Final EV Tax Credit Rule Draws Praise From Automakers, Concerns Over China Reliance

Sen. Joe Manchin (D-W. Va.) on Capitol Hill in Washington on May 4, 2022. Nicholas Kamm/AFP via Getty Images

The Treasury Department on May 3 finalized rules for consumer electric vehicle (EV) tax credits, which allows more automakers that use Chinese minerals to claim the credit.

The tax credit—up to $7,500 for a new and $4,000 for a used EV—was passed under the 2022 Inflation Reduction Act, and is one of the tools of the Biden administration’s climate initiative to achieve half of new car sales by 2030 being EVs.

Intended to bolster American EV manufacturing, the legislation restricts consumer tax credit access by vehicles manufactured in or sourced from China, Russia, Iran and North Korea.

Compared to the draft rule, the final guidance further eased those restrictions, making more cars with Chinese components eligible for tax credits.

It adds graphite as a battery mineral under a two-year exemption, during which cars using battery minerals sourced from China will still have access to the tax benefit.

The grace period of 2025 and 2026 is designed for battery materials whose origins are difficult to trace due to supply chain complexities. To qualify for the two-year exemption, automakers are required to outline their plan to stop sourcing from China before 2027.

According to the United States Geological Survey, a federal agency focusing on natural resources under the Department of Interior, China accounted for over three-quarters of the world’s production of graphite, a major EV battery material.

Deputy Energy Secretary David Turk said in a press conference, “This final rule strengthens our energy and supply chain security.” He added that the rules would “make it easier for the energy industry to move away from risky supply chains tied to foreign entities that may not share our values.”

But Sen. Joe Manchin (D-W.Va.), whose vote was critical to the passing of the Inflation Reduction Act, called the Biden administration’s final rules “outrageous” and “effectively endorsing ‘Made in China.’”

Mr. Manchin, who has previously opposed the proposed exemptions, considered the final eased rules as “providing a long-term pathway” for China and other foreign adversaries to “remain in our supply chains.”

The Biden administration celebrated the rules as providing “clarity and certainty to an EV marketplace that’s rapidly growing.”

“The direction we’re headed is clear—toward a future where many more Americans drive an EV or a plug-in hybrid and where those vehicles are affordable and made here in America,” John Podesta, senior adviser to the president for International Climate Policy, said in a Treasury press statement.

Similar to the draft rule, the final rule allows deals to give the credit as cash incentives or rebates at the point of sale. Consumers don’t have to wait until they file tax returns to receive the credit.

According to the Treasury, over 100,000 EV purchases have enjoyed the tax credit so far this year, with a total financial impact of more than $700 million.

The Alliance for Automotive Innovation, a trade association representing major automakers, praised the final rules for “providing some temporary flexibility in terms of where the critical minerals in EV batteries can be sourced.” It said that the flexibility would allow more time for domestic EV manufacturing to catch up.

The National Mining Association views the ease of restrictions differently.

It said the final rules created “grace periods and exceptions not included in the Inflation Reduction Act” or loopholes that “essentially amount to a blank check from the American Taxpayer to China.”

The final rules will take effect in two months.