A relatively less-known tax mitigation provision called the US Duty Drawback program allows US-based automakers to recover the import tariff paid on vehicles manufactured abroad, as per a new report. A key beneficiary of this program is Volvo Cars.
As per US Customs and Border Protection, the Drawback program “is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods and refunded when the merchandise is exported or destroyed.”
In simple terms, automakers can recoup the import tariff with certain exports, as per Automotive News.
The Volvo EX30 will be made at parent company Geely’s Zhangjiakou plant in northeastern China, while the Polestar 2 is made at Volvo Cars’ Luqiao factory in the Zhejiang province along China’s east coast. Meanwhile, the EX90 and Polestar 3 will be manufactured in the US, at the brand’s North Carolina facility.
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This exchange allows manufacturers to recover import tariffs paid for vehicles in the past five years, said Jedd Lancaster, sales manager with customs broker Alliance Drawback Services. The provision allows automakers to recover tens of millions of dollars as the amount returns “to the company’s bottom line.”
General Motors is the only other US-based automaker importing made-in-china (MIC) vehicles. GM reportedly retrieves “a small portion” of the tariffs paid for the Buick Envision crossover made at the SAIC-GM plant in Shanghai.
The EX30 would be Volvo’s most affordable EV with a starting price of $36,145. US deliveries of the MIC vehicle are expected to start in summer 2024. However, it’s unlikely to qualify for the $7,500 federal tax credit but might qualify for state incentives that don’t have the local manufacturing and critical minerals clauses.
In April 2023, Polestar CEO Thomas Ingenlath told Automotive News that it was impossible to manufacture every single model in each and every country they are sold in. Side-stepping the import tariffs could also help Volvo’s upcoming 2.3-million-square-foot Ridgeville, South Carolina factory become an export hub.
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Moreover, the Swedish carmaker doesn’t have the US manufacturing prowess of German or Asian auto giants, as per the report. The brand’s Charleston facility has an annual production capacity of 150,000 units, while Mercedes-Benz and BMW can churn more than double that number every year. Reliance on MIC vehicles seems inevitable for Volvo.
Globally, the Swedish carmaker’s plug-in car sales increased by 50 percent year-to-date to 155,120 units. So far in 2023, the maker of the C40 Recharge and the XC40 Recharge sold over 20,000 electrified models in the US, and it’s possible that its overall car sales in 2023 could be near 300,000.
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