Volkswagen has started manufacturing electric vehicles at its new Chattanooga, Tennessee, facility. Coincidentally, the United States recently passed and started implementing the Inflation Reduction Act, a law that provides incentives to buyers of electric vehicles that are partly or fully made on U.S. soil.
Hein Schafer, a senior VP at the American division of Volkswagen, said during a webinar that the company was excited to announce that its crossover 2023 EV model, the Volkswagen ID.4, was now being built at its Chattanooga production plant in Tennessee. He revealed that this vehicle is performing excellently on the market given that the company currently has at least 30,000 advance orders for this particular vehicle. Previously, the ID.4 was being imported into the U.S. from the Europe-based production facility of Volkswagen. Schafer promised that additional Volkswagen EV models are slated to start being produced at the Tennessee plant.
It is reasonable to assume that the plans and decisions to start Volkswagen electric vehicle production in the U.S. happened a while back, but the timing of the commencement of actual production seems perfect at a time when the Inflation Reduction Act started being implemented in August.
The announcement coming from Volkswagen about the production of EVs on U.S. soil is likely one of many similar announcements expected to come from different automakers. This is because several manufacturers are working round the clock to move electric vehicle production back into North America, partly to be closer to their buyers in this major market and also to benefit from the tax incentives of the federal government as it supports motorists in switching to the more climate-friendly electric vehicles.
A lot is at stake for EV manufacturers. For example, a trade group in the auto industry estimated that approximately 70% of all 72 electric vehicle models that were previously eligible for the tax breaks offered by the federal government no longer qualified under the terms of the Inflation Reduction Act. For such models to compete on the U.S. market, production must be moved to America so that the currently high price of most EVs can be subsidized by the incentives provided as a way of boosting the uptake of electric vehicles in the U.S.
Additional legislation was passed adding the condition that the materials used to make EV batteries also need to be sourced from North America, or at least not China, in order to qualify for EV subsidies. This is a tough requirement to meet, and it is likely that manufacturers such ElectraMeccanica Vehicles Corp. Ltd. (NASDAQ: SOLO) are holding talks with lawmakers and government officials to find a way forward on the timing of this battery condition.
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