Canada-made electric vehicles will qualify for tax credits under revised U.S. bill

A 2020 Mini Cooper S electric vehicle is displayed at the Canadian International Auto Show in Toronto, Ontario, Canada February 18, 2020.   REUTERS/Chris Helgren
Canadian-made electric vehicles will qualify for tax credits under a new proposed bill in the U.S. (REUTERS/Chris Helgren)

Electric vehicles made in Canada will qualify for expanded tax credits in the United States, a move that is being welcomed by the Canadian government and automotive industry.

The new legislative deal reached between U.S. Sen. Joe Manchin and Senate majority leader Chuck Schumer would expand consumer tax credits for electric vehicles and apply to those built within North America. The original bill, a key part of President Joe Biden's climate agenda, had restricted the credits to vehicles produced by unionized carmakers in the U.S, and was opposed by Canadian governments and auto industry representatives, as well as carmakers such as Tesla and Toyota.

"This is good news for Canadian workers, jobs and our manufacturing industry," Canada's International Trade Minister Mary Ng said in a statement on Thursday.

"Since the Prime Minister's first meeting with President Biden last year, we have been relentless in underscoring that the original proposal would be harmful to both Canada and the U.S., so we're glad to see that recognized in the new version of the bill."

The new legislation, which has yet to be passed into law, includes $369 billion in spending towards energy security and climate change initiatives. Under the bill, automakers will be able to offer $7,500 in tax credits for the purchase of new electric vehicles, and $4,000 in tax credits for purchasing a used electric vehicle.

In a statement, Canada's ambassador to the U.S. Kristen Hillman says Canada has been "relentless" in its efforts to convince Congress and the White House to abandon a plan "that discriminates against Canada and fractures the highly successful integration of our auto sector."

Ontario's Minister of Economic Development Vic Fedeli said in an interview that the policy reversal shows how effective lobbying efforts were over the last year. Fedeli and Premier Doug Ford travelled to Washington in March to meet with officials and business leaders, as well as to discuss the proposed electric vehicle policy.

"We reminded them of how critically important the trading relationship is, and how it supports millions of jobs on both sides of the border," Fedeli said.

"What is in this bill is what we believe is needed, having a 'Buy North American' lens on everything that they do."

The previous version of the legislation would have seen American-made carmakers and parts suppliers feel pain as a result, said Flavio Volpe, the president of the Auto Parts Manufacturers' Association. He says a Canadian manufacturing plant that produced $10 billion worth of vehicles per year relies on about $4 billion to $5 billion worth of parts and raw materials from the U.S. side. American manufacturing plants also rely on parts from Canadian suppliers.

"It would have been impossible to thread the needle on this and not affect Ford, General Motors and Stellantis," Volpe said.

"When the U.S. targets Canadian industrial capacity, especially in electric vehicle production, lawmakers are handicapping their own country's capacity to compete with China."

The expansion of the electric vehicle credits comes as automakers around the world continue to invest heavily in the production of battery electric and hybrid vehicles. This year in Canada, automakers including Stellantis, General Motors, Honda Canada and Ford have announced they will spend billions of dollars upgrading existing and building new manufacturing facilities to help in the production of electric vehicles.

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

Download the Yahoo Finance app, available for Apple and Android.