With the push to accelerate electric vehicle production in the U.S. comes concurrent acceleration of an electric vehicle charging network, as well as increasing speed of electric battery manufacturing, clean energy and semiconductor chips production. All these industries require significant suppliers and part manufacturers, as well as related repair and maintenance. With the U.S. government incentivizing investment through several federal programs, there is significant opportunity to obtain investment incentives in the U.S. and Mexico for USMCA manufacturers.
Currently, U.S. states are experiencing high revenues due to the flow-down of COVID funds, continued consumer spending, and United States federal programs, such as Build Back, Buy American, CHIPS, and the Inflation Reduction Act, which are sending billions of dollars their way. This has caused the creation of new incentive programs at the state level as well which also provide significant incentives to USMCA manufacturers.
Federal Incentives
Some of the most advantageous federal incentives include:
Inflation Reduction Act – credits and direct grants for battery components and electric vehicle charging station equipment. Direct grants and loan guarantees for clean vehicle manufacturers and suppliers, including component manufacturers.
Note that many of these tax credits are refundable, meaning no significant US federal tax liability is needed, and some can be transferred to a willing buyer.
Build Back - $1 billion to 24 states for regional industry coalitions to make investments in the local economies, expand economic opportunity, and create jobs. Includes Michigan, California, North Carolina, Missouri, Oklahoma, New York, Texas, Virginia and more.
Buy American Act – increases requirements for Federal agencies to procure domestic materials and products for public use. This covers a wide variety of products, supplies, and consumables if they are manufactured in the U.S. Thus, a USMCA manufacturer who locates a facility in the U.S. may be qualified to be a direct supplier to the U.S. government.
The federal programs produce sizable benefits, yet, there are even bigger dollars available at the state level, as they compete for jobs.
State Incentives are focused on:
- Chip manufacturers and clean energy development
- Solar panel production
- Electric vehicles, parts, components
- Electric vehicle charging stations across the U.S., including their parts and components
- Light manufacturing and remanufacturing
The best approach to obtain these incentives is through the state and local economic development organizations. Coordinating with these groups can produce wide-ranging benefits for USMCA manufacturers. The states offer a larger variety of benefits - from grant funds for infrastructure development and facilities to property tax abatements and holidays, sales tax exemptions on purchases of equipment, reductions in utility costs, qualified expense reimbursement for training and pollution control expenses, direct payments for per employee training, and more. For example, in Illinois, the local governments can reduce real and personal property taxes and provide to the employer a portion of the employee income tax withholding. In Michigan, incentives for light manufacturing can include abatement of property taxes, elimination of sales taxes on equipment, as well as a direct grant for the lease of a facility.
Several of the above benefits, both at the federal and state levels, may extend to USMCA and other treaty countries. For example, the Federal Highway Administration´s "Buy America" program contains no origin review of EV charger's "subcomponents", meaning that the parts that go into the final charger assembly do not necessarily have to be manufactured in the United States; in the Electric Vehicle Tax Credit, the recycling, refining or supply of battery-critical materials could come from within the USMCA-region, or their extraction/processing may occur in a country with a U.S. Free Trade Agreement; and a full one half of the Mineral Sourcing Requirement for batteries requires USMCA battery assembly. Several state programs contain supply chain provisions that could extend beyond U.S. borders under certain circumstances. It is undisputed that the existence of these programs will bring a significant boost to U.S. manufacturing, with Mexico reaping a significant benefit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
