Washington and Tokyo are preparing to make Japanese vehicles eligible for tax credits in a U.S. initiative for electrified vehicles that use critical minerals from the United States or countries that it has free trade agreements with, sources familiar with the talks said Tuesday.
Under the changes, the United States would relax the rules to allow EVs to contain key minerals provided by Japanese companies, such as parts makers, despite Tokyo not holding a free trade agreement with Washington.
Promoting EV uptake is a key U.S. government policy. As part of its Inflation Reduction Act passed in August 2022, it offers tax credits of up to $7,500 on purchases of electrified vehicles that come off North American assembly lines and in which a certain amount of battery-critical minerals are sourced or processed domestically or from free trade agreement countries.
Japanese companies play a major role in processing minerals sought for electric vehicle production, and both governments have decided that easing requirements will be mutually beneficial, the sources said. The changes are expected to be announced by the U.S. Department of the Treasury this month and take effect immediately, they said.
The relaxation will likely help Japanese firms compete on a level playing field against rivals in countries such as South Korea, which has a free trade agreement with the United States.
Japan and European countries have previously protested conditions that exclude them from joining the American Clean Vehicle Credit scheme.
In its campaign seeking eligibility, Tokyo submitted a letter to the U.S. government in November calling on requirements for the scheme to be eased, and senior figures have requested that revisions to the requirements be made.
But attempts by European countries, Japan and South Korea to negotiate with the United States on easing its domestic final assembly conditions have stalled, and foreign manufacturers will likely expedite moves to create assembly bases in countries and territories eligible for the breaks.
Following a detailed announcement of the changes, the U.S. Treasury intends to hear the views of many overseas administrations and firms on the need to relax requirements.