The U.S. Congress began to keep Hyundai and Kia in check as the two Korean automakers continue to enjoy the growth of their electric vehicle sales in the U.S. market. The U.S. Congress made a thing of their business strategy of discounting subsidized electric vehicles through a lease car exception under the U.S. Inflation Reduction Act (IRA).
The Congressional Research Service (CRS) criticized IRA guidelines that include leased electric vehicles in the U.S. subsidy program, citing Hyundai in a recent report titled “Tax Credit Exceptions for Leased Electric Vehicles,” according to sources in the Korean automotive industry on March 17. The guidelines are being used as a “workaround” to avoid IRA regulations and go against the original intent of the IRA.
The IRA, which went into effect in August 2022, provides a tax credit of up to US$7,500 for electric vehicles manufactured in North America only. However, an exception was made for commercial electric vehicles including leased vehicles to be subsidized without such restrictions. This lowered the hurdle at the request of the South Korean government and the Korean automobile industry including Hyundai and Kia.
The CRS reiterated that the exemption will not collide with subsidy requirements if the exception covers cargo transportation vehicles only. The CRS referred to the practice of car dealers applying for subsidies for leased EVs such as the IONIQ 5 imported from South Korea and selling them to customers at low prices.
Insiders of the Korean automotive industry analyze that the U.S. Congress has taken action against Hyundai and Kia because it has been increasing its share of leased EV sales and threatening U.S. automakers. The two Korean carmakers sold 94,340 electric vehicles in the United States in 2023. That was a 62.6 percent increase from the previous year. They posted the highest growth rate among all green car makers in the United States. The company focused on commercial electric vehicle sales, including subsidized leased electric vehicles. Leased electric vehicles accounted for 40 percent of Hyundai and Kia’s electric vehicles sold in the United States last year.
Hyundai Motor Group is focusing on expanding local production of electric vehicles in response to the IRA. First of all, Hyundai Motor Group Metaplant America (HMGMA), a plant dedicated to electric vehicle production in Georgia of the United States, will go live in October this year, more than three months ahead of schedule. Hyundai Motor Group’s six models, including the IONIQ 7, will receive subsidies. Kia will also start producing the EV9, a large sports utility vehicle (SUV) electric vehicle model, at its West Point, Georgia plant (KaGA) in the United States in the second quarter. Hyundai Motor Group is also considering expanding the number of electric vehicles produced at Hyundai’s Alabama plant and Kia’s Georgia plant in the United States. Hyundai and Kia look to sell a combined 600,000 electric vehicles in America and other global markets this year.