The US unveils stricter EV tax credit rules that come into effect on April 18

By David Shepardson and David Lawder

WASHINGTON (Reuters) – The U.S. Treasury Department on Friday unveiled tougher electric vehicle tax rules that reduce or cut tax credits for some zero-emission models but give buyers an additional two weeks before the new requirements take effect.

The rules aim to wean the United States off dependence on China for electric vehicle battery supply chains and are part of President Joe Biden’s effort to have 50% of US new vehicle sales be electric vehicles or plug-in hybrids by 2030 .

EV battery procurement guidance released Friday triggers new requirements for critical minerals and battery components, coming into effect for vehicle purchases from April 18.

US officials recognize that some vehicles will have credits cut or eliminated. Tesla said Wednesday that the Model 3 rear-wheel drive credit will be reduced as a result of the guidance. The government will publish a revised list of qualifying models and tax credit amounts by April 18.

The $430 billion Inflation Reduction Act (IRA), signed by Biden in August, removed the manufacturer’s electric vehicle sales caps but imposed new terms on electric vehicle loans. These included a North American assembly requirement from August, price and buyer income eligibility caps from January 1, and now the procurement rules for batteries and critical minerals, effective April 18.

John Bozzella, CEO of the Alliance for Automotive Innovation, said in a statement that he believes “few” electric vehicles on the market after April 17 will qualify for the full $7,500 credit for 100% of the models.

“Some EVs are certainly eligible for partial credit. Given the limitations imposed by the legislation, the Treasury Department has done everything possible to establish rules that comply with the law and reflect the current market,” Bozzella said.

The IRA requires that 50% of the value of battery components manufactured or assembled in North America be eligible for a $3,750 credit and 40% of the value of critical minerals from the United States or a free trade partner are also eligible for a $3,750 credit come.

Treasury proposes a three-step process to determine percentage critical mineral value and a four-step process to determine battery component value.

On Tuesday, the United States and Japan signed an EV battery minerals trade deal. The Treasury says renegotiated critical minerals deals can be considered free trade deals. The guidelines list Japan as a US free trade agreement.

Senate Energy Committee chairman Joe Manchin, a Democrat, said the Treasury Department is ignoring the IRA’s intention to write the guidelines.

“US taxpayer money should not be used to support overseas manufacturing jobs,” Manchin said. “It’s a pathetic excuse to spend more taxpayers’ money asap while continuing to cede control to the Chinese Communist Party.”

The Treasury Department is not immediately issuing guidance on “Foreign Entities of Concern,” a regulation due to start in 2024 that bars credit if components or minerals used in EV batteries are manufactured in countries like China.

Ford announced in February that it would invest $3.5 billion to build an electric vehicle battery factory in Michigan, using technology from Chinese battery company CATL.

Republican Senator Marco Rubio this month introduced legislation aimed at blocking electric vehicle tax credits for batteries made with Chinese technology, saying it would “substantially limit the eligibility of IRA tax credits and prevent Chinese companies from claiming them.” benefit”.

The public has until mid-June to comment on the proposed guidelines.

(Reporting by David Shepardson and David Lawder; Editing by Sonali Paul)

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