The U.S. Treasury Department is expected to issue clarifications on federal electric vehicle (EV) tax-credit eligibility rules, specifically focusing on the “foreign entities of concern” requirement. This requirement would disqualify vehicles with battery components or critical minerals from companies controlled by certain countries that the U.S. does not have friendly trade relations with from receiving a $7,500 federal tax credit. The proposed rules could have implications for automakers like Volvo and Polestar, which have Chinese ownership and control.
Proposed Thresholds and Limitations
Some proposals have suggested establishing a specific threshold of traceable battery minerals to determine eligibility for the federal tax credit. This could potentially limit the number of EVs that qualify for the credit and impact automakers that rely on materials from countries with which the U.S. does not have a free trade agreement. General Motors, for example, had to adjust its battery sourcing for Ultium EVs to meet new requirements this year.
Impact on EV Market
While most EVs for sale in the U.S. currently use American-made batteries, there are exceptions like the Ford Mustang Mach-E, which features batteries made in North America. A stricter interpretation of the eligibility rules could lead to increased attention on EV battery recycling and potentially affect the availability of tax credits for certain vehicles in the market.
Trade Pact and Future Scenario
In 2023, the U.S. reached a trade pact with Japan, South Korea, and the European Union to include battery components from these trade partners in tax-credit eligibility, easing concerns from these countries. The interpretation of the eligibility rules will play a significant role in determining how China’s expanding EV market will impact the U.S. market, given China’s growing EV and battery production capabilities.
The U.S. Treasury Department is expected to issue clarifications on federal electric vehicle (EV) tax-credit eligibility rules, specifically focusing on the “foreign entities of concern” requirement. This requirement would disqualify vehicles with battery components or critical minerals from companies controlled by certain countries that the U.S. does not have friendly trade relations with from receiving a $7,500 federal tax credit. The proposed rules could have implications for automakers like Volvo and Polestar, which have Chinese ownership and control.
Proposed Thresholds and Limitations
Some proposals have suggested establishing a specific threshold of traceable battery minerals to determine eligibility for the federal tax credit. This could potentially limit the number of EVs that qualify for the credit and impact automakers that rely on materials from countries with which the U.S. does not have a free trade agreement. General Motors, for example, had to adjust its battery sourcing for Ultium EVs to meet new requirements this year.
Impact on EV Market
While most EVs for sale in the U.S. currently use American-made batteries, there are exceptions like the Ford Mustang Mach-E, which features batteries made in North America. A stricter interpretation of the eligibility rules could lead to increased attention on EV battery recycling and potentially affect the availability of tax credits for certain vehicles in the market.
Trade Pact and Future Scenario
In 2023, the U.S. reached a trade pact with Japan, South Korea, and the European Union to include battery components from these trade partners in tax-credit eligibility, easing concerns from these countries. The interpretation of the eligibility rules will play a significant role in determining how China’s expanding EV market will impact the U.S. market, given China’s growing EV and battery production capabilities.