Auto Industry Warns of Roadblocks to EV Growth

LONDON – U.S. government policies aimed at reshoring large sections of the automotive supply chain could impair the growth of the country’s electric-vehicle market, an American lobbyist tells a key U.K. auto industry conference.

Speaking at the Society of Motor Manufacturers and Traders’ (SMMT) Global Trade Conference, in London, David Schwietert, chief policy officer at the Washington-based Alliance for Automotive Innovation, airs concerns about the Biden Admin.’s Inflation Reduction Act’s manufacturing incentives.

While they were intended to move supply chains away from China and support the transition to electrification, they have some crucial gaps that need to be filled to avoid hindering EV adoption in the U.S., Schwietert warns. 

When the IRA became law in August 2022, it imposed strict local sourcing and manufacturing requirements on the automotive sector that place imported EVs and EVs made largely from imported components at a significant disadvantage compared to models made in the U.S., Canada and Mexico – whose American market access is aided by the USMCA trade agreement. 

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Schwietert notes that at the end of 2022, EVs made up about 7% of car sales in the U.S., rising to a little under 9% by the end of the first half of 2023. However, he says this growth in market penetration has shown signs of “tapering off,” and “more carrots than sticks” are needed to meet the administration's target of ensuring the U.S. light-vehicle fleet comprises 67% electrified vehicles by 2032.  

Matthew Godlewski, vice president, international government affairs and vice president, government and community affairs at Ford of Europe, tells the conference there is “work to be done in the critical minerals space,” in particular, for the U.S. to meet the IRA’s regional sourcing objectives: “Many of the key raw materials that go into electric vehicles aren’t located in North America and even if they were, they’re not going to be processed there any time soon. There’s a long road ahead.”  

China is highly unlikely to fill the gap under existing provisions. The IRA subsidies came on top of 25% tariffs on imported Chinese EVs imposed by the Trump Admin. (which still remain), in addition to a standard 2.5% import tariff.  

Aside from managing the issue of political tensions with China bubbling over into U.S. trade policy, Godlewski highlights the need to “modernize” trade agreements around the world to help support the growth of the global EV market.  

“The piece of this we’ve still got to work on as companies and with policymakers is to ensure we get trade policy right, so we ensure (mass EV adoption) can work on a global scale,” he says, noting many free-trade agreements around the world that “are not fit” to support EV growth.   

As well as restrictive U.S. trade policies, Godlewski singles out “unachievable” European Union goals to localize its supply chains as another problem for the global EV market.  

“We’re dealing with battery rules of origin (based on) language which was created with an aspiration that simply cannot be met,” he says.  

Under the “rules of origin” agreed in the post-Brexit EU–U.K. Trade and Cooperation Agreement, EVs sold in the EU and U.K. need to have 45% EU or U.K. content from 2024, with a 50%-60% requirement for their battery cells and packs, or face U.K. or EU import tariffs of 10%.  

Godlewski’s concerns are echoed by Mike Hawes, CEO of SMMT, who criticizes the “unnecessary, unworkable and ill-timed rules of origin” and calls for a three-year delay in the introduction of the new rules, which are scheduled to come into force Jan. 1, 2024. Under existing EU rules, only 40% of an EV’s value needs to be made up of U.K. and EU localized parts to be free of import duties, with trades of compliant vehicles between the EU and U.K. being duty-free thus far.   

Hawes advocates for the negotiation of new free-trade agreements for the automotive sector across the globe, including a revised trading relationship with China, but most urgently between the U.K. and the EU, setting “realistic” content requirements for batteries and related components that take into account the time and investment required to build new critical-mineral supply chains. He also stresses the need to embed recycling and remanufacturing as part of a sustainable and resilient global automotive business model for EVs, given the cost of creating batteries and other components.  

Hawes acknowledges the importance of China to the global automotive industry and cautions the EU, which recently launched an anti-subsidy investigation into Chinese EV imports, against following the U.S. in imposing punitive tariffs on China-made EVs, which are often low cost – solving a key problem in the EV segment of high vehicle prices.  

“What everyone seeks is fairness (and) we should avoid a trade war at all costs. We need open dialogue with China – one that ensures open access to the world’s largest automotive market,” Hawes says.