U.S. President Joe Biden signed the Inflation Reduction Act, which offers tax credits to electric vehicles only produced in North America, on Tuesday despite the South Korean government’s concerns. As the act took effect immediately after signing and support is cut off, Hyundai Motor and Kia Motors will face issues in their strategy to expand in the U.S. electric vehicle market. It will threaten South Korean economy in the second half of this year along with the worsening situation in the semiconductor market, which is one of the main categories supporting South Korean export along with automobiles, and its impact on Samsung and SK Hynix.
The Inflation Reduction Act signed by President Biden includes a clause that tax deduction benefits are offered only to electric vehicles produced or assembled in North America. Hyundai Motor Company’s IONIQ 5 and Kia’s EV6, which do not have electric vehicle production line in the U.S., are excluded from the benefits. U.S. customers who buy the IONIQ 5 or the EV6 cannot receive tax deduction benefits of up to 7,500 dollars per car.
The list of electric vehicles eligible for the subsidies announced by the U.S. Treasury Department and the Energy Department includes all electric vehicle models by Ford and Leafy by Nissan. In particular, Tesla’s Model 3, which is a competitor of the IONIQ 5, is likely to become eligible for the support, which would undermine the price competitiveness of Hyundai and Kia.
The South Korean government and the European Union claimed the U.S. that the condition of production in North America is in violation of the World Trade Organization’s rules. However, the condition is unlikely to change as the Biden administration is determined to keep China in check and build a U.S.-led electric vehicle supply chain.
Meanwhile, the semiconductor market, which is another main category of South Korea’s exports, is experiencing a recession for the first time in 10 years. “Samsung Electronics and SK Hynix have signaled plans to dial back investment outlays, while Taiwan Semiconductor Manufacturing Co. indicated a similar expectation,” Bloomberg reported on Tuesday. “South Korean exports, which have long correlated with global trade, are likely to decline.”
Hyoun-Soo Kim email@example.com · Gun-Huk Lee firstname.lastname@example.org