Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Electric Vehicles

It’s Suddenly a Mystery Which EVs Will Qualify for a Tax Credit in 2024

New guidance on the Inflation Reduction Act’s “foreign entities of concern” provision didn’t do much to clarify things.

A Rivian and question marks.
Heatmap Illustration/Rivian

If you’re in the market for a new car and considering cashing in on the $7,500 federal tax credit for an electric vehicle, I have good news. Also bad news.

The good news is, starting January 1, the credit will be a lot easier to claim. You won’t need to meet a certain level of tax liability to qualify or wait for your tax refund. You can transfer the credit to the dealership and take $7,500 off the sticker price right then and there.

The bad news is that suddenly, nobody knows which — if any — EVs will qualify. On Friday, the Biden administration proposed additional guidelines limiting where the components in eligible EVs are allowed to come from. Those guidelines won’t be finalized until early next year. But all signs indicate that the list of qualifying vehicles is set to shrink.

These changes aren’t coming out of nowhere — they’re part of the way the EV tax credit in the Inflation Reduction Act was designed. Over time, the law phases in additional rules that ask more of automakers in terms of onshoring their production and supply chains and minimizing their reliance on China. Beginning in 2024, if a vehicle contains any battery components that were manufactured or assembled by what’s known as a “foreign entity of concern,” it will no longer meet the requirements for the tax credit. Beginning in 2025, the same rule applies to vehicles containing critical minerals that were extracted or processed by a foreign entity of concern.

What, exactly, is a foreign entity of concern? Under U.S. law, the term applies to a company that is “owned by, controlled by, or subject to the jurisdiction or direction of” North Korea, Russia, Iran, or, yes, China. But what constitutes ownership or control is somewhat fuzzy.

“The implications are enormous because right now, it seems as if every battery that's going into an electric vehicle has some material ties to China,” Jay Turner, a professor of environmental studies at Wellesley College and author of a book on the history of batteries, told me.

In the proposal published Friday, the Biden administration recommended three criteria for interpreting the rule that it hopes will further strengthen American manufacturing of EV components and help diversify supply chains:

1. If the company producing the battery component or mineral is headquartered or incorporated in China, or if the relevant production activities occur in China, the vehicle will not qualify for an IRA tax credit.

2. If China has a 25% or more voting interest, board control, or equity interest in the company producing the component or mineral, the vehicle will not qualify.

3. If a company licenses or contracts with a Chinese firm, and the license entitles the Chinese firm to “exercise effective control” over production, the vehicle will not qualify.

This is a strict interpretation that’s likely to knock some vehicles off the eligibility list. But in a series of meetings with reporters on Wednesday, officials from the Department of the Treasury and Department of Energy said they didn’t know which or how many vehicles would be affected. “Part of the goal here is to put out this rule, and then the auto companies are going to come back to us,” said Wally Adeyomo, Deputy Secretary of the Treasury. “And then we will know which cars qualify.”

Automakers and EV experts have been anxiously awaiting guidance on the IRA’s foreign entities of concern provision. Adeyomo stressed that companies have been aware that these new rules would be coming ever since the law passed and have been making investments to ensure “that their cars would be able to qualify for this over the long term.”

Though it’s hard to fact check that claim, according to an EV supply chain database maintained by Turner and his students, at least 19 battery component factories have been announced in the U.S. and Canada since the passage of the IRA; none are yet operating, but automakers also have the option to buy components from U.S. trade partners. A report on the EV supply chain published by the International Energy Agency in 2022 notes that while China dominates cell component production, controlling 70% of capacity for cathodes and 85% of anodes, Japan and South Korea also had “considerable shares of the supply chain.”

Turner said it was conceivable that there will be models that qualify for the first phase of the rule beginning in January, which only applies to these battery components, but he was skeptical automakers would be able to continue qualifying in 2025, when the limits on critical minerals go into effect. “The further you get up the supply chain, the greater the exposure is to China,” he said. “It's not because China's got all of the critical minerals. It's that China has the processing facilities to turn those minerals into highly refined materials that are needed for the batteries.”

John Podesta, senior advisor to the president on clean energy innovation, said that Biden is “rewriting that story.” Officials pointed to a recent report from the Lawrence Berkeley National Laboratory, which found that the Salton Sea region in California has enough mineable lithium to support more than 375 million batteries for EVs. Turner’s database shows at least a dozen projects planned, rumored, or under construction to process minerals including lithium, cobalt, and graphite.

The guidance also raises questions about a $3.5 billion factory that Ford is building in Michigan to bring the production of safer, cheaper EV batteries to the U.S. The company is licensing technology from the Chinese company CATL, the world’s largest battery manufacturer, to produce batteries made of lithium, iron, and phosphate — which are more abundant than the cobalt and nickel used in the dominant batteries on the market. But the deal has come under scrutiny from House Republicans, who accuse CATL of having business ties to mining companies that use forced labor. Ford put construction on hold in September.

When asked about CATL, Deputy Secretary of Energy David Turk said the agency has not evaluated any individual company’s situation, but that they designed the licensing guidance to ”get at who has effective control in these kinds of situations.“

That could mean Ford is off the hook. Months ago, analysts told The Washington Post that the Chinese company will have little control over the Ford plant’s daily operations. “The way they structured this deal, they are keeping CATL at arm’s length as much as possible,” Sam Abuelsamid, head of e-mobility research at Guidehouse Insights, said.

The Biden administration is attempting to race forward on two sets of goals that are somewhat at odds with each other: speeding adoption of EVs while shifting their production away from China, thereby stimulating domestic industry and creating domestic jobs. When I spoke to Jane Nakano, a senior fellow at the Center for Strategic and International Studies, earlier this week, she said that if the Biden administration went with a strict 25% threshold for ownership, it could really accelerate automakers’ efforts to diversify sourcing away from China. “But that will take some time,” she added. “In the immediate future, many of the companies may simply try to compete without being able to access the consumer tax credit.”

Turner said that the question is not whether automakers can compete with low-cost EVs produced in China, but rather whether they can put out EVs that are cheaper than conventional cars on the market here.

“Once you get to the point that EVs are cheaper and we have a robust enough charging network that people aren't worried about running out of juice, I think that'll be the tipping point,” he said.

I should note that if you’re interested in this purely as a prospective consumer of an EV, the only thing you need to know is that your options to take advantage of the tax credit might be more limited come January. However, there is one weird trick to get around this and have a lot more options: Leasing. None of the rules around sourcing, assembly, or ownership apply to leased vehicles.

Red

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Politics

The Energy Department’s Possibly Illegal Move to Fund a Fossil-Fired Steel Furnace

At least one target of Chris Wright’s grant review may run into some sticky statutory issues.

Flags and steel.
Heatmap Illustration/Getty Images

The Department of Energy announced on Thursday that it’s reviewing some 179 awards made by the Biden administration worth $15 billion to ensure they were “consistent with Federal law and this Administration’s policies and priorities.”

But what happens when federal law and Trump’s priorities are at odds?

Keep reading...Show less
Blue
Climate

AM Briefing: Republicans Waver Over Cost, Energy Ahead of Budget Vote

On budget negotiations, Climeworks, and DOE grants

Republicans Waver Over Cost, Energy Ahead of Budget Vote
Heatmap Illustration/Getty Images

Current conditions: It’s peak storm season in the U.S., with severe weather in the forecast for at least the next six days in the Midwest and EastSan Antonio, Texas, is expected to hit 108 degrees Fahrenheit todayMonsoon rains have begun in Sri Lanka.

THE TOP FIVE

1. Republicans waver on budget ahead of possible floor vote next week

The House Budget Committee meeting to prepare the reconciliation bill for a floor vote as early as next week appears to be a go for Friday, despite calls from some Republicans to delay the session. At least three GOP House members, including two members of the Freedom Caucus, have threatened to vote no on the budget because a final score for the Energy and Commerce portion of the bill, which includes cuts to Medicaid, won’t be ready from the Congressional Budget Office until next week. That is causing a “math problem” for Republicans, Politico writes, because the Budget Committee “is split 21-16 in favor of Republicans, and Democrats are expecting full attendance,” meaning Republicans can “only lose two votes if they want to move forward with the megabill Friday.” Republican Brandon Gill of Texas is currently out on paternity leave, further reducing the margin for disagreement.

Keep reading...Show less
Yellow
Q&A

How the GOP Tax Bill Would Supercharge Renewable Energy NIMBYs

A conversation with Jillian Blanchard of Lawyers for Good Government about the heightened cost of permitting delays

Jillian Blanchard.
Heatmap Illustration

This week I chatted with Jillian Blanchard, vice president of climate change and environmental justice with Lawyers for Good Government, an organization that has been supporting beneficiaries of the Inflation Reduction Act navigate the uncertainties surrounding tax credits and grant programs under the Trump administration. The reason I wanted to chat with Jillian is simple: the IRA is under threat for the first time under a Republican Congress. I wanted to understand how solar and wind projects could be impacted by the House Republican reconciliation bill and putting IRA tax credits in doubt. I learned a lot.

The following conversation was lightly edited for clarity.

Keep reading...Show less
Yellow