WASHINGTON, March 31 (Reuters) – The U.S. Treasury Department unveiled tougher electric vehicle tax rules on Friday that would reduce or eliminate tax credits on some zero-emission models but give buyers two more weeks before new requirements take effect.
The rules aim to wean the U.S. off its reliance on China for EV battery supply chains and are part of President Joe Biden’s effort to make 50% of U.S. new vehicle sales be EVs or plug-in hybrids by 2030.
The EV battery sourcing guidelines published on Friday trigger new requirements for critical minerals and battery components and go into effect for vehicle purchases on April 18.
U.S. officials have acknowledged that some vehicle credits will be reduced or eliminated. Tesla ( TSLA.O ) said on Wednesday that Model 3 rear-wheel drive credit will be cut as a result of the guidance. The government will release the revised list of eligible models and tax credit amounts by April 18.
The $430 billion Inflationary Reduction Act (IRA) signed by Biden in August lifted manufacturers’ EV sales limits but imposed new conditions on EV credits. They include a North American assembly requirement from August, price and buyer income eligibility limits from January 1, and now battery and critical minerals sourcing rules from April 18.
Alliance for Automotive Innovation CEO John Bocella said in a statement that his best guess is that “few” EVs on the market will qualify for the full $7,500 credit after April 17. He noted that EVs must be assembled in North America to qualify for any credit. 70% of samples.
“Some EVs will certainly qualify for a partial credit. Due to the constraints of the law, Treasury will be able to make rules that comply with the law and reflect the current market,” Bozzella said.
The IRA requires a $3,750 credit and 40% of the value of critical minerals sourced from the United States for a $3,750 credit or 50% of the value of battery components produced or assembled in North America to qualify as a free trade partner.
Treasury proposes a three-step process for determining value percentages of critical minerals and a four-step process for determining battery component value.
On Tuesday, the US and Japan signed a trade agreement on EV battery minerals. The Treasury says the newly negotiated key minerals deals could be treated as free trade deals. The guidance lists Japan as having a US free trade agreement.
The South Korean government welcomed the new rules, saying they significantly reflected the opinion of the South Korean battery industry and removed “huge uncertainty”.
In a statement on Saturday, the country’s trade ministry said the government plans to hold further talks with the US on the needs of South Korean companies, if necessary.
Senate Energy Committee Chairman Joe Manchin, a Democrat, said Treasury ignored the IRA’s intent in writing the guidance.
“US tax dollars should not be used to support manufacturing jobs overseas,” Manchin said. “It’s a pathetic excuse to spend more taxpayer dollars as soon as possible, giving the Chinese Communist Party more control in the process.”
The Treasury did not immediately provide guidance on “foreign companies of concern,” a provision set to kick in in 2024 that excludes credits, if any, for components or minerals used in EV batteries in countries such as China.
China has previously criticized EV-related provisions in the IRA, saying in September that they violate WTO rules.
Ford ( FN ) said in February it would invest $3.5 billion to build an EV battery plant in Michigan using technology from Chinese battery company CATL ( 300750.SZ ).
Republican Senator Marco Rubio introduced legislation this month to block EV tax credits for batteries made using Chinese technology, saying it would “significantly limit eligibility for IRA tax credits and prevent Chinese companies from benefiting.”
The public can comment on the proposed guidance until mid-June.
Reporting by David Shepherdson and David Lauder; Additional reporting by Hyunsu Yim; Editing by Sonali Paul and Muralikumar Anantharaman
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