EPRS Admin By / February 9, 2023

Incentives for private buyers

Incentives for private buyers of electric vehicles (in € thousands).

The IRA’s scheme of tax credits for electric vehicles (EVs) has stirred up the greatest controversies. The act provides for a consumer tax credit of up to US$7 500 per purchased EV. For this to happen, two conditions must be met: first, at least 40 % of the critical raw materials used in the electric battery must have been extracted in the US or in a country with which the US has a trade agreement. This threshold will increase to 80 % by 2026. Second, at least 50 % of the battery components need to have been made or assembled in the US, Canada or Mexico (parties to the USMCA free trade agreement). This threshold will increase to 100 % by 2029. Importantly, the final assembly of the vehicle must be carried out in the USMCA area. US customers would not receive this tax credit if they buy European EVs. In the EU, 21 Member States offer varying incentives to private customers buying EVs (see Figure 2). These incentives range from €2 000 (Finland) to €19 000 (Cyprus) per car, but only eight countries offer the levels similar to or exceeding that of the future US subsidy (above €7 000). However, the EU does not discriminate against EVs made outside the bloc: for instance, customers buying US-made Teslas would still receive the national incentive. In this respect, the IRA creates obvious risks for the European automotive industry: presently, Europe accounts for more than a quarter of global EV production while the US for just 10 %. With the IRA, some European manufacturers wishing to benefit from the subsidies may relocate their production to the US or at least develop US-integrated supply chains.

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