In a joint effort to curtail EV component dependence on China and strengthen supply chains, the United States and Japan signed a trade agreement on Tuesday for electric vehicles battery minerals, granting larger access to Japanese automakers to the U.S. EV tax credit of $7,500.
The U.S. Treasury Department had hinted at the future plans of casting the EV net, further than the shores of the U.S. by way of expansion of sourcing critical mineral components of the electric batteries, in a white paper released on December 29, 2022, according to Bloomberg.
Swiftly negotiated, the U.S.-Japan treaty forbids both counterparts from acting on bilateral export restrictions on the most critical minerals, such as lithium, nickel, cobalt, manganese, and graphite for electric car batteries.
The U.S. Administration stated that this synergistic collaboration also combats “non-market policies and practices” of other countries in the EV industry and brings to light, orchestrated cycles of foreign investments in critical mineral supply chains.
“Japan is one of the U.S.’s most valued trading partners and this trade agreement will enable the deepening of the existing bilateral relationship.”
The leader of electric cars in the EU, German automaker Volkswagen plans to build a $2 billion EV plant in South Carolina, United States.
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According to the climate-focused IRA (Inflation Reduction Act), electric vehicles could qualify for the $7500 EV Tax Credit in the U.S., only if Automakers pertained to the condition of building or sourcing critical components from North America or free trade agreement countries. After all, the future is EV. This rule had drastic detrimental value on several EVs or plug-in hybrids which weren’t eligible for the electric vehicle tax credit.
This move had affected even Tesla’s worst year when electric car enthusiasts couldn’t avail of the Elon Musk-owned company’s EV Tax as it obtained most of its material from China.
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The United States had no part in any qualifying agreements with any of the leading electric car manufacturers including South Korea, the EU, and Japan with an affiliated supply chain.
This trade treaty between the U.S.-Japan aims to widen the $7500 Electric vehicle tax credit access to more automakers, with the U.S. Administration’s fixation on mineral-centric trade deals. Japan has cemented its innovations in the EV industry in the past, with revolutionary organic cotton battery plans.
“A grand welcome as the United States continues to integrate allies and partners to strengthen supply chains for minerals critical to EV production, through the Inflation Reduction Act.”
Both countries have agreed to review the trade agreement of minerals, every two years – to ascertain whether to terminate or amend it. The U.S. Government is also in close negotiations with the EU (European Union).
One-half of the EV Tax credit is earmarked for North American-assembled electric vehicles and batteries, which is a provenance for palpable apprehension and tensity for Japan, South Korea, and EU automakers, who believe these incentives can render their electric cars uncompetitive.
The other moiety of the EV tax is fortuitous on a minimum of 40 percent of critical minerals of the battery being processed, recycled, or extracted on U.S. soil, or in a country powered by a free trade agreement with North America.
“As the demand for electric vehicle batteries is expected to continue to rise significantly, the urgent issue prodding in EV automakers’ minds is to secure important minerals, critical for electric cars production.”
This could presage Japan’s EV tax eligibility with Electric vehicle materials being sourced from the U.S.–Japan trade agreement. Japan’s trade minister, Yasutoshi Nishimura informed Tokyo reporters that the Japan-sourced battery minerals were expected to be eligible for U.S. EV tax credits. Previously, officials had opinionated the definition of sourcing requirement by the U.S. Treasury for the EV tax subsidies, by the first week of April. Automakers and EV battery manufacturers are eagerly awaiting this decision.
