge mark-up, including those self-purchased by the dealerships themselves. I'm sure this is what we'll end up seeing with GR Corolla in Japan as well.This is also why the Land Cruiser has a 4 year waitlist in Japan (36K USD starting MSRP -> buy and immediately flip for 10, 20K more -> profit) I'm not sure if there's a good solution for this apart from setting the MSRP higher to match what the market allows, though this lottery system is probably as close as we can get.