Fewer new electric vehicles will qualify for the full $7,500 federal tax credit later this year, and many will get only half, under rules proposed by the US Treasury Department on Friday.
The regulations, required under last year’s Inflation Reduction Act, could slow consumer acceptance of electric vehicles and delay President Joe Biden’s ambitious goal that half of new passenger vehicles sold in the US be electric by 2030. Are.
The new rules will take effect from April 18 and are aimed at reducing US dependence on China and other countries for battery supply chains for electric vehicles.
According to Kelley Blue Book, electric vehicles now cost more than $58,000 on average, putting them beyond the reach of many American households. Tax credits are designed to lower prices and attract more buyers. But the $3,750, half-full credit, may not be enough to sway them away from less expensive gasoline-powered vehicles.
Biden administration officials acknowledged that fewer electric vehicles would be eligible for tax credits in the short term because of the rules, which set standards for EV battery parts and minerals. But he says that, over time, more EVs and parts will be manufactured in the US, expanding the domestic supply chain and creating more jobs. Officials say the credits and other measures will also end America’s reliance on China for parts and minerals.
Treasury Secretary Janet Yellen said Friday that the new rules will help consumers save money on EVs and hundreds of dollars a year on gas while creating American manufacturing jobs and strengthening our energy and national security.
But Sen. Joe Manchin, the West Virginia Democrat who negotiated the terms in the new law requiring battery sourcing in North America, said the guidance issued by the Treasury Department “completely ignores the intent of the Inflation Reduction Act.”
Manchin called it “horrible” that the Biden administration “continues to ignore the purpose of the law, which is to bring manufacturing back to America and ensure that we have reliable and secure supply chains.”
Referring to the proposal’s 60-day comment period, Manchin said, “My comment is simple: Stop it now. Just follow the law.”
Drivers looking to buy an EV should act quickly to receive the full $7,500 tax credit. The Internal Revenue Service lists more than three dozen electric or plug-in hybrid passenger vehicles made in North America that are now eligible. But after new Treasury Department rules take effect in less than three weeks, some won’t qualify or will get only half as much.
A Treasury official would not provide an estimate of how many EVs would qualify under the new rules. The official said the department is planning to publish a list on April 18.
Automakers must certify that their vehicles meet the requirements for a full or partial tax credit.
John Bozzella, CEO of the Alliance for Automotive Innovation, an industry trade group, said that of the 91 EV models now on sale in the US, only a few will receive the full credit, though some will qualify for half.
“We now know the EV tax credit playing field for next year. As good as March 2023 was,” Bozzella said.
The bigger issue is new regulations that limit the percentage of battery parts and minerals that come from countries that don’t have free trade or minerals agreements with the United States.
This year, the U.S. will account for at least 40% of the value of battery minerals. or be mined, processed or recycled in countries with which it has a trade deal. It increases by 10% every year till it reaches 80% after 2026.
Also, at least 50% of the battery parts’ value must be manufactured or assembled in North America this year. This requirement increases to 60% the following year and in 2025, and by 10% each year after 2028 until it reaches 100%.
Guidehouse Research e-mobility analyst Sam Abuelsamid said some automakers may meet the sourcing requirements for battery parts, but few will be able to comply with the mineral provisions. Most of the lithium used in EV batteries now comes from China.
“The need for minerals is going to be really challenging,” Abulsamid said. “It’s probably going to take the longest to set up refineries for lithium in other places.”
For example, General Motors says its EVs will only be eligible for $3,750 after the rule takes effect. The company is building an American supply chain, and its vehicles should receive full credit by mid-decade, its chief financial officer has said.
The Inflation Reduction Act also sets a price cap for new electric vehicles at $55,000 for cars and $80,000 for pickups, vans, and SUVs. There are also income limits aimed at preventing wealthy people from getting credit. Buyers’ adjusted gross annual income cannot exceed $150,000 if filing single, $300,000 if filing jointly, and $225,000 if the head of household.
In addition, starting in 2025, battery minerals cannot come from a “foreign entity of concern”, primarily China and Russia. Battery parts cannot be imported into those countries starting in 2024; Minerals cannot come from those countries in 2025.
The Biden administration said rules governing the requirement are in the works.
The new rules define the principles countries must meet in order to be eligible. Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and Japan are on the list. Japan this week reached an agreement with the US on trade in minerals important for EV batteries.
Even though the proposed rules are effective April 18, the Biden administration is taking public comments, and the rules could be revised later, including in the U.S. Including countries negotiating trade agreements with the U.S.
The government says companies have announced at least $45 billion in US investments since the Inflation Reduction Act was passed.
Senate Finance Committee chairman Ron Wyden, D-Oregon, said he has concerns about the battery content provisions. “Free trade agreements cannot be decided unilaterally by the executive branch,” he said during a recent hearing. “They require the consultation and concurrence of Congress. This includes any agreement on critical minerals.