U.S. tax credit could rev up electric vehicle production in Canada

Canadian automakers breathed a sight of relief Thursday after U.S. lawmakers scrapped part of a massive incentive package for electric vehicles that would have excluded those assembled in Canada from a proposed consumer tax credit.

The $7,500 US credit for "clean vehicles" — which include battery-electric, plug-in hybrid and hydrogen fuel cell — is part of $369 billion in proposed new spending on energy- and climate-related initiatives included in the Inflation Reduction Act.

U.S. senators Chuck Schumer and Joe Manchin, both Democrats, reached a deal late Wednesday to include the credit and a series of other tax and investment measures aimed at expanding the clean energy sector and spurring adoption of EVs in the bill, which hopes to revive an economy struggling to dig out from under 9.1 per cent inflation.

The deal was a surprise, coming less than two weeks after Manchin, a centrist Democrat whose vote is needed to get the bill through the evenly divided Senate, had said he would not support an extensive climate bill President Joe Biden was hoping to pass until inflation was under control.

The Senate is expected to vote on the bill next week before it goes to the Democratic-controlled House of Representatives. 

Flavio Volpe, CEO of Canada's Automotive Parts Manufacturers' Association, said the importance of the proposed amendment could not be overstated and, coupled with the hundreds of millions of dollars the Canadian government is funnelling into EV and battery manufacturing, should give the EV sector the boost it needs.

"This couldn't be a bigger vote of confidence in the North American auto sector," he told CBC's Katie Simpson. "All of these new investments in Canada now have an incredible runway to have this rebirth of Canada's auto sector."

Around 5.6 per cent of new car sales in the U.S. are electric and about 12.6 per cent are electric and plug-in hybrid. In Canada, it's 5.8 and 7.7, respectively.

Volpe said the "Buy American" restriction in the original Build Back Better bill posed a worse threat to the Canadian auto industry than any of the trade restrictions the previous administration of Donald Trump had imposed.

Although Canadian consumers won't directly benefit from the tax credit, the hope is that incentivizing EV consumers in the U.S. will spur manufacturers to make new investments in Canada and rev up related industries, such as critical mineral mining, to help meet growing demand on both sides of the border. 

It means "job security for anyone who exports cars and parts to the U.S." from Canada, Volpe said, "which is 85 per cent of our exports."

Volpe was part of the team of Canadian industry representatives, government officials and diplomats who lobbied Manchin and other U.S. lawmakers relentlessly to get Washington to include Canadian-assembled cars in the credit and to recognize how seamless the cross-border auto parts and manufacturing supply and production chains are.

"We're one integrated market, especially in automotive. There is absolutely no border here," he said. 

Canada's ambassador to the U.S., Kirsten Hillman, was one of the people meeting with senators and lobbying on behalf of Ottawa over the last nine months. She was relieved to see that work seems to have paid off.