New Biden Rule for EV Tax Credits Lets China Benefit Off ‘Backs of American Taxpayers’: Manchin

Sen. Joe Manchin (D-W.Va.), Senate Energy and Natural Resources Committee chair, presides over a hearing on battery technology in Washington on Sept. 22, 2022. Kevin Dietsch/Getty Images

Sen. Joe Manchin (D-W.Va.) has sharply criticized the Biden administration’s newly proposed rules that mean to disqualify electric vehicles (EV) made with parts from “foreign entities of concern” such as China from receiving the $7,500 EV tax credit, but contain exemptions that Mr. Manchin says leave the door open for Chinese firms to benefit “off the backs of American taxpayers.”

Mr. Manchin’s objections relate to newly proposed guidance issued by the Treasury Department that intends to make the United States less dependent on EV components sourced from foreign adversaries such as China—but includes carveouts that seem to undermine that very objective.

“The Inflation Reduction Act clearly states that consumer vehicles are ineligible for tax credits if ‘any of the applicable critical minerals contained in the battery’ come from China or other foreign adversaries after 2024,” Mr. Manchin said in a statement.

“But this administration is, yet again, trying to find workarounds and delays that leave the door wide open for China to benefit off the backs of American taxpayers.”

The White House didn’t immediately respond to a request for comment.

Proposed New Rules

The Biden administration on Dec. 1 issued long-awaited proposed guidance regarding the Inflation Reduction Act’s (IRA) foreign entity of concern (FEOC) requirements for tax credit eligibility of EVs.

Generally, the draft rule stipulates that starting in 2024, EVs that are eligible for the $7,500 tax credit may not contain any battery components that are manufactured or assembled by a FEOC.

To provide further clarification, the Biden administration on Dec. 1 also issued proposed guidance defining that an entity is a FEOC if is owned by, controlled by, or subject to the direction (via a 25 percent interest stake or through licensing and contracting arrangements) of China, Iran, North Korea, or Russia.

The new proposed rules also stipulate that starting in 2025, eligible EVs may not contain any critical minerals that were extracted, processed, or recycled by an FEOC, in addition to some other requirements, such as that final assembly has to have been done in North America.

However, because of known “commingling” in critical mineral supply chains and the inability of suppliers to physically track certain specific minerals to battery cells or batteries, the newly proposed rule contains a temporary transition rule.

The transition rule will temporarily (through 2026) exempt some trace critical minerals from the new guidance, effectively allowing EVs that source critical minerals from Chinese firms to continue to be eligible for the U.S. taxpayer-funded credit.

It’s this critical mineral exemption that drew the ire of Mr. Manchin.

“The United States has never had to rely on foreign adversaries to build our cars and trucks,” Mr. Manchin said. “We’ve always been able to make our own transmissions, our own alternators, and our own engines, and I do not understand why President Biden is allowing his administration to now route our essential supply chains through China.”

Calling the provisions of the IRA a “once-in-a-lifetime opportunity to onshore our supply chains and invest in American workers,” Mr. Manchin vowed to “take every avenue and opportunity to reverse this unlawful, shameful proposed rule and protect our energy security.”

Mr. Manchin said he will push the Treasury Department to make revisions to the proposed rule, and he indicated his support for any legal action against the rule.

The draft rule is subject to a period of public comment, which the Biden administration said it will “carefully consider” before issuing final rules.

Other Views

Although Mr. Manchin blasted the two-year transition period for trace critical minerals, the Alliance for Automotive Innovation, a group representing nearly all major automakers, praised the exemption as “significant and well-advised.”

The group’s president and CEO, John Bozzella, said in a statement that without the transition period, the Treasury Department’s proposed new rule would have made nearly all vehicles ineligible for the EV tax credit, which then “may have only existed on paper.”

“We argued a fastener used in an EV battery assembly dipped in a material from a FEOC shouldn’t disqualify the battery or EV (and ultimately the consumer) from the credit,” Mr. Bozzella said.

“Imagine an EV that complied with all IRA eligibility requirements but is kicked out because of a negligible amount of a critical mineral or component coming from a FEOC. That wouldn’t make sense–or good policy.”

Although Mr. Bozzella said it’s important that the United States “controls its own destiny” by sourcing supply chains and raw materials domestically or from allies, he called this a “monumental task that won’t happen overnight.”

“The Treasury guidance recognizes the complexity of this task and the challenges facing automakers with some good balance,” Mr. Bozzella said. “Day one verdict: Clarity for automakers.”

Sen. Marco Rubio (R-Fla.) criticized the proposed new rule, accusing the Biden administration of putting “EV special interests groups ahead of America’s interests.”