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Reading: US evaluating new guidance on federal tax credits
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EV-a2z > News > US evaluating new guidance on federal tax credits
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US evaluating new guidance on federal tax credits

U.S. tightens EV material sourcing rules, impacting automakers reliant on China, with exemptions allowing time for domestic battery production adaptation.

EV-a2zm
Last updated: 2023/12/04 at 9:30 PM
EV-a2zm Published December 4, 2023 4 Min Read
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4 Min Read
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Highlights
  • New Era in EV: U.S. Cracks Down on Foreign Sourcing, Pushing Automakers Towards Domestic Production!
  • Game Changer: U.S. Policy Shift Aims to Reduce Dependency on Chinese EV Materials, Promoting Local Innovation!
  • Automakers Get Lifeline: U.S. Offers Exemptions for Domestic Battery Production Amidst Tightened EV Material Standards!
  • U.S. EV Policy Update: Immediate Tax Credits Replace Deductions, Urging Buyers to Act Now!

The US Government officially released new federal electric vehicle tax credits guidance under the Inflation Reduction Act on December 1. As expected, the update further intensified the current stringent standards on foreign materials, particularly from China. 

Contents
ChangesForeign entity of concernGood news for automakers

Fortunately, the White House provided automakers with a considerable exemption that will extend time for companies seeking to build a local battery production operation in the country, Teslarati reported.

The Biden administration proposed new rules Friday that could make it harder for electric vehicles to qualify for a full $7,500 federal tax credit. MORE: https://t.co/COk1XdI9Ht pic.twitter.com/a3gFBkEsuq

— NEWSMAX (@NEWSMAX) December 1, 2023

Changes

 The Inflation Reduction Act now states that any electric vehicle equipped with battery components sourced from a “foreign entity of concern” (FEOC) will lose access to the federal tax credits starting in 2024. 

Starting next year, only 22 out of 100 electric vehicles currently on the market will qualify for a federal tax credit under the Inflation Reduction Act worth $7,500.

A proposed regulation disqualifies most electric vehicles from receiving the credit due to battery components… pic.twitter.com/vMOanyjW3G

— Mike Barber (@MikeCBarber) December 3, 2023

The move is part of the US Government’s efforts to accelerate the clean vehicle transition and cut its reliance on Chinese supply chains. However, the updated guidance alarmed the automotive industry as numerous EVs would lose their eligibility as many automakers rely on China-made batteries, minerals, or other materials.

Foreign entity of concern

According to the US Treasury and Energy departments’ new guidance, a “foreign entity of concern” is a company “controlled by, owned by, incorporated in, headquartered in, or performing the relevant activities in a covered nation.” For context, these nations include China, Iran, North Korea, and Russia.

If an entity of concern holds 25% or more of a company’s ownership or board seats, its produced minerals or parts would be ineligible for vehicle credits. It is possible that licensing agreements with FEOCs are free from any complications, as noted by InsideEVs.

Good news for automakers

The US Treasury apparently offered an exemption that will extend the time for companies seeking to establish domestic battery production to adhere to the stringent requirements of federal tax credits.

As mentioned, the FEOC guidance for completed batteries will take effect next year. However, it would not yet apply to trace critical minerals until 2025. As per the updated guidance, the exempted minerals account for below 2% of the battery minerals’ overall value.

The Alliance for Automotive Innovation called for the US Government to exclude trace materials for the subsequent two years, saying that it is “significant and well-advised” as the originally proposed standards will disqualify more models.

“We don’t know yet how the FEOC rules will impact which EVs qualify for some or all of the tax credit. Time will tell. But Treasury’s effort to make the rules workable means the list of eligible vehicles won’t completely disappear in 2024 (which was a real worry).” 

John Bozella, Alliance for Automotive Innovation President and CEO 

It is also worth noting that the updated guidance will allow customers to benefit immediately from the tax credits at the time of purchase, unlike the current version that only supports tax duty deductions. 

All that said, losing tax credits will undoubtedly have a huge impact on electric vehicle sales next year, considering the recent reports of waning demand. Customers interested in buying EV models currently qualified for full tax credits must take delivery before the year ends to avoid losing the incentive.

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TAGGED: Battery, Electric Vehicle, EV, Inflation Reduction Act, Joe Biden, USA
EV-a2zm December 4, 2023 December 4, 2023
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