US proposes EV tax credit rules to curb Chinese inputs

The US government proposed new rules Friday regarding its electric vehicle subsidies, setting limits on material that producers can source from China or other rival countries.

The guidelines spell out how electric vehicles (EVs) could qualify for a tax credit of up to $7,500 under President Joe Biden’s landmark climate action plan, the Inflation Reduction Act (IRA).

They come as Washington works to reduce its burgeoning electric car industry’s reliance on China.

Under the latest proposal released by the Treasury Department on Friday, an eligible clean vehicle cannot contain battery components made or assembled by a “foreign entity of concern” starting next year.

From 2025, a qualifying vehicle also cannot contain critical minerals extracted, processed or recycled by such entities.

This targets companies owned by, or subject to the jurisdiction of countries like China, Russia, North Korea and Iran. They would be barred from providing such materials to vehicles aiming to qualify for tax breaks.

A firm could be considered a foreign entity of concern if it were incorporated in one of these countries, or if it hit a 25 percent ownership threshold.

The rules have the effect of limiting Chinese companies’ roles in the supply chain for US electric vehicles, as Washington aims to move more production into the United States.

Currently, the key electric vehicle industry is dominated by China.
The latest rules will likely reduce the number of vehicles eligible for tax credits while piling pressure on automakers as they grapple with the transition to producing electric cars.

But Senator Joe Manchin, a member of Biden’s Democratic Party who played a key role in passing the IRA, criticized the guidelines for not going far enough to shift supply chains from China.

“This administration is, yet again, trying to find workarounds and delays that leave the door wide open for China to benefit off the backs of American taxpayers,” he said in a statement.

Mike Gallagher, the Republican chair of the House Select Committee on the Chinese Communist Party, argued in a separate statement that the proposal would increase reliance on China, citing some exemptions to the rules.

The IRA funnels some $370 billion into subsidies for America’s energy transition, including tax breaks for US-made electric vehicles and batteries.

It has attracted billions of investment into North American supply chains.

The proposed rules will see a public comment period before they are finalized. (BSS/AFP)