Biden Administration Eases Rules for $7,500 EV Tax Credit

The Biden administration is giving automakers flexibility on vehicle tax credit rules

by Sededin Dedovic
SHARE
Biden Administration Eases Rules for $7,500 EV Tax Credit
© Justin Sullivan / Getty Images

The Biden administration is giving automakers some leeway on certain strict rules regarding qualification for a $7,500 government tax credit. The final guidelines, which have been released, provide automotive companies with a two-year exemption from the provisions of the Inflation Reduction Act (IRA) with the intention to disqualify EVs with minerals in their batteries from countries like China, Russia, Iran, and North Korea – the so-called "foreign entities of concern" (FEOC), reported TheVerge.

The exemption only applies to battery minerals "impracticable to trace," such as graphite, which often comes from China. These materials are exempted from the rules until 2027, the Treasury Department stated. Other restrictions regarding more common minerals like lithium, nickel, and cobalt will take effect in January 2025.

EV batteries with minerals originating from China, for example, will not qualify for the $7,500 credit.

Sen.

Joe Manchin (D-WV), Chairman of the Senate Energy and Natural Resources Committee, and Sen. Martin Heinrich (D-NM) speak pr© Anna Rose Layden / Getty Images

The auto industry has pushed the administration to withdraw more restrictive rules on trace minerals for tax credit, arguing that it would be nearly impossible to comply within the previous timeframe.

"Imagine an EV that meets all the IRA eligibility requirements but is disqualified from the program because of traces of a critical mineral from FEOCs?" said John Bozzella, CEO of the Alliance for Automotive Innovation, which represents most major automakers, in a statement.

"That doesn't make sense – especially when you consider the significant investments automakers and suppliers are making in domestic EV production." Nevertheless, the final rules are likely to flood the list of qualified vehicles, Bozzella noted.

There are currently around 114 EV models available for purchase in the US. Out of that number, only 13 qualify for the full credit, while another nine are eligible for half of the $3,750 credit. There are also income restrictions for buyers and strict rules for vehicles and batteries.

Electric vehicles must be manufactured in North America to qualify, and the price is capped at $55,000 or less for sedans and $80,000 or less for SUVs or trucks. General Motors, Tesla, and Ford – have at least one EV that qualify for the full $7,500 tax credit, while Ford and Stellantis each have one qualified plug-in hybrid model.

The new regulations seem to support Ford's authorization deal at the Marshall Battery Factory based in Michigan since the factory is owned and operated by Ford, but the licensed technology comes from the Chinese battery company CATL.

Tesla was considering a similar partnership with CATL earlier this year, but the progress of negotiations is unclear.

An electric Ford truck is displayed during the Electrify Expo In D.C.

on July 23, 2023 in Washington, DC. The expo highlighted n© Nathan Howard / Getty Images

The guidelines also finalize rules for dealers offering the credit as an instant rebate to customers at the point of sale. The Treasury Department said that provision has proved extremely popular, noting that over 100,000 buyers have received the credit as an instant discount so far this year.

Leasing remains an attractive option for car buyers who want to go electric. Most pure electric and plug-in hybrid vehicles, regardless of the origin of the battery materials or where the vehicle is produced, qualify for the full $7,500 tax credit if leased.

This is because leased vehicles are considered commercially owned. Automakers' financial departments secure the credit on behalf of the buyer and use the savings to reduce the lease price. The Biden administration has embraced the adoption of electric vehicles as a key part of its climate change policy while also seeking to shift the supply chain away from China, which accounts for about 70% of global EV battery production.

Several companies have said they will build new factories in North America, including new mining operations. But these factories and mines will take years. In the meantime, automakers are growing cautious about the money they've committed to electric vehicle production as demand starts to cool.

Autos Drive America, an industrial trade organization representing foreign automakers operating in the US (such as Hyundai and Toyota), has called on the US to allow more countries to provide critical minerals through free trade agreements.

Indonesia is lobbying US officials for a free trade agreement to meet the requirements of the Inflation Reduction Act (IRA). The US has also reached a free trade agreement with Japan. A research report from Goldman Sachs Group published at the end of last year showed that China currently accounts for 85% to 90% of global rare earth extraction and processing, refining 60% of lithium, 65% of nickel, and 68% of cobalt needed for electric vehicle batteries.

The bank also estimated that 65% of battery components, 71% of batteries, and 57% of electric vehicles worldwide are produced in China. However, most of the raw materials needed for battery production are mined elsewhere, often by Chinese companies or non-governmental companies.

Chinese Greenstone Holdings Group, the world's largest nickel producer, and top cobalt miner Luoyang Molybdenum are Chinese companies with international mining operations.

SHARE