WASHINGTON — As the Biden administration works to strike a balance between two objectives — accelerating electric vehicle adoption and securing a domestic supply chain — forthcoming guidance that further constricts battery material and component sourcing rules could tip the scale.
The U.S. Treasury Department last month released its much-anticipated proposed guidance on battery sourcing rules in the Inflation Reduction Act's consumer tax credit for new EVs, known as 30D. The rules are designed to incentivize domestic production and reduce reliance on foreign supply chains.
When those requirements take effect April 18, fewer EVs are expected to qualify for the full $7,500 credit, potentially triggering a short-term slowdown in new EV sales as automakers and consumers untangle the complex eligibility restrictions, industry experts told Automotive News.
Adding to that: Treasury still needs to release guidance on how strictly it will enforce the law's "foreign entity of concern" provision, which blocks tax credits for vehicles containing any battery components or critical minerals from producers controlled by countries such as China starting in 2024 and 2025, respectively.
The answer will be vital to automakers such as Ford Motor Co., which has a licensing agreement with China's Contemporary Amperex Technology Co., to leverage its technology at a planned $3.5 billion battery plant in Michigan. Tesla is exploring a similar arrangement with the company known as CATL, according to a Bloomberg report.
"This piece of legislation has always had this conflict between: Is the purpose of the bill to drive EV sales, or is it to change supply chains and essentially get stuff out of countries like China?" said Dan Ryan, vice president of government and public affairs at Mazda North American Operations, which does not sell any EVs that qualify for the credit.
"You could certainly argue that the bigger priority of the bill itself is to bring supply chains and production to the U.S. and North America. … The big question, to me, is how big of an impact are these incentives going to have on consumer behavior?" he added.