Illustration: Gabriella Turrisi/Axios
U.S. industry wins — while China and American consumers both lose — from the new foreign sourcing proposal for the IRA's electric vehicle tax credit.
Why it matters: The rules might make the EV transition more American. But they likely won't make ditching gas-powered cars any easier.
- At the same time, President Biden's attempt at a Goldilocks solution is facing political backlash.
- Now a race against the clock begins for carmakers to adjust supply chains so more products can qualify for the full credit before its December 2032 phaseout.
Catch up quick: The Biden administration on Friday put out its proposal for determining whether an EV's battery is made with components or minerals unduly controlled by a "foreign entity of concern," including China.
Driving the news: Market analysts concluded that the proposal offers strict restrictions on how Chinese material is used in cars that qualify for the credit.
- Because of this, expect it to be harder for cars to qualify. The global EV battery industry today relies heavily on Chinese manufacturing and mineral processing, as well as battery metal mining backed by Chinese investment.
- One "red alert," per mining industry veteran Simon Moores, will be nickel. More than 80% of nickel output in Indonesia, the world's largest producer, would be barred from qualifying cars.
- "Treasury also recognized how complex — scratch that… how hard the EV transition is going to be in the U.S. and tried to strike a balance. A pragmatic balance," Alliance for Automotive Innovation CEO John Bozzella wrote in a blog post.
Between the lines: Consumers will lose in the short term, EY tax analyst Akshay Honnatti told Axios, as they'll face higher prices and fewer options.
- Meanwhile, U.S. mining and battery component manufacturing will win under the proposal, Honnatti said.
- Honnatti expects carmakers will be able to change their component manufacturing quickly to get half of the credit, which is tied to component sourcing.
- He said it'll be more "tricky" for automotive firms to access the other half tied to mining, because mines can take decades to build.
Zoom in: Market analysts seem to believe that tech licensing arrangements, like those Ford has sought for its Michigan battery plant with Chinese battery firm CATL, may be permitted under the proposal.
- We haven't heard the final word from Ford. But because the Biden team focused on what company keeps control over the business arrangement, the auto giant has an apparent green light.
- "By maintaining operational 'control' over the proposed MI-based LFP battery manufacturing facility, Ford looks positioned to qualify vehicles loaded with produced batteries for the 30D credit," wrote John Miller of TD Cowen in a Friday note.
- ZETA's Al Gore III told Axios he thinks the licensing language in the proposal takes China security issues seriously while respecting that arrangements "purely for use of IP" are "nothing strategic."
- "This is really well thought out," Gore said.
