The US Treasury Department issued updated guidance today about which electric vehicles qualify for the federal $7,500 EV tax credit under the Inflation Reduction Act (IRA) that President Biden signed last year. Although the new guidelines add more confusion than clarity, it’s evident that fewer EVs will be eligible.
The updated rules target mineral sourcing in EV batteries, stating that they must be sourced from the US and approved trading partners. That rules out China, which is labeled as a “foreign entity of concern.” Although it’s understandable for the US to limit its dependence on its most powerful adversary, most EVs today run on Chinese-made batteries, making the path forward for receiving the credit on purchases made after April 18th as clear as mud.
To receive tax credits, battery makers must source a significant portion of their materials and manufacturing from North America. Battery components must be 50 percent made or assembled in North America to qualify for a $3,750 credit; critical minerals must be 40 percent sourced from the US or free trade partners for another $3,750 credit. The requirements grow stricter over time, as batteries must be made 100 percent in North America by 2029.
Although some EVs may qualify for partial credits, it’s unclear which models will be eligible after the deadline. “Some EVs will certainly qualify for a partial credit,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation, in a statement to Autoblog. “Given the constraints of the legislation, Treasury's done as well as it could to produce rules that meet the statute and reflect the current market.” However, US officials admit some models will either be reduced or eliminated from the program. The government will publish a revised list of qualifying models by April 18th.
The US and Japan signed a trade agreement on Tuesday that could help long-term by adding the Pacific power to the list of approved partners. In October, the Biden administration announced $2.8 billion in grants for 20 companies to spark domestic EV battery materials and production. The funding, part of the Bipartisan Infrastructure Law, will support the new “American Battery Materials Initiative,” which aims to secure critical EV minerals and boost battery supply to meet Biden’s goal of making EVs half of US vehicle sales by 2030.