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Reading: US delays sourcing restrictions for EVs, expanding Tax Credit eligibility
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EV-a2z > News > US delays sourcing restrictions for EVs, expanding Tax Credit eligibility
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US delays sourcing restrictions for EVs, expanding Tax Credit eligibility

The US extends its timeline for implementing stringent EV tax credit rules, addressing the sourcing challenges of graphite and promoting domestic supply capabilities.

EV-a2z
Last updated: 2024/05/11 at 12:05 PM
EV-a2z Published May 4, 2024 3 Min Read
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The US government has shelved its planned implementation of more stringent sourcing requirements for electric vehicles to obtain the $7,500 federal tax credits, the Wall Street Journal reported on Friday.

US loosens some electric vehicle battery rules, potentially making more EVs eligible for tax credits

The U.S. Treasury and #IRS have updated the EV tax credit rules under the 2022 Inflation Reduction Act, making more electric vehicles like @Tesla eligible for up to $7,500 in tax… pic.twitter.com/1HRnhoiDus

— Achim B.C. Karpf (@akarpf_netpress) May 4, 2024

The final rule

The US Department of the Treasury and Internal Revenue Service (IRS) updated the electric vehicle tax credit rules on May 3, 2024.

Fortunately, the new rules enabled more electric vehicles to qualify for the federal tax credits under the Inflation Reduction Act.

Today, Treasury and the IRS released final rules on the clean vehicle provisions of @POTUS's Inflation Reduction Act. These provisions have helped spur an American manufacturing boom and are lowering costs for consumers while strengthening energy security.https://t.co/vXGxvM5OX1

— Treasury Department (@USTreasury) May 3, 2024

In hindsight, the US government had originally planned to exclude any electric vehicle using China-sourced graphite in the battery pack from the list of eligible models beginning in 2025. 

However, the final rules delayed that stricter requirement until 2027. The US government recognized the fact that most of the world’s graphite comes from China. 

Considering the complexity of tracing graphite, American suppliers require more time to build up capacity.

The extension should enable more EVs to maintain their federal tax credit eligibility in the next three years as the requirements for critical minerals and battery components are increasing every year:

New federal income tax rules will offer Americans up to $7,500 in tax credits for the purchase of qualifying electric vehicles, as part of continuing efforts to achieve national Net Zero emissions goals by 2030.

Read more here: https://t.co/UVZPAoDYEB#ev #energy #policy pic.twitter.com/EHc0moRi2r

— Sustainable Capital Advisors (@SustCapital) May 3, 2024

Eligible models

New sourcing requirements excluded more electric vehicles from the federal tax credit list in January 2024. These EVs are produced outside the US or built with too much China-sourced battery materials.

As of today, only 22 out of the 104 electric vehicles in the US market benefit from the IRA’s federal tax credits. Only 9 EVs out of those 22 are eligible for the full $7,500 tax credit. The other 13 EVs only get $3,500 off the purchase price.

However, all EVs can access the $7,500 credit through the leasing loophole.

Challenging China’s dominance

The US government leverages these sourcing requirements primarily to prevent “foreign entities of concern” from benefitting from the federal tax credits.

It is a crucial part of the US efforts to establish its homegrown supply chain to challenge China’s dominance.

China is currently the world’s largest electric vehicle market. Industry experts perceive China to house the most competitive localized supply chain. However, the US government refuses to rely on Chinese companies for critical mineral supplies like graphite.

Now that the new rules are official government policy, they will undergo litigation and revision. Inflation Reduction Act key author Senator Joe Manchin (W-VA) contended that the new rules would utilize taxpayers’ money to benefit Chinese firms. According to Politico, the Senator vowed back lawsuits by “any entity that has been negatively impacted by the illegal implementation of the law to restore the goal of domestic opportunity and security,” and usher a Congressional Review Act resolution to amend them. 

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TAGGED: Electric Vehicle, EV, Tax Credits, USA
EV-a2z May 11, 2024 May 11, 2024
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