Biden administration issued long-awaited guidance on Friday, imposing limitations on Chinese content in batteries eligible for electric vehicle (EV) tax credits, effective from next year. The move is part of an effort to reduce reliance on Chinese materials in the U.S. electric vehicle battery supply chain, a critical component of the country’s transition to electric vehicles.
Under the new rules, the U.S. Treasury will temporarily exempt certain trace critical minerals from stringent regulations that prohibit materials from China and other countries identified as a “Foreign Entity of Concern” (FEOC). These rules, mandated by an August 2022 law, are designed to promote self-sufficiency in the U.S. EV battery chain.
The FEOC rules are set to take effect in 2024 for completed batteries and in 2025 for critical minerals used in their production. The exemption of trace materials for the initial two years has been welcomed by the Alliance for Automotive Innovation, a group representing nearly all major automakers. They emphasized the significance of this decision, stating that without the exemption, a substantial number of vehicles could have become ineligible for tax credits.
General Motors expressed confidence in maintaining consumer purchase incentives for many of its EVs in 2024 and beyond. Meanwhile, Ford Motor, awaiting the guidance to assess its licensing agreement with Chinese battery maker CATL, refrained from providing comments. The Biden administration officials did not clarify whether this arrangement would comply with the new rules.
However, Republican Senator Marco Rubio criticized the decision, alleging that the administration prioritized “EV special interest groups ahead of America’s interests.” The Energy Department outlined criteria for designating a company as an FEOC, including ownership or control by certain foreign governments, such as North Korea, China, Russia, and Iran.
The rules are expected to further narrow the pool of electric vehicles eligible for EV tax credits, aligning with previous legislation that deemed any non-North American assembled vehicle immediately ineligible. Automakers operating in China are considered FEOC, with certain circumstances allowing Chinese entities to qualify, according to the automaker group.
Senator Energy Committee chair Joe Manchin criticized the Treasury for permitting some trace critical minerals from China to qualify. He pledged to take every opportunity to reverse what he deemed an “unlawful, shameful proposed rule” in an effort to protect U.S. energy security.
Despite concerns and criticisms, the Treasury assured an expedited compliance method for automakers with clean supply chains, allowing compliant vehicles to qualify until the rules are finalized. This guidance is anticipated to have significant implications for the U.S. electric vehicle industry, influencing automakers’ investment decisions and shaping the trajectory of the country’s shift towards electric mobility.
