New US rules aimed at curbing China could limit tax credits for electric vehicles

WASHINGTON (AP) — The Biden administration proposed new rules Friday that could make it harder for electric vehicles to gain full qualification. $7,500 federal tax credit, The move is complicating efforts to meet President Joe Biden’s goal that half of new passenger vehicles sold in the U.S. be electric by 2030.

Plans outlined by the Treasury and Energy departments would limit EV buyers from claiming the full tax credit if they buy cars with battery materials from China and other countries deemed hostile to the United States.

New rules – needed under Biden signature climate law Consumer acceptance of electric vehicles — approved last year — is likely to slow as Biden tries to boost sales to help meet his goal of halving planet-warming greenhouse gas emissions by 2030. EV sales have tripled since Biden took office, but the US is still dependent on foreign sources – particularly China – for many of the critical minerals needed to produce EV batteries.

After a 30-day public comment period, the proposals will become final in January.

It is still unclear which vehicles will be eligible for the full $7,500 tax credit under the new rules as the government has not yet published a list.

Congress included the language in Inflation Reduction Act This prevents electric cars from qualifying for the full tax exemption if the critical minerals or other battery components were made by a “foreign entity of concern”. The law defines it as any company that is owned, controlled or subject to the jurisdiction of North Korea, China, Russia or Iran, although the main target is China.

Administration officials said the auto industry has been aware of the long-pending rules and has taken steps to develop auto-supply chains in the United States and divert the industry away from China, which has long been a source of lithium and graphite. Such as dominate the production and processing of minerals. In EV batteries.

White House hopes new tax-credit rules will encourage growth of auto-supply chains in the US

“Automakers have already adjusted the supply chain to ensure that buyers who are eligible for these credits continue to do so,” Deputy Treasury Secretary Wally Adeyemo told reporters at a briefing this week. “These changes take time, but companies are investing in the Americans who are buying these cars.”

Inspired by climate legislation, carmakers like General Motors and Hyundai is racing to build factories in the United States To produce batteries and process materials like lithium. But they are still years away from being able to produce an electric vehicle without materials and components from China.

Adeyemo and other officials said the rules are intended to provide clarity after months of uncertainty over how strictly the administration will interpret rules on foreign entities of concern, sometimes known as FEOCs.

“We want clarity particularly from manufacturers as they make large investments in EVs that are critical to the future growth of this important industry,” said Deputy Energy Secretary David Turk.

Asked how many cars that qualify for the tax credit now will lose some or all of the credit next year, Adeyemo said auto companies will “determine which cars qualify” by their own actions.

“These are sophisticated players,” Turk said, referring to the auto industry. Ford, GM and other U.S. companies are “already moving” to boost U.S. supplies of batteries and critical minerals, Turk said. and will move towards compliance in the coming months.

Sam Abuelsamid, mobility analyst at Guidehouse Insights, expects that many EVs are now eligible for the full $7,500 US tax credit, which will be cut in half next year when the new rules take effect.

Automakers could probably comply with the requirement that 60% of battery parts come from North America next year to qualify for the $3,750 tax credit, he said. But it will be very difficult for them to get batteries containing half their critical minerals from the US or countries with which it has free trade agreements, and it is possible that they will lose the $3,750 credit.

Treasury said that starting in 2024, a qualifying clean vehicle cannot include any battery components manufactured by a foreign entity of concern. Starting in 2025, a clean vehicle must not contain any critical minerals that were extracted, processed or recycled by a foreign entity to qualify for the tax credit.

As a result, 2024 and 2025 are likely to be difficult years for automakers to meet battery content requirements, Abuelsamid and other analysts said.

To allow the credit to continue while the rulemaking process moves forward, the proposed rules would provide a transition period for EVs placed in service after January 1, Treasury said.

While smaller tax credits and higher interest rates could hurt EV sales, a new rule allowing tax credits to be applied at the time of sale could alleviate those problems, Abuelsamid said. Getting an advance tax credit — rather than waiting until next year to file a tax return — “will actually lower your monthly payments, which is a huge deterrent for consumers,” he said.

Customers can also take EV on rent And receive the full tax credit because they are classified under the law as commercial vehicles exempt from North America manufacturing and battery-content requirements.

Before the new rules were announced, Democratic senator joe manchin Urged Treasury to adopt the “strictest possible standards” to prevent Chinese-produced minerals or Chinese battery companies from winning electric vehicle tax credits.

Manchin, who chairs the Senate Energy and Natural Resources Committee, was the lead author of a provision that would have barred full tax credits if battery components are manufactured or assembled by a “foreign entity of concern” such as China.

“China has routinely shown a blatant disregard for fair competition, has unfairly taken advantage of state-sponsored investments, and has exploited its market dominance in key industries,” Manchin wrote in a letter to Treasury Secretary Janet Yellen on Nov. 13. It accounts for about three-quarters of the world’s cathode production, 92% of anode production and 76% of lithium-ion battery cell production, Manchin wrote.

The complexity of the rules is illustrated by the controversy over Ford Motor Co.’s plans. set up a factory in michigan It will employ around 1,700 people to make batteries for new and existing EVs. Ford says a wholly owned subsidiary will own the factory and employ workers. But China’s Contemporary Amperex Technology Co Ltd, or CATL, known for its lithium-iron-phosphate expertise, will supply the technology, some equipment and workers.

Adeyemo and other officials declined to say whether the Ford plant’s batteries would qualify for the tax credit.

Associated Press writer Tom Krisher in Detroit contributed to this story.

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