US incentives to buy electric vehicles must not discriminate against German manufacturers

    Berlin, December 08, 2021

    US parliamentary bills damage transatlantic cooperation – unilateral funding impedes global climate protection goals – new trade conflicts must be prevented

    In the USA, draft laws are currently being discussed for tax incentives for the purchase of battery-operated vehicles. These drafts would severely disadvantage vehicles from German and European manufacturing locations and discriminate against local German manufacturers. The proposals, which are currently being negotiated in the US Senate, tie the tax breaks for purchases to local added value and production in the US, and require that US trade unions are to be represented in companies as a further condition. 
    VDA President Hildegard Müller criticizes the unilateral funding: "The VDA welcomes tax incentives for the transition to electromobility in order to encourage more consumers to buy electric vehicles and thus contribute to the implementation of global climate goals. However, these incentives should also be fair and effective. We therefore expressly appeal to the decision-makers in the USA to reconsider the present plans and not to discriminate against manufacturers." 

    The proposals are designed to enable electric vehicle buyers to receive tax breaks of up to USD12,500. However, if the proposed law will be adopted in its current form, only two models of the more than fifty electric vehicles currently on the market will benefit from the subsidy in full. These are models from American manufacturers only. The vast majority of the electric vehicles offered in the US market, including the products offered by German manufacturers, would be excluded from full funding. This applies to both imports and models made in the USA in factories where the desired US union is not represented. 

    While the models produced by German manufacturers in the USA would only receive the significantly lower basic subsidy (USD4,000 are currently being discussed), imports will no longer receive any subsidies at all from 2027. 
    "Unilaterally designed funding criteria contradict transatlantic cooperation, which we should better intensify rather than slow down. We now need joint coordinated efforts to achieve the climate goals. New trade conflicts must be avoided in any case," Müller said. 
    Against this background, 25 ambassadors of international trading partners of the USA protested against these proposals in a joint letter. Among other things, it is warned that the USA would violate the rules of the World Trade Organization (WTO). In addition, implementation of the current proposal would counteract the global goal of reducing emissions. In a letter to the US Senate, EU Vice President and Trade Commissioner Valdis Dombrovskis also points out that the EU and the USA have just agreed to work closely together on climate issues and that the planned measures would contradict this spirit. The transatlantic supply chains of manufacturers and suppliers would be put at risk. The VDA shares this criticism. 
    In addition, the NAFTA successor USMCA has already contributed to a stronger localization of production in North America. For the production sites of manufacturers and suppliers in Germany and Europe, it is of central importance that export opportunities do not deteriorate further. 
    Müller continues, "With the establishment of the Trade and Technology Council (TTC) and the agreement on US tariffs on steel and aluminum, we are basically on the right track. Funding for electromobility, regardless of the manufacturer's origin and union organization, should be a matter of course – as is also the case in Germany." 
    In fact, the US proposals stand in opposition to the promotion of electromobility in Germany, where import models are also promoted. 
    The share of imports in the models funded in Germany is currently 67%, including models produced by German manufacturers abroad. 
    "International trade is an important fundament for us. We need imports, but we also want to be able to export," demands Müller. 

    The German manufacturers produced more than 742,000 cars in the USA last year and employ more than 60,000 people including the commercial vehicle sector. These should in no way be disadvantaged by the new rules. For Germany as a location, the USA is the second most important export market with a current share of around 12%. In 2020, cars worth EUR13.4 billion were exported to the USA. Including commercial vehicles, engines and supplier parts it was EUR22.1 billion. 
    For further information please see the VDA position paper.