US relaxes some rules for electric vehicle batteries, potentially increasing tax credit eligibility

DETROIT — The U.S. government on Friday relaxed some rules governing tax credits for electric vehicles, potentially making more electric vehicles eligible for credits of up to $7,500, but leading critics to accuse the Biden administration of help China.

The Treasury Department announced final credit regulations under the Inflation Reduction Act of 2022, giving automakers more time to comply with certain provisions regarding the origin of battery minerals.

Credits range from $3,750 to $7,500 for new electric vehicles. There is also a $4,000 credit for used devices.

They aim to boost demand for electric vehicles in an effort to meet the Biden administration's goal that half of all new vehicle sales will be electric by 2030. This year, the credits are available at where a vehicle is purchased from an authorized dealer rather than waiting. for an income tax refund.

Eligibility for credits depends on a person's income, vehicle prices, and battery composition and mineral requirements that become more stringent each year. To get the credits, electric vehicles must be assembled in North America. Some plug-in hybrids may also qualify.

Starting this year, complex rules will be gradually introduced to promote the development of a domestic electric vehicle supply chain. The rules would prevent electric vehicle buyers from claiming the full tax credit if they buy cars containing battery materials from China and other countries of concern considered hostile to the United States. These include Russia, North Korea and Iran.

However, under the final rule, small amounts of graphite and other minerals used in batteries would be exempt from the restriction until 2027 because their country of origin is almost impossible to trace, officials said. Without the exemption, some vehicles meeting almost all the requirements might no longer be eligible for the tax credit due to tiny amounts that could not be traced, Treasury said.

The National Mining Association called the new exemptions a gift to China.

Congress created these tax incentives to secure our supply chains and generate American jobs while supporting the adoption of electric vehicles. They did not intend to create loopholes that would essentially amount to a blank check from the U.S. taxpayer to China, said Rich Nolan, president and CEO of the mining lobby.

West Virginia Sen. Joe Manchin, Democratic chairman of the Senate Energy and Natural Resources Committee, said that through the new rule, the Biden administration is effectively endorsing Made in China.

Manchin, who played a key role in passing the Inflation Reduction Act, President Joe Biden's landmark climate legislation, said the law specifically bans electric vehicles containing materials from foreign adversaries such as China and Russia to be eligible for the tax credit after 2024. But now Treasury is offering these countries a long-term path to remaining in our supply chains. It’s outrageous and illegal, he said.

This year, half of the critical minerals in an electric vehicle's battery must be mined or processed in the United States, or in a country with which it has a free trade agreement. Sixty percent of battery parts must be manufactured or assembled in North America.

Starting in 2025, batteries containing critical minerals from countries of concern would not be eligible for any tax credits. But after gathering feedback from the auto industry and others, Treasury officials decided to ease the restriction.

The rule released Friday is expected to make more electric vehicles eligible for credits in 2025 and 2026, but the auto industry says that will be difficult to say until automakers finish tracing the origin of all minerals.

The transition to electric vehicles requires nothing less than a complete transformation of America's industrial base,” John Bozzella, CEO of the Alliance for Automotive Innovation, a major industry trade group, said in a statement. This is a monumental task that will not be accomplished overnight.

The rule change, he said, makes sense for investment, job creation and consumer adoption of electric vehicles.

Currently, China dominates crucial parts of electric vehicle battery supply and production, even as automakers rush to locate their key mineral and component efforts elsewhere.

Of the 114 electric vehicle models currently sold in the United States, only 13 are eligible for the full $7,500 credit, the automotive alliance said.

Despite the tax credits, electric vehicle sales grew just 3.3% to nearly 270,000 between January and March this year, well below the 47% growth that fueled sales record and a market share of 7.6% last year. The slowdown, led by Tesla, confirms automakers' fears that they moved too quickly to pursue electric vehicle buyers. The share of electric vehicles in total U.S. sales fell to 7.15% in the first quarter, according to Motorintelligence.com.

The Inflation Reduction Act's Clean Vehicle Credits Save Consumers Up to $7,500 on a New Vehicle and Hundreds of Dollars a Year on Gas, While Creating Good-Paying Jobs and strengthening our energy security, Treasury Secretary Janet Yellen said in a statement.

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AP writer Daly reported from Washington.

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