WASHINGTON — Automakers are asking the U.S. Treasury Department for clarity on key provisions in the new tax credit for electric vehicles and urging as much flexibility as possible as they hurry to localize supply chains for EV batteries and critical minerals and ensure vehicle eligibility.
Under the recently signed Inflation Reduction Act, the department is required to issue proposed guidance by the end of the year that will further define how to meet the credit’s eligibility constraints, which are designed to incentivize domestic EV production, reduce reliance on foreign supply chains and prevent wealthy buyers from getting a discount.
The department sought comments through Nov. 4 as it works to develop the implementing guidance by the Dec. 31 deadline.
“As much as automakers and policymakers would like this transition to happen faster, increasing access to critical raw materials, expanding manufacturing capacity and broadening our domestic supply chains will not happen overnight,” the Alliance for Automotive Innovation, which represents most major automakers in the U.S., said in comments filed to Treasury.
The revamped $7,500 tax credit for new EVs is parceled out in two halves for qualifying vehicles and buyers. Half is based on meeting escalating requirements for battery components to come from North America with none from China or other foreign entities of concern as soon as 2024. The other half is based on critical minerals coming from the U.S. or free trade partners with no “entity of concern” sourcing from 2025.
By 2024, the law calls for half of the critical minerals used in EV batteries to be extracted or processed in the U.S. or a country where the U.S. has a free trade agreement in effect or from materials that are recycled in North America. In 2024 and 2025, 60 percent of the battery components must be made or assembled in North America.
Sourcing requirements ramp up to 80 percent after 2026 for critical minerals, and by 2029 require 100 percent of the battery components to be made or assembled in North America.
As of the bill’s enactment in August, eligible EVs must be assembled in North America. Restrictions on sticker price, buyer income and battery component and critical mineral sourcing take effect Jan. 1.
The Biden administration said about 20 vehicle models meet the North American final assembly requirement and therefore still qualify for incentives of up to $7,500 until the end of the year. However, none will be eligible for the full credit when additional sourcing rules take effect next year, according to the alliance.
To lessen confusion, the alliance told Treasury it should develop a centralized portal by Jan. 1 that allows automakers, dealers, consumers and relevant federal agencies to clearly convey consumer and vehicle eligibility.
It also asked the Treasury to broaden its definition of free trade agreement “to include arrangements, including plurilateral agreements, where the U.S. and a foreign economy agree to at least some reciprocal free market access, including government procurement, even if the agreement was not labeled a ‘free trade agreement.’ ”
In terms of defining “battery component,” the alliance said it should “focus on packs, modules, cells, and electrodes, but … not include materials that are adequately covered by the critical minerals provision.”
The alliance also said its members need clarity on the “foreign entity of concern” exclusions, such as specifying a “de minimis” threshold for applicable critical minerals or components in the battery and issuing guidance on what triggers the exclusions.
Additionally, the alliance asked for clarity on the North American final assembly requirement, noting that it “raises a variety of concerns” when it comes to trade agreements the U.S. has with other nations.
“Restrictive policies that penalize trading partners as well as U.S. consumers from the full breadth of clean vehicles sold will only hinder overall EV adoption and use over the next decade,” the alliance warned.
Several automakers also echoed the alliance’s concerns in individual comments filed with the department.
Ford Motor Co., in its comments, urged Treasury to limit its definition of “foreign entity of concern” so that it does not include a U.S. company — regardless of its owners — or certain joint ventures and partnerships. It also called for a de minimis standard incorporated into the provision’s reporting requirements, so that “unintended traces of critical minerals” do not block eligibility.
General Motors asked Treasury to account for the current realities and complexities of the battery supply chain, among other considerations to help the auto industry with compliance.
“For example, critical minerals procured from one country are largely fungible with those procured from another,” the Detroit automaker said in its comments. “In many cases, minerals will be purchased from a variety of geographic sources and subsequently commingled and processed at supplier facilities into a single end product, such that it is infeasible to track exactly which minerals go into exactly which vehicle.”
Toyota Motor North America asked Treasury to define the point in the production chain where critical minerals processing ends and battery component manufacturing begins, and to expand the definition of free trade agreement by allowing critical mineral supply chains in Japan to qualify.
American Honda Motor Co. also asked Treasury for a broader interpretation of the term by including Japan and other U.S. allies.
“While the term ‘free trade agreement’ is commonly used in concert with a number of trade deals between the U.S. and other countries, there is no actual statutory definition of free trade agreement,” Honda said in its comments. “Therefore, as Treasury develops guidance it should consider inclusion of other allied partners with whom the U.S. has a strong economic and national security alliance.”
EV newcomer Rivian Automotive urged Treasury to “maximize flexibility for new U.S. manufacturers who are currently ramping production and facing significant uncertainty in mineral supply chains and commodity markets” and to consider consumer education efforts.
The electric pickup and SUV maker also asked for additional guidance to clarify the law’s transition period from the old $7,500 tax credit to the new, more restrictive one and the application of a written binding contract to ensure customer eligibility.
The American International Automobile Dealers Association, the main trade association for dealers of imported vehicles, expressed concern over the tax credit’s restrictions and urged Treasury to issue implementing guidance that supports “a robust EV marketplace by providing realistic and evenhanded pathways to credit eligibility.”
“Simply put,” the association added, “guidelines that do not reflect U.S. market realities and relationships will result in reduced clean vehicle sales and delay electrification adoption in the long term.”
AIADA asked Treasury to provide annual increases to the credit’s caps on vehicle sticker price and buyer income based on the Consumer Price Index. The sticker price limit, too, should be defined as the base model manufacturer’s suggested retail price and exclude charges for optional equipment, taxes, title or registration fees.
“If the new credit’s full MSRP, income, and sourcing requirements are implemented as currently interpreted, without accounting for the complexity of our industry, we anticipate few to no vehicles will qualify for the full credit when additional criteria is put in force in 2023,” the group warned.
AIADA also is asking for flexibility for consumers who have existing EV reservations and are waiting for their vehicles to be delivered.
“Dealers made commitments to these consumers that with that financial reservation they would eventually get their vehicle with the initial EV tax credit,” the association wrote. “Dealers seek guidance that would honor the reservations that were made prior to the change in policy. … We are hopeful that Treasury can expand upon the guidance issued on [Aug. 16] to protect all customers that placed reservations on vehicles.”