A key U.S. senator’s abrupt step on Sunday to unsteady the Biden administration-backed electric vehicle tax credit is a positive development for Canada, auto experts say.
But the industry would be premature in declaring victory, as the incentive could still spell long-term trouble for Canada’s EV ambitions.
It is too early to proclaim the bill has reached the end of the line, said David Adams, president of the Global Automakers of Canada, which represents overseas car companies in Canada.
“I think Senator [Joe] Manchin has made his voice fairly clear for the moment, but whether or not that gets worked on over the course of the next number of days or weeks remains to be seen.”
Automotive Parts Manufacturers’ Association President Flavio Volpe, likewise, said in a tweet Sunday that Manchin’s official opposition is good news for the auto industry in both Canada and the United States, but it is “not over yet.”
With international tension around the tax credit rising to a fever pitch this fall, Volpe has repeatedly pointed to Manchin as a key obstacle for the Democrats on the bill, noting the senator has a thorough understanding of the two countries’ integrated auto supply chains.
Over the weekend, the senator, a Democrat from West Virginia, said he had spent months looking for a path forward on the wide-ranging social spending bill that includes up to US$12,500 in tax credits for American EV buyers.
“Despite my best efforts, I cannot explain the sweeping Build Back Better Act in West Virginia and I cannot vote to move forward on this mammoth piece of legislation,” he said in a statement, quashing any chance the legislation would clear the U.S. Senate before the end of 2021.
The EV incentive, which would dramatically increase the cost of Canadian-made EVs in the United States, went unmentioned in Manchin’s official comments, though he has shared his disapproval of parts of the EV tax credit previously.
White House Press Secretary Jen Psaki said the senator’s about-face on the bill conflicts with previous commitments to President Biden, but that the administration would continue to “press him to see if he will reverse his position yet again.” Those efforts will spill into next year, she added.
A tax credit is likely needed to push American consumers to buy EVs, Adams said, but Washington attempting to keep the global industry out of the U.S. market is not the way to go about it.
“The challenge with a lot of this stuff, it gets wrapped up in the Buy America provisions. Those tend to not be helpful and tend to cause either retaliatory action or certainly raise the ire of trading partners elsewhere.”
Instead, Adams said, as Washington races to reorient the American auto industry for EVs, it should look at the battery minerals and auto manufacturing capacity Canada can bring to the table.
North of the border, Parliament Hill and Queen’s Park have been taking strides to bring EV assembly and battery manufacturing to Ontario, but the “looming” U.S. tax credits have created a disincentive, according to Greig Mordue, an associate professor of engineering and ArcelorMittal chair in advanced-manufacturing policy at McMaster University.
“A very strong message has been sent, and my sense is that investors will be very reluctant to invest in Canada in either battery manufacturing or new assembly operations in the aftermath of [the U.S. bill].”
Even if the tax credit ultimately fails, Mordue said, the damage is likely already done, as potential investors gravitate toward the politically expedient option and the incentive has added to the uncertainty around investing in Canada.
“There will be a cloud that hangs over [Canadian auto] for a considerable period of time.”