Americans buying electric vehicles will no longer be able to claim federal tax credits of up to $7,500 if their cars contain Chinese materials, the Biden administration announced Friday, the result of a landmark 2022 climate law that sought to reduce U.S. reliance on clean-energy components from China.
The final rule from the Treasury Department codifies a draft rule from December that sharply limited the number of EVs that qualify for the credit. Only 22 of the more than 110 EV models on sale in the United States are eligible for the credit this year, according to the Alliance for Automotive Innovation, a trade group.
The announcement comes amid broader difficulties facing the EV sector nationwide. The growth of U.S. EV sales has slowed in recent months, and Tesla CEO Elon Musk this week laid off hundreds of employees in the Supercharger division, casting a pall of uncertainty over other automakers’ agreements to use Tesla’s expansive charging network.
Advertisem*nt
The rule underscores the challenges facing President Biden as he seeks to accelerate the nation’s energy transition while reducing its dependence on Chinese firms. At the moment, Beijing controls almost all stages of the supply chains for EV batteries, solar panels and other green technologies crucial to the fight against climate change.
The speed of America’s shift away from these supply chains could have major consequences — not only for EV drivers, but also for U.S. climate goals and national security. If the Biden administration moves too quickly to choke off Chinese supplies, it could miss its target for half of new cars to be zero-emission by 2030. Too slowly, and the United States could cede competitiveness in the EV market to a strategic rival for decades to come.
“The faster you can deploy EVs, the better it is for reducing greenhouse gas emissions. But the faster you can onshore supply chains, the better it is from a national security perspective or an economic competition perspective,” said Jane Nakano, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, a foreign policy think tank.
Advertisem*nt
Some lawmakers in both parties have accused the administration of prioritizing its climate goals over the need to curb dependence on China. Sen. Joe Manchin III (D-W.Va.), a key author of the 2022 climate law known as the Inflation Reduction Act, said in a statement on the final rule that “the Administration is effectively endorsing ‘Made in China.’”
“The Administration has made clear from Day 1 of implementing the consumer electric vehicle tax credit in the Inflation Reduction Act that they will break the law in pursuit of their goal to flood the market with electric vehicles as quickly as possible,” Manchin said.
John D. Podesta, senior adviser to the president for international climate policy, defended the administration’s approach on a call with reporters on Thursday previewing the announcement.
Advertisem*nt
“We want to see EVs built here in America, with components and critical minerals sourced from the U.S. and our allies and partners,” Podesta said. “Automakers already are significantly reorienting their supply chains.”
Under the final rule, EVs will no longer qualify for the federal tax credit if they contain battery components that were manufactured or assembled by a Chinese firm. Beginning in 2025, the restrictions will widen to include any critical minerals in the battery that were extracted, processed or recycled by a Chinese entity.
After Treasury issued the draft rule in December, several popular EV models no longer qualified for the subsidy, including the Ford Mustang Mach-E. The final rule could dissuade some cost-conscious drivers from buying EVs, slowing the pace of adoption, said Corey Cantor, a senior associate for electric vehicles at BloombergNEF.
Advertisem*nt
“What keeps people from buying electric cars? Surveys show upfront cost and charging anxiety,” Cantor said. “The tax credit helps alleviate that upfront cost.”
The EVs that are still eligible for a full $7,500 tax credit include Ford’s F-150 Lightning pickup truck, Volkswagen’s ID.4 crossover SUV and Tesla’s Model Y, according to a federal database. Several models from Rivian qualify for a partial $3,750 credit.
Unlike the draft version, the final rule allows automakers to continue buying Chinese graphite until 2027 while still qualifying for the subsidies. Major automakers had lobbied for the temporary reprieve, warning that without it, every EV model on the market would be ineligible for the credit.
Graphite is used in virtually all anodes, the negatively charged portion of EV batteries. China produces around 70 percent of the world’s graphite and refines around 90 percent of the material.
Advertisem*nt
John Bozzella, president and CEO of the Alliance for Automotive Innovation, which represents General Motors, Ford, Toyota, Stellantis and other automakers, praised Treasury for “providing some temporary flexibility in terms of where the critical minerals in EV batteries can be sourced.”
“That’s helpful as more automotive supply chains and battery production is localized to the U.S. and our allies,” Bozzella said in a statement.
The Inflation Reduction Act established strict conditions for claiming the tax credit of up to $7,500 for new EVs. It limited these subsidies to EVs without any battery components manufactured or assembled by a “foreign entity of concern” — a term often applied to adversaries such as China, Russia, Iran and North Korea.
The law left it up to the Energy Department to define what, exactly, constitutes a “foreign entity of concern.” In final guidance issued Friday alongside the Treasury rule, the Department of Energy determined that the definition includes any firm headquartered in China, as well as any firm in which the Chinese government controls 25 percent of the board seats or equity interest.
Advertisem*nt
The definition appears to allow Ford’s EVs to qualify for the credit if their batteries were made at a Michigan factory that uses technology supplied by Contemporary Amperex Technology Co. Limited (CATL), a Chinese battery maker, said John Miller, a managing director at TD Cowen Washington Research Group.
Republican lawmakers have launched three separate investigations into Ford’s deal with CATL, warning it could jeopardize national security. Ford has pushed back on the probes, emphasizing that the automaker alone will own and operate the $3.5 billion factory in Marshall, Mich.
Ford spokeswoman Melissa Miller said in an email that the automaker is still reviewing the final rule.
“Ford is strengthening American supply chains and creating jobs to make the high-quality vehicles of the future accessible for more American small businesses and families — fully consistent with the terms and goals of the Inflation Reduction Act and the best interests of our country,” Miller said.
