Mar 31, 2023 - Energy & Environment

Biden EV tax credit guidance leaves uncertainty on China

A Ford F-150 Lightning on a production line in Dearborn, Mich. Photo: Emily Elconin/Bloomberg via Getty Images

President Biden's plan for stringent sourcing requirements in his expanded consumer EV tax credit aims to promote certainty — but it leaves room for China-linked vehicles to be left out in the future.

Why it matters: The new details released Friday mean fewer electric vehicles will likely qualify for the credit, but they might help confused companies and consumers.

Driving the news: The Treasury Department released eligibility rules for the expanded $7,500 consumer EV tax credit in the Inflation Reduction Act.

  • They're complicated, but show how the government will treat a requirement that half the credit goes to cars with North American battery parts.
  • They also deal with the other half, which mandates that vehicles use battery minerals from the U.S. or a free trade agreement partner. Minerals recycled in North America are also allowed.
  • Treasury is using a definition of "free-trade agreement" that may offer auto and battery companies flexibility for minerals via future trade deals. Only 20 countries have comprehensive free trade agreements (plus a new minerals-centric one with Japan).
  • Both mandates start with low content percentages that rise significantly in the succeeding years.
  • The department will look for companies to certify they are tracking supply chains and following rules.

Yes, but: The guidance will provide industry clarity ... with a fat asterisk.

  • EVs aren't supposed to qualify if they're made with parts or minerals from a "foreign entity of concern," a term that other agencies recently said could apply to firms tied to China and Russia.
  • But Treasury has yet to define the term. Attorneys believe there could be a wide range of potential interpretations, including a broad read that would limit lots of China-linked supplies.
  • That definition will be released at a later unspecified date, per Treasury.

What they're saying: The White House sees this step as one more toward boosting a domestic EV manufacturing industry.

  • A senior administration official acknowledged Thursday this will likely restrain the number of vehicles that qualify in the short term.
  • However, the official said the administration thinks over the long term, the incentives will mean more electric vehicles built in the United States.

What we're watching: A potential lawsuit from Sen. Joe Manchin (D-W.Va.), who wanted tight EV sourcing rules in exchange for a "yes" vote on the IRA.

  • Manchin said in a statement: "Yet again — the guidance released by the Department of Treasury completely ignores the intent of the Inflation Reduction Act."
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