Column: U.S. EV future up to Toyota, Hyundai

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The senatorial compromise between Joe Manchin of West Virginia and Majority Leader Chuck Schumer known as the Inflation Reduction Act resulted in a complicated and annually changing program that nominally expands the federal electric vehicle tax credit, though in reality it reduces taxpayer support for EVs in the short term.

In later years, it may encourage Americans to buy more EVs — maybe a lot more. And it could be glorious: with millions of clean-running cars and crossovers made in North America with key inputs from economic allies for middle-class consumers.

Alternatively, the cost of earning the federal subsidies could be too high to justify even a whopping $7,500 incentive. If that’s the case, the government might largely get out of the incentive business, leaving the EV market to its own devices. I would suspect that would mean a slower pace of growth for most companies and continued rapid expansion for Tesla, which hasn’t had a federal consumer subsidy in the U.S. since mid-2019.

Tesla’s Model Y may, in fact, qualify for some federal support when new rules take effect Jan. 1. Some General Motors vehicles, the Volkswagen ID4, Nissan Leaf and Mustang Mach-E may as well, though we don’t really know. Battery mineral sourcing is opaque — perhaps even to the companies themselves. John Loehr of AlixPartners noted on our LinkedIn Live session last week that minerals can come from three or four tiers down the supply chain, where automakers have little visibility or verifiability.

But here’s the thing: The success or failure of this policy is really in the decision-making machines at the two companies that probably got hurt the most, Toyota and Hyundai.

Toyota is a funny one to me, because it was instantly hailed as the big winner in the political horse-trading. One might assume that Toyota would benefit, since Manchin has a Toyota factory in his state, and his rejection of Biden’s original Build Back Better environmental and health care-oriented economic play was largely seen as a repudiation of the Michigan delegation’s efforts to tilt the market in favor of UAW-made EVs.

For those of you who weren’t keeping score, Toyota this spring crossed the 200,000 limit in the original EV incentive program, which cut its federal support in half to $3,750. After six months, that would’ve been cut in half again.

But instead of 10 more months of partial credits for its plug-in hybrids and one EV (which isn’t safe to sell at the moment), the world’s largest automaker — the company that popularized affordable gasoline-electric hybrids — had its customers’ credits yanked: just one example of the Inflation Reduction Act making fuel-efficient vehicles less affordable.

Of course, it could also be a tool to restore Toyota’s full credit. It’s entirely possible for the company to make its plug-in hybrids in Kentucky and Ontario. The decision must hinge on the requirements for sourcing of key minerals and battery components.

But Toyota’s misfortune is a pittance compared with Hyundai Motor Group. Holy smokes! That company, which is an unusual combination of the two rivals that dominate the South Korean auto market, really had the rug pulled out from under it.

Hyundai’s EV sales, as measured by new-vehicle registrations, rose 150 percent in the first half of the year to almost 15,000, while Kia’s jumped sixfold to almost 19,000, according to our data partner Experian. High-end mainstream models, such as the Hyundai Ioniq 5, Kia EV6 and Kia Niro, had made the Korean group the leader of the pack that trails Tesla in EV sales — a strong No. 2 with aggressive EV plans for each of its brands.

But they’re all imports, at least for now, and therefore ineligible for the consumer incentives they had before Biden signed the program into law.

Hyundai has plans to make a battery-powered Genesis GV70 this year in Alabama. And it’s building a battery and assembly plant near Savannah, Ga., but that site isn’t expected to be producing Ioniq 5s until 2025.

The Manchin compromise is a massive gamble, and it’s starting out in the hole with the swift and severe changes to the federal program.

The promise of a big check or two attached to every EV sale might spur a whole matrix of investments in mining, refining and recycling as well as battery and vehicle assembly plants throughout the U.S. and trade allies.

Or the high hurdles required to earn each half of the subsidy may be too costly, and companies will decide that it’s a better strategy to buy cobalt and other minerals from unsavory places in order to provide more performance at a lower price.

Many elections will be held before we know whether this camel of an EV policy is a winning strategy. Manchin, Schumer and Biden may all be retired before we can see if 40 to 50 percent EV market share by 2030 is possible. But that’s how it is when a long-lead-time industry is in a time of rapid change.

Progress toward solid-state batteries or mass manufacturing of cobalt-free batteries are still years in the future, and yet possible in this decade. For the sake of the industry and the planet, I hope these policies do more good than harm.