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Starting April 18, fewer EVs will be eligible for the new $7,500 tax credits unveiled last year.
If you’ve been considering a new electric vehicle or hybrid these past few months, and you think you’ve gotten a pretty good handle on how the revised EV tax credits work, the U.S. Treasury Department and the IRS have an unspoken message for you: Do it soon. The rules are about to change.
Again.
Today, federal officials announced changes to the EV tax credit plan around minerals and batteries. As esoteric and complicated as it sounds (and in fact, is) the headline for prospective buyers is that starting April 18, fewer EVs will be eligible for the new $7,500 tax credits unveiled last year as part of President Biden’s Inflation Reduction Act.
In short, these changes are being made today to guarantee that the full $7,500 EV tax credit goes toward not just cars built in North America, but cars containing battery components made on this continent as well. Moreover, it seeks to guarantee that certain critical minerals in those batteries come from countries with which the United States has a free trade agreement. Each requirement is worth up to $3,750.
Granted, “Where are your minerals from?” doesn’t quite have the same ring as “How much horsepower are you putting down?” to car aficionados. But these changes to the EV tax credits will reverberate through the car market and the entire auto industry.
In the short term, this means fewer EVs will qualify for the tax credits, even if they are made in North America. But in the longer term, it could create a major battery ecosystem here as well.
It’s worth keeping in mind the two car-related goals of the IRA when you consider these changes. One was to reduce carbon emissions by modernizing the EV tax credit scheme and spurring wider electric car adoption (which the incentives seem to be doing).
The other goal is to build a localized, North America-centric supply chain for batteries and EVs so that China — a peer state with whom U.S. tensions are quickly rising — cannot dominate the industry. Given China’s own aggressive EV industry push, things were certainly trending that way before.
“We need to build a clean energy supply chain that is not dependent on China,” a senior Treasury official said on a press call with reporters on Thursday. The official said that the revised guidance will reduce the number of vehicles that qualify in the short term, but will create incentives to bring supply chains and manufacturing to the U.S. These requirements will significantly increase the number of EVs made in North America over the next decade, officials believe, with more qualifying over the next decade than under the admittedly outdated pre-IRA policy.
The clear downside to all of this is that it could mean fewer EV sales for now if more cars lose the full $7,500 credit. That decision does run counter to the IRA’s goals of cutting car emissions, and it could dampen the hopes of car companies looking to make big EV product pushes in the coming years. Battery plants and mineral processing facilities will likely take years to get up and running. Ford, for example, is building a $3.5 billion Michigan battery plant but it isn’t projected to start making batteries until 2026.
As a result, some urgency may be warranted for EV buyers who want to take advantage of the full $7,500 tax credit. Until April 18, those rules mean that regardless of battery sourcing or minerals, cars like the Tesla Model 3, Chevrolet Bolt, Ford F-150 Lightning, Mustang Mach-E, Volkswagen ID.4, and multiple U.S.-made hybrids from BMW, Audi, and Volvo qualify for some or all of those credits, depending on the car’s price and the buyer’s income.
But automakers have said, correctly, that it takes years to set up local EV production, not to mention the local battery manufacturing and approved mineral sourcing. Hyundai and Kia, for example, make stellar EVs but they are made in South Korea, so they will no longer qualify for any EV tax credits — much to those automakers’ vocal chagrin. Other automakers may make their EVs locally but don’t meet the mineral sourcing requirements after April 18.
Moreover, the battery component requirement increases every year. Starting this year, to secure $3,750 of the tax credit — half of $7,500 — 50% of the battery components must be manufactured or assembled in North America. That rises 10% each year until 2029 when the battery must be entirely made on this continent to qualify for the full tax credit.
(Furthermore, starting next year, no EV will be eligible for any tax credit if its battery was made by “a foreign entity of concern,” which generally refers to China; in many ways, this cuts China’s battery industry out of the American auto supply chain because car companies won’t sacrifice their tax incentives to competitors just to use Chinese batteries.)
So what does this mean for car prices, exactly? That’s the tricky part. As with past changes to the IRA, it’s hard to say right now — automakers are currently sourcing batteries from a variety of places as they seek to ramp up local production.
Heatmap reached out to multiple automakers to determine if their car prices would be impacted.
General Motors indicated it’s waiting to learn more from the federal government before making a determination. “We believe GM is well-positioned because we were already actively pursuing opportunities to localize as much of the supply chain as possible,” a GM spokesperson said.
Ford thanked the Biden administration in an upbeat note from its CEO Jim Farley for clarifying the “important details” of the IRA. “Ford continues to accelerate our investment in America thanks to this important policy initiative,” Farley said, noting Ford would help its customers understand their eligibility for the tax credits.
In a statement sent to Heatmap, Volvo said it was reviewing the rules but remains “concerned that the consumer tax credit is overly complex and contains several immediate limitations.” It also pushed for a trade agreement with the European Union, saying “open markets and overall free trade policies lead to an increase in global economic prosperity, innovation, and higher living standards for people around the world.”
Officials from Toyota did not return a request for comment. (Toyota further declined to comment on the effects of a new trade deal on EV battery minerals signed between Japan and the U.S. this week that could potentially impact some of its cars.)
Federal officials said that on April 18, a revised list of eligible vehicles will be posted to FuelEconomy.gov, and it will also include the amount of credit available.
But that’s still a few weeks away. EV and hybrid buyers may do well to make a purchase before the rules change — that is, if they can find a car to buy. Many new EVs remain tough to find thanks to supply chain challenges and are on average pricier than ICE counterparts.
The answer is clear: Like a Mustang Mach-E using launch control, move fast before things change.
This article was updated at 10:55AM ET on March 31, 2023.
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The Loan Programs Office is good for more than just nuclear funding.
That China has a whip hand over the rare earths mining and refining industry is one of the few things Washington can agree on.
That’s why Alex Jacquez, who worked on industrial policy for Joe Biden’s National Economic Council, found it “astounding”when he read in the Washington Post this week that the White House was trying to figure out on the fly what to do about China restricting exports of rare earth metals in response to President Trump’s massive tariffs on the country’s imports.
Rare earth metals have a wide variety of applications, including for magnets in medical technology, defense, and energy productssuch as wind turbines and electric motors.
Jacquez told me there has been “years of work, including by the first Trump administration, that has pointed to this exact case as the worst-case scenario that could happen in an escalation with China.” It stands to reason, then, that experienced policymakers in the Trump administration might have been mindful of forestalling this when developing their tariff plan. But apparently not.
“The lines of attack here are numerous,” Jacquez said. “The fact that the National Economic Council and others are apparently just thinking about this for the first time is pretty shocking.”
And that’s not the only thing the Trump administration is doing that could hamper American access to rare earths and critical minerals.
Though China still effectively controls the global pipeline for most critical minerals (a broader category that includes rare earths as well as more commonly known metals and minerals such as lithium and cobalt), the U.S. has been at work for at least the past five years developing its own domestic supply chain. Much of that work has fallen to the Department of Energy, whose Loan Programs Office has funded mining and processing facilities, and whose Office of Manufacturing and Energy Supply Chains hasfunded and overseen demonstration projects for rare earths and critical minerals mining and refining.
The LPO is in line for dramatic cuts, as Heatmap has reported. So, too, are other departments working on rare earths, including the Office of Manufacturing and Energy Supply Chains. In its zeal to slash the federal government, the Trump administration may have to start from scratch in its efforts to build up a rare earths supply chain.
The Department of Energy did not reply to a request for comment.
This vulnerability to China has been well known in Washington for years, including by the first Trump administration.
“Our dependence on one country, the People's Republic of China (China), for multiple critical minerals is particularly concerning,” then-President Trump said in a 2020 executive order declaring a “national emergency” to deal with “our Nation's undue reliance on critical minerals.” At around the same time, the Loan Programs Office issued guidance “stating a preference for projects related to critical mineral” for applicants for the office’s funding, noting that “80 percent of its rare earth elements directly from China.” Using the Defense Production Act, the Trump administration also issued a grant to the company operating America's sole rare earth mine, MP Materials, to help fund a processing facility at the site of its California mine.
The Biden administration’s work on rare earths and critical minerals was almost entirely consistent with its predecessor’s, just at a greater scale and more focused on energy. About a month after taking office, President Bidenissued an executive order calling for, among other things, a Defense Department report “identifying risks in the supply chain for critical minerals and other identified strategic materials, including rare earth elements.”
Then as part of the Inflation Reduction Act in 2022, the Biden administration increased funding for LPO, which supported a number of critical minerals projects. It also funneled more money into MP Materials — including a $35 million contract from the Department of Defense in 2022 for the California project. In 2024, it awarded the company a competitive tax credit worth $58.5 million to help finance construction of its neodymium-iron-boron magnet factory in Texas. That facilitybegan commercial operation earlier this year.
The finished magnets will be bought by General Motors for its electric vehicles. But even operating at full capacity, it won’t be able to do much to replace China’s production. The MP Metals facility is projected to produce 1,000 tons of the magnets per year.China produced 138,000 tons of NdFeB magnets in 2018.
The Trump administration is not averse to direct financial support for mining and minerals projects, but they seem to want to do it a different way. Secretary of the Interior Doug Burgum has proposed using a sovereign wealth fund to invest in critical mineral mines. There is one big problem with that plan, however: the U.S. doesn’t have one (for the moment, at least).
“LPO can invest in mining projects now,” Jacquez told me. “Cutting 60% of their staff and the experts who work on this is not going to give certainty to the business community if they’re looking to invest in a mine that needs some government backstop.”
And while the fate of the Inflation Reduction Act remains very much in doubt, the subsidies it provided for electric vehicles, solar, and wind, along with domestic content requirements have been a major source of demand for critical minerals mining and refining projects in the United States.
“It’s not something we’re going to solve overnight,” Jacquez said. “But in the midst of a maximalist trade with China, it is something we will have to deal with on an overnight basis, unless and until there’s some kind of de-escalation or agreement.”
A conversation with VDE Americas CEO Brian Grenko.
This week’s Q&A is about hail. Last week, we explained how and why hail storm damage in Texas may have helped galvanize opposition to renewable energy there. So I decided to reach out to Brian Grenko, CEO of renewables engineering advisory firm VDE Americas, to talk about how developers can make sure their projects are not only resistant to hail but also prevent that sort of pushback.
The following conversation has been lightly edited for clarity.
Hiya Brian. So why’d you get into the hail issue?
Obviously solar panels are made with glass that can allow the sunlight to come through. People have to remember that when you install a project, you’re financing it for 35 to 40 years. While the odds of you getting significant hail in California or Arizona are low, it happens a lot throughout the country. And if you think about some of these large projects, they may be in the middle of nowhere, but they are taking hundreds if not thousands of acres of land in some cases. So the chances of them encountering large hail over that lifespan is pretty significant.
We partnered with one of the country’s foremost experts on hail and developed a really interesting technology that can digest radar data and tell folks if they’re developing a project what the [likelihood] will be if there’s significant hail.
Solar panels can withstand one-inch hail – a golfball size – but once you get over two inches, that’s when hail starts breaking solar panels. So it’s important to understand, first and foremost, if you’re developing a project, you need to know the frequency of those events. Once you know that, you need to start thinking about how to design a system to mitigate that risk.
The government agencies that look over land use, how do they handle this particular issue? Are there regulations in place to deal with hail risk?
The regulatory aspects still to consider are about land use. There are authorities with jurisdiction at the federal, state, and local level. Usually, it starts with the local level and with a use permit – a conditional use permit. The developer goes in front of the township or the city or the county, whoever has jurisdiction of wherever the property is going to go. That’s where it gets political.
To answer your question about hail, I don’t know if any of the [authority having jurisdictions] really care about hail. There are folks out there that don’t like solar because it’s an eyesore. I respect that – I don’t agree with that, per se, but I understand and appreciate it. There’s folks with an agenda that just don’t want solar.
So okay, how can developers approach hail risk in a way that makes communities more comfortable?
The bad news is that solar panels use a lot of glass. They take up a lot of land. If you have hail dropping from the sky, that’s a risk.
The good news is that you can design a system to be resilient to that. Even in places like Texas, where you get large hail, preparing can mean the difference between a project that is destroyed and a project that isn’t. We did a case study about a project in the East Texas area called Fighting Jays that had catastrophic damage. We’re very familiar with the area, we work with a lot of clients, and we found three other projects within a five-mile radius that all had minimal damage. That simple decision [to be ready for when storms hit] can make the complete difference.
And more of the week’s big fights around renewable energy.
1. Long Island, New York – We saw the face of the resistance to the war on renewable energy in the Big Apple this week, as protestors rallied in support of offshore wind for a change.
2. Elsewhere on Long Island – The city of Glen Cove is on the verge of being the next New York City-area community with a battery storage ban, discussing this week whether to ban BESS for at least one year amid fire fears.
3. Garrett County, Maryland – Fight readers tell me they’d like to hear a piece of good news for once, so here’s this: A 300-megawatt solar project proposed by REV Solar in rural Maryland appears to be moving forward without a hitch.
4. Stark County, Ohio – The Ohio Public Siting Board rejected Samsung C&T’s Stark Solar project, citing “consistent opposition to the project from each of the local government entities and their impacted constituents.”
5. Ingham County, Michigan – GOP lawmakers in the Michigan State Capitol are advancing legislation to undo the state’s permitting primacy law, which allows developers to evade municipalities that deny projects on unreasonable grounds. It’s unlikely the legislation will become law.
6. Churchill County, Nevada – Commissioners have upheld the special use permit for the Redwood Materials battery storage project we told you about last week.