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US sets limits on Chinese content to receive EV tax credits

Joe Deaux, Gabrielle Coppola, Ari Natter, Bloomberg News on

Published in Business News

The Biden administration released long-awaited rules designed to block electric-vehicle manufacturers from sourcing battery materials from China and other foreign adversaries, while giving automakers some flexibility to comply with the new mandates.

The guidelines, which were required as part of a deal to extend the $7,500 tax credit through Biden’s signature climate law, establish a 25% ownership threshold for a company or group to be classified as a foreign entity of concern, government speak for businesses or groups owned or controlled by U.S. geopolitical foes. The restrictions will apply to battery components next year, then include suppliers of key battery raw materials, such as nickel and lithium, in 2025.

The definition has wide-reaching implications because starting in 2024, vehicles containing any battery components manufactured or assembled by FEOCs will no longer qualify for the tax credit. In writing the highly-anticipated rules, the Biden administration has tried to balance two competing agendas — weaning U.S. industry off of low-cost Chinese materials that dominate today’s supply chains, while still incentivizing EV adoption to combat climate change.

Delays in spelling out the requirements have left the mining, auto and battery industries in limbo, with just weeks until the new rules kick in. Outlining them now will give automakers and their suppliers some certainty in project planning.

John Bozzella, president and chief executive officer of the major auto lobbying group Alliance for Automotive Innovation, praised the Treasury Department for finally providing clarity about the rules. He also lauded the agency for exempting requirements for trace materials for two years, a reprieve he called “significant and well-advised.”

“Otherwise the EV tax credit may have only existed on paper,” Bozzella wrote.

 

Autos Drive America, which represents foreign automakers operating in the U.S. like Hyundai Motor Co. and Toyota Motor Co., also welcomed the clarity, but urged the U.S. to grandfather in more countries to provide critical minerals through free-trade agreements.

Indonesia has been lobbying U.S. officials for a free-trade pact that would make its products IRA-compliant. The U.S. has already struck such a deal with Japan.

Passed into law last year, the Inflation Reduction Act has attracted more than $100 billion of investment in the North American battery and EV supply chains as part of efforts to reduce reliance on China. However, the Asian nation’s dominance of the global industry for now means that only a limited number of models would be currently eligible for the IRA tax credit.

There will be a public comment period before the rules are finalized to take effect Jan. 1.

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