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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.

Most automakers were still sorting through the rules on Friday, though Ford Motor Co. said its analysis so far suggested its Mustang Mach-E EV will no longer be eligible for federal tax credits.

Under the guidelines, any company that is subject to the jurisdiction of China’s government, or is controlled by the government — including if it is at least 25% owned by a Chinese government authority — would be considered an FEOC. The restrictions would also apply to all production inside of China. However, the rules appeared to leave a question mark over the foreign subsidiaries and operations of privately owned Chinese companies.

 

The new rules seem to bless licensing deals like Ford’s battery plant in Marshall, Michigan, which is owned and operated by the automaker, but licenses technology from China’s battery champion, Contemporary Amperex Technology Ltd., also known as CATL. Tesla Inc. looked into a similar structure with CATL earlier this year, Bloomberg has reported, though the status of those talks is unclear.

Tech licensing

Contractors or tech licensing agreements are permissible so long as the non-FEOC partner has operational control of a facility, though this will be evaluated on a case by case basis.

John Bozzella, president and chief executive officer of the 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 until 2026, a reprieve he called “significant and well-advised.”

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