Hyundai Motor may benefit $1.65 bn US tax credit on Georgia EV plant

South Korea’s auto conglomerate Hyundai Motor Group could claim federal tax deduction of up to $1.65 billion on its $5.5 billion facility devoted to production of electric vehicles in Savannah, Georgia, partly helping to offset immediate sale loss from the new Inflation Reduction Act (IRA) that restricts tax credit claims on EV purchases to vehicles assembled in the U.S. starting August.

The IRA laced with more than $200 billion in tax incentives to combat climate changes includes the provision on “qualifying advanced energy project” credit of up to 30 percent for investment facility when requirements in wage, domestic materials, and location in targeted environmental areas are met.

The treasury and energy departments would be unveiling detailed guidelines in February.

Experts believe Hyundai Motor Group’s new Savannah site could qualify to the maximum tax credit of $1.65 billion.

The South Korean auto giant within the year starts construction for $5.5 billion project in Georgia to build an EV-dedicated smart manufacturing facility and a battery cell factory. Once the construction finishes in 2025, the plant will be capable of producing 300,000 vehicles per year and creating 8,100 new jobs.

The federal tax break would be separate from the $1.8 billion incentives promised by the Georgia state government in July.

The maximum tax savings can offset losses in EV sales in the U.S. until the factory is up and running under the new EV tax credit guidelines that would also require battery and key material sourcing for eligibility in tax claims from next year.

Combined EV sales of Hyundai and Kia in the U.S. that have ascended to No. 2 in the U.S. market after Tesla in the second quarter waned already in the third quarter.

Experts expect sales setback from the loss of tax credit could affect 100,000 units of Hyundai and Kia EVs worth 1 trillion won ($696.6 million) next year.

Hyundai Motor Group Chairman Chung Euisun will meet with Ali Zaidi, Deputy White House National Climate Advisor, during his visit to the groundbreaking ceremony for the new Georgia plant later this month, according to report by Bloomberg.

Hyundai Motor earlier planned to break ground for the factory in the first half of next year but decided to advance the timetable due to the IRA.

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