Why Are We Subsidizing Mexican Electric Vehicles?

By JOEL D. JOSEPH

Congress, in its infinite wisdom, provides for a $7,500 tax credit to lease an $80,000 Audi Q5 that is made in Mexico with 51% Mexican parts, 42% German parts and 1% U.S./Canadian content. This is part of the Inflation Reduction Act that was supposed to encourage electric vehicle production in the United States. We are subsidizing a car that is at most 1% American!

The U.S. federal tax credit for electric vehicles (EVs) applies to vehicles that are assembled in North America, which includes Mexico. The credit can be up to $7,500 for new, qualified plug-in EVs or fuel cell electric vehicles (FCVs) purchased in 2023 or later. However, the amount a taxpayer can claim depends on several factors, including the vehicle's manufacturer's suggested retail price (MSRP), the taxpayer's modified adjusted gross income (MAGI), and certain battery components and critical mineral requirements. Not all EVs qualify for the full $7,500 credit.

The Audi Q5, including its plug-in hybrid version, is produced in San José Chiapa, Mexico. The Audi Group's plant is located on 1,000 acres, more than one square mile, near Puebla, Mexico.

The Honda Prologue electric car’s final assembly in Mexico makes it eligible for the full $7,500 federal EV tax incentive. Sales of the fully electric Prologue began in March, 2024. At the same plant in Ramos Arizpe. Coahuila, Mexico, General Motors manufactures the 2024 Chevrolet Equinox EV and the Blazer EV, which also qualifies for the $7,500 tax credit.

U.S. taxpayers bailed out General Motors in 2009 with billions of dollars. We should have required GM to use the bailout to manufacture cars in the United States, not Mexico or Canada, but failed to do so.

The Ford Mustang EV is also made in Mexico and qualifies for the tax credit.

Mexico's EV production reached 106,180 units in 2023: 94,436 Ford Mustang Mach-E EVs were produced as well as 11,744 Chevrolet Blazer EVs. In 2024, Mexico’s electric vehicle production will more than double.

Thanks to a loophole in the IRA law, many new battery-powered vehicles—even those that don't qualify for the credit if purchased, can receive the full $7500 credit if they're leased. You cannot personally claim an EV tax credit on a leased vehicle, because the automaker's lender is the owner. However, many manufacturers are passing these savings on to consumers via lower monthly payments and/or upfront costs.

The Chrysler Pacifica Hybrid PHEV (2022 through 2024 model years, MSRP $80,000 or below) is made in Canada. The Pacifica also qualifies for EV tax credit.

According to the Council on Foreign Relations, the U.S. auto sector has lost some 350,000 workers since 1994—a third of the industry—while Mexican auto sector employment spiked from 120,000 to 550,000 workers. NAFTA was passed in 1993.

Mexico built one million cars in 1992 before NAFTA was passed and now produces four million cars per year. At the same time U.S. car production has decreased from 13 million to 10 million cars.

NAFTA 2.0 was passed in 2020 under the Trump Administration. It mandated that cars made in Canada and Mexico be treated the same as cars made in the U.S.A. Big mistake. This law is the reason that Congress passed subsidies for cars made in Canada and Mexico.

Because NAFTA 2.0, formally called the U.S. Mexico Canada Agreement, was not passed as a treaty, it can and should be repealed by Congress. The United States should not be subsidizing its own demise by encouraging automakers to produce cars in Mexico rather than the United States.

Joel D. Joseph is a lawyer and founder of the Made in the USA Foundation, a non-profit organization dedicated to promoting American-made products. Email joeldjoseph@gmail.com.

From The Progressive Populist, September 1, 2024

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