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Don’t let a poorly drafted tax credit hobble Arizona’s growing electric vehicle industry

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Opinion: Tax credits can help electric vehicle manufacturing. But those in the Build Back Better bill would hurt Arizona’s growing EV industry.

Recently, we participated in an outstanding trade delegation of Arizona business, government and higher education officials to Mexico City.

A significant part of this mission was spent meeting with many Mexican federal administration and legislative leaders, including Secretary of the Economy Tatiana Clouthier. 

One shared area of concern is a major component of President Biden’s Build Back Better Plan that incentivizes electric vehicle (EV) purchases, albeit only for certain union-backed entities.

Incentives and tax credits, if designed correctly, can be an effective tool to accelerate transportation electrification and adoption, as well as strengthen EV manufacturing and international supply chain cooperation to put North America on a path to compete with China.

This would be particularly beneficial in Arizona, where we are already seeing tremendous growth in the EV sector. Mexico, too, is seeing tremendous growth and investment in EV and component part manufacturing.

Bill would subsidize 1 vehicle not in production

Unfortunately, the House-passed version of President Biden’s budget reconciliation spending bill includes an EV tax incentive proposal that will, if passed, damage Arizona’s burgeoning EV manufacturing sector by disrupting trade with Mexico and the integrated supply chains on which our EV manufacturing relies.

The credit proposed in the Build Back Better Plan would raise EV credits up to $12,500 per vehicle, including a $4,500 credit for American union-made vehicles, plus $500 for American-made EV batteries.

Problematically, the tax credits would only apply to EVs assembled in the United States with at least 50% U.S.-made parts. If the proposal passes, only the Chevrolet Bolt EV and Bolt EUV, neither of which are currently in production or available for purchase, would be eligible for the credit.

Unsurprisingly, both the Mexican and Canadian governments are actively lobbying against the tax credits, saying they contravene the United States-Mexico-Canada (USMCA) trade deal.

Representatives from both countries, with whom the United States shares well-integrated supply chain cooperation with economic benefits for all of us, have expressed disappointment that the United States would do something to significantly undermine the trade relationship with its main commercial partners.

Countries and manufacturers are opposed

But not just Mexico and Canada are opposed – France, Germany, Italy, Japan and South Korea also opposed the provision and sent a message to the Biden administration pointing out that the proposed tax credit will run afoul of international trade laws. 

Moreover, other major automotive manufacturers weighed in against the provision, including BMW, Daimler, Honda, Hyundai, Tesla and Toyota, whose companies engage in EV production but do not have a unionized workforce and would not be eligible for the full credits.

We in Arizona know how critical supply chain cooperation is to our economy. Mexico is Arizona’s largest trading partner by a factor of four, with two-way trade representing more than $16 billion in 2018.

Arizona and Mexico are leaders in the automotive industry, with net trade of nearly $1.7 billion in auto parts annually, together producing 1,488 vehicles daily and supporting more than 50,600 employees.

For years Arizona worked with government and business leaders to improve border infrastructure in a way that supports international trade at our six border ports of entry, including infrastructure upgrades to the Nogales, Ariz., port of entry that resulted in nearly $60 million of private investment for warehouses and distribution centers.

Let’s transform the industry, not hobble it

At a time when we can significantly transform the EV industry, we should be looking at policies that support Arizona EV manufacturing and the integrated supply chain on which this sector relies, thereby increasing the global economic competitiveness of North America as a whole. 

As Luz María de la Mora, the undersecretary for foreign trade in Mexico’s Secretariat of Economy put it, “By disarticulating supply chains in an emblematic sector that generates great opportunities in the three countries, we go against a competitive and integrated North America.”

It seems clear that this tax credit, as currently drafted, is more focused on protecting labor unions than it is on incentivizing EV production and bolstering the global economic competitiveness of the United States.

Even though the wider Build Back Better bill appears to be on life support, we urge our state’s congressional delegation, particularly our U.S. senators, to ensure that this portion of the legislation is not included in any ultimate deal.

Todd Sanders is president and CEO of the Greater Phoenix Chamber. Jaime Molera is former Arizona state school superintendent and the Arizona director for The Western Way, a nonprofit organization that builds support for market-driven solutions to environmental challenges.



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