The White House this week issued new guidance on federal electric vehicle (EV) tax credits, including a key exemption that is seen as a win for many automakers because it offers companies trying to set up battery production operations in the U.S. additional time to make the transition native minerals.
The U.S. Treasury Department announced the new tax credit guidance on Friday, and General Motors and several other auto companies have since responded to the news (via Portal). Notably, the guidance includes slight relief from stricter battery mineral procurement rules after the Biden administration in recent days mulled plans to implement the changes.
While the updated guidance is stricter overall and intended to help decouple the U.S. battery supply chain from China and other sources, it also includes a temporary exception to the rules that would block incentives for vehicles that use critical battery materials from China and other countries are considered “Foreign Entities of Concern” (FEOC).
Accordingly, the FEOC rules will come into force in 2024 for finished batteries, while the restriction will only apply to trace elements used in the batteries in 2025. According to the U.S. Treasury Department, the exempt minerals represent less than 2 percent of the value of critical battery minerals.
The Department of Energy explained that companies would be considered FEOC if they were owned or controlled by a designated foreign government, adding that they would be considered ineligible if a subject company owns 25 percent or more of the board seats, equity capital, or who holds the company’s voting rights. These countries include North Korea, China, Russia and Iran.
The Alliance for Automotive Innovation, a group that represents most automakers in the U.S., called the decision to exempt trace materials for the next two years “significant and well-advised” and noted that several more vehicles would be available after those originally proposed Rules would have been excluded from approval.
The new rules are expected to significantly limit the number of electric vehicles eligible for the credit. Additionally, any vehicles not assembled in the United States will be immediately disqualified
Ford has been waiting for the new guidance to determine whether an upcoming battery plant project in Michigan with Chinese battery maker CATL would allow eligibility for vehicles produced. Neither the Biden administration nor Ford have commented on the new guidance as of this writing, so it is not yet clear whether the Michigan plant’s electric vehicles will be eligible for the tax credits.
GM responded to the updated forecasts on Friday, as described in a separate report by Portal.
“Based on GM’s historic investments in the U.S. and efforts to build safer and more resilient supply chains, we believe GM is well positioned to maintain consumer purchase incentives for many of our electric vehicles in 2024 and beyond,” the automaker said updated guidance following publication of the report.
Crucially, the updated tax credit rules will also give electric vehicle buyers immediate access to their rebates, rather than the current model that requires consumers to wait until tax season.
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Automakers have scored a victory with updated guidance on electric vehicle tax credits in the US
