Biden admin’s EV tax credit rules aim to exclude China
The Biden Administration Takes Aim at Chinese-Made EV Batteries
The Biden administration made a bold move on Friday, announcing that electric vehicles (EVs) with batteries made in China or using Chinese materials will no longer qualify for subsidies. This decision extends to any companies worldwide that are influenced by Beijing. The goal is to strengthen domestic manufacturing and shift the EV supply chain away from China.
This new standard, however, could pose a threat to President Biden’s ambitious plan of having EVs account for 50% of all car sales by 2030. With fewer cars eligible for the $7,500 consumer tax credit, achieving this goal becomes more challenging.
China currently dominates the EV battery supply chain, producing over 74% of cathodes, more than 90% of anodes, and roughly 75% of lithium-ion battery cells. While the new rules are rigorous, senior administration officials believe they are “strict but achievable.”
Despite potential obstacles, recent EV sales rates in the United States have been promising. Electric vehicles now make up 10% of all new vehicles sold, indicating a strong consumer interest in EVs.
The Three Main Components of the New Guidance
- Manufacture of batteries: The restrictions will take effect in 2024 for entities incorporated, headquartered, or performing relevant activities in “covered nations” such as China, Russia, North Korea, and Iran.
- Sourcing of critical minerals: These restrictions will go into effect in 2025.
- Contract or licensing arrangements: Companies operating outside covered nations must obtain certain rights for their vehicles to qualify for the 30D requirement.
This definition of “foreign entities of concern” not only affects eligibility for tax credits but also eligibility for the manufacturing grant program established by the 2021 Bipartisan Infrastructure Law.
There is some uncertainty regarding how these terms will apply to Ford’s partnership with Chinese battery company CATL. Congressional Republicans have criticized the partnership, raising concerns about money from tax credits flowing to Chinese entities.
The new guidance builds upon existing tax credit requirements, including a battery component requirement that mandates 60% or more of a battery to be manufactured in North America by 2024, gradually increasing to 100% by 2029. Additionally, a critical mineral requirement states that at least 50% of critical minerals in an EV battery must be sourced or processed in the U.S. or a country with a free trade agreement, rising to 80% by 2027.
Senator Joe Manchin had pushed for stricter standards for EV eligibility for tax credits, and the administration faced pressure to address his concerns. Manchin had brokered a deal with Senate Majority Leader Charles Schumer to pass the Inflation Reduction Act, but he has since criticized the administration for prioritizing the rapid adoption of green technologies over energy security and domestic production.
What are the concerns over national security and economic competitiveness that have prompted the Biden administration to exclude Chinese-made EV batteries from subsidies?
With sales growing by 43% in the first half of 2021. This surge in popularity is driven by factors such as increased environmental awareness, government incentives, and improved technology.
However, concerns over national security and economic competitiveness have pushed the Biden administration to take action. By reducing dependence on Chinese-made EV batteries, the United States aims to safeguard its supply chains and promote domestic manufacturing. This move is part of the administration’s broader strategy to revitalize the American manufacturing sector and create jobs.
The decision to exclude Chinese-made EV batteries from subsidies has drawn mixed reactions. Supporters argue that it will incentivize local production and ensure a secure supply of battery components. They highlight the importance of establishing a robust and self-sufficient EV supply chain within the United States.
On the other hand, critics express concerns over potential negative impacts on the EV industry. With China dominating battery production, alternative sources may struggle to meet the demand. This could result in supply chain disruptions and potential price increases for EVs, ultimately hampering the sector’s growth.
To mitigate these challenges, the Biden administration has also allocated significant funding to boost domestic battery manufacturing. As part of the infrastructure bill, around $5 billion will be invested in battery production, research, and development. This investment aims to rapidly scale up domestic production capacity and support innovation in battery technology.
The administration’s decision to prioritize domestic manufacturing is not exclusive to the EV sector. It aligns with the broader agenda of reducing reliance on foreign imports and strengthening the country’s economic resilience. By encouraging local production, the United States aims to create jobs, stimulate economic growth, and enhance national security.
Overall, the Biden administration’s move to exclude Chinese-made EV batteries from subsidies marks a significant shift in policy. While it may pose challenges for achieving the ambitious goals set for the EV industry, it also presents an opportunity to strengthen domestic manufacturing, drive innovation, and secure the country’s supply chains. The success of this policy will depend on the ability to balance economic growth with environmental concerns and to foster collaboration between industry stakeholders, government agencies, and research institutions.
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