Hyundai’s $5.5b EV plant may receive fewer incentives in US

Concerns raised that protectionist policies will drag down EV investments in US

Hyundai Motor’s first electric vehicle-only plant under construction in Ellabell, Georgia (Bloomberg)

Hyundai Motor Group might not receive full tax credits from the US for setting up an electric vehicle manufacturing plant in the state of Georgia, although it made hefty investments in the new production base, media reports said Wednesday.

According to the Korea-based news outlet, Seoul Economic Daily, the US Department of Energy is putting off responding to the carmaker’s request to apply the maximum 30 percent tax break for the Georgia plant. Given that the company has vowed to inject more than $5.5 billion, the combined incentive, which includes a corporate tax credit of 21 percent, was expected to be up to 460 billion won ($3.4 billion).

Under Section 48 of the Investment Tax Credit provision modified by the Inflation Reduction Act, an allocated credit of 6 to 30 percent is available for advanced energy manufacturing investments, including EV production, and renewable energy projects.

Hyundai Motor applied to the Department of Energy in August 2023, but the department has requested additional documents and has yet to respond on whether the company would qualify for the incentives, sources said.

The US government’s stalling tactics have put Hyundai Motor on edge, especially when it had expected to qualify for the full credits with the Georgia plant, which will create job opportunities for more than 8,000 people. With an annual production capacity of 300,000 units of electric cars, construction of the plant is predicted to be complete by October.

“The company is still in talks with the US government on the tax credit issue. Nothing has been decided yet and we’re waiting for a response,” said an official from Hyundai Motor Group, declining to share further details.

Industry insiders say the US might be considering offering tax breaks to a large number of companies, including local ones, within the $10 billion ITC budget, rather than handing out substantial benefits to foreign behemoths like Hyundai.

For instance, the ITC, which aimed to offer more incentives to those who made huge investments in the US, introduced new provisions such as the “prevailing wage requirement” in 2022, offering more protections to US workers. The wage requirement refers to a combination of the basic hourly wage rate and any fringe benefits paid to laborers in a specific type of work.

In a move to fulfill the new guidelines and tackle the widespread United Auto Workers union strike, Hyundai Motor said last year it would raise wages for workers by 25 percent at its Alabama and Georgia plants by 2028, the same levels announced by General Motors, Ford and Stellantis. Unlike the Big Three, the Korean carmaker is not represented by the UAW.

However, experts say the company’s efforts have not done much to push the US government to allow the full ITC tax break.

“From the start, the IRA was designed to protect American interests,” said Kim Pil-su, a car engineering professor at Daelim University. “With the heightened inflation risk, which directly affected public opinion on the Biden Administration, the regulations became even more protectionist.”

Due to the upcoming US presidential election in November, Kim added that Hyundai might face a worst-case scenario -- receiving the minimum 6 percent of the credit.

Choi Jae-won, a chemistry professor at Gyeongsang National University, echoed the view and noted, “If Trump, who has vowed to repeal the IRA, wins the election, more protectionist policies will be implemented and the situation will be even more challenging for Hyundai.”

“Aside from the carmaker’s wholehearted efforts, the Korean government should use diplomatic channels and appeal to the US, emphasizing that the Georgia plant will bring huge economic benefits to the country by using the local labor force and (local) car components.”

By Byun Hye-jin(hyejin2@heraldcorp.com)