The Biden administration has unveiled eagerly awaited guidance that will place limitations on the use of Chinese content in batteries that qualify for electric vehicle (EV) tax credits, effective from the next fiscal year. This move aims to reduce reliance on Chinese materials in the U.S. EV battery supply chain.
To the satisfaction of automakers, the U.S. Treasury has decided to grant a temporary exemption for certain critical minerals, sparing them from stringent regulations that prohibit the use of materials from China and other countries categorized as “Foreign Entities of Concern” (FEOC).
These new regulations, mandated by an August 2022 law, are strategically designed to shift the U.S. EV battery supply chain away from Chinese dependencies. Automakers are closely monitoring these regulations as they determine their investments in battery production for their electric vehicle initiatives.
The FEOC regulations will come into effect in 2024 for completed batteries and in 2025 for the critical minerals used in their production. The Alliance for Automotive Innovation, representing nearly all major automakers, welcomed the decision to exempt trace materials for two years, deeming it significant and necessary. Without this exemption, a vast majority of vehicles could have become ineligible for EV tax credits.
The U.S. Treasury clarified that the exempted materials collectively contribute to less than 2% of the overall value of battery critical minerals. General Motors expressed confidence in maintaining consumer purchase incentives for its EVs beyond 2024, while Ford Motor had been awaiting these guidelines to assess the compliance of its licensing agreement with Chinese battery manufacturer CATL for its planned Michigan battery plant.
Republican Senator Marco Rubio raised concerns about the guidance, suggesting it might allow the Ford-CATL agreement to qualify and asserting that the administration prioritizes “EV special interest groups ahead of America’s interests.”
The Energy Department outlined that a company would be categorized as an FEOC if it is owned or controlled by a foreign government listed as an entity of concern. Additionally, companies will be disqualified if an entity of concern holds 25% of that entity’s board seats, voting rights, or equity. Countries such as North Korea, China, Russia, and Iran fall into this category.
The automaker group noted that it appears companies operating in China would be considered FEOC, but Chinese entities with specific ownership or governance structures might be permitted in certain circumstances.
These rules are expected to further limit the number of EVs eligible for tax credits, as they join existing requirements, including North American assembly and sourcing restrictions that took effect earlier this year, with price and buyer income caps from January 1st.
Senator Joe Manchin, chair of the Energy Committee, criticized the Treasury’s decision to allow some trace critical minerals from China to qualify, pledging to pursue every opportunity to “reverse this unlawful, shameful proposed rule and protect our energy security.”
To facilitate compliance while finalizing the rules, the Treasury plans to establish an expedited compliance method for automakers with clean supply chains.
