Electric vehicles with battery parts from China, certain nations won't be eligible for tax credits
The Biden administration has proposed new rules that will likely reduce the number of electric-vehicle (EV) models that U.S. consumers can buy and qualify for a $7,500 tax credit if they purchase automobiles containing battery materials from China and other countries considered a "foreign entity of concern" (FEOC).
Beginning in 2024 under the Inflation Reduction Act, Americans can't claim the subsidy for buying any electric vehicle that contains battery materials produced by a FEOC, which also includes North Korea, Iran and Russia.
Beginning in 2025, a vehicle must not contain any critical minerals that were extracted, processed or recycled by an FEOC to qualify for a tax credit. The proposals are set to become final in January, following a 30-day public comment period.
Biden administration officials said Friday that Chinese companies would comply with the rules as long as less than 25 percent of their equity and board seats are controlled by Beijing.
White House officials declined to comment on how it would apply to major Chinese battery companies. Other arrangements that involve Chinese companies, such as licensing technology, might be permissible under the rules, officials said.
The new rules — required under Biden's climate law approved last year — come as President Joe Biden is trying to ramp up sales of EVs to help meet his goal to cut planet-warming greenhouse gas emissions in half by 2030.
EV sales have tripled since Biden took office but they still depend on foreign sources — especially China — for many critical minerals needed to produce EV batteries.
Ahead of Friday's announcement, the Alliance for Automotive Innovation, which represents vehicle and battery makers in the U.S., had warned against a stricter definition of the qualifying criteria. Already, only about a fifth of the EVs for sale in the country were eligible for full tax credits, and a stricter ruling would rule out even more vehicles, it warned.
"Policymakers shouldn't be surprised if the number of eligible vehicles further drops. That's not a good development for consumers," John Bozzella, the alliance's CEO told the Financial Times.
Administration officials said the auto industry has long been aware of the pending rules and has taken steps to develop auto-supply chains in the United States and distance the industry from China, which has long dominated production and processing of minerals such as lithium and graphite used in EV batteries.