The Biden administration has unveiled new regulations regarding tax credits for electric vehicles (EVs). The regulations aim to restrict Chinese imports. In the process, they may hinder the transition away from fossil fuels in the United States.

Under the new rules, vehicles will be disqualified from receiving the EV tax credit if any of their suppliers are affiliated with China. Examples of affiliation include producing parts in China and having over 25 percent of board seats controlled by China.

In some cases, even American suppliers that rely on licensed Chinese technology may be ineligible for the credit.

The regulations also provide some flexibility that automakers have requested, including a two-year phased implementation for challenging battery powders that are difficult to trace in EVs.

According to Politico, only 22 electric and plug-in hybrid models currently meet the criteria for the credit. This is less than 20 percent of the total EV models available in the market.

The exact number of eligible vehicles once the new rules take effect in January remains uncertain.

These stringent regulations are a triumph for those seeking to reduce US dependence on China. Meanwhile, automakers like Ford (which plans to use Chinese battery technology in a Michigan plant) will need to reconsider whether their cars will be eligible for the tax credit under the new rules.


One of the main pillars of President Joe Biden’s climate agenda is to encourage widespread adoption of EVs among Americans.

The EV tax credit is a crucial tool in achieving this goal. The tax credit can effectively lower the price of an electric car by up to $7,500. It was one of the most prominent features of the 2022 Inflation Reduction Act (IRA).

However, the EV industry is still heavily dependent on China for supplying its key components. This is particularly true for batteries.

The IRA prohibits car manufacturers from obtaining battery parts or critical minerals from certain countries starting in 2024. China, Russia, Iran, and North Korea are included in this provision. However, the task of defining which companies, joint ventures, and subsidiaries fall under the ban was left to the administration.

Interpreting the IRA

EV makers advocated for flexible guidance, as they have not had enough time to completely remove their reliance on Chinese suppliers.

On the other hand, lawmakers from both parties urged a stricter approach to exclude China entirely. Republicans and Democratic senator Joe Manchin warned the Treasury Department against granting any leeway to automakers to continue sourcing from Chinese suppliers.

In an attempt to strike a balance, the administration published a relatively strict definition of the companies subject to the ban. At the same time, it provided some flexibility to automakers on certain battery powders that are difficult to trace in terms of origin.

Automakers are not eligible for the EV tax credit if they do business with a “foreign entity of concern.” The Department of Energy (DOE) has largely aligned its definition of a “foreign entity of concern” with the interpretation used by the Commerce Department in last year’s CHIPS and Science Act.

This rule prohibits suppliers from accessing federal incentives if as little as 25 percent of the company’s stock, voting shares, or board seats are owned by individuals or businesses based in countries like China.

Some in the auto industry argue that this definition alone could disqualify many EV models from receiving the credit.


The Biden administration is confident that EV makers will be able to abide by the new rules. However, its optimism is unrealistic.

The most important raw material for EV batteries is lithium. US lithium mines moved offshore beginning in the 1970s. There’s currently only one operational lithium mine in the country.

Although the US has abundant lithium reserves, environmental regulations will make it difficult for most lithium deposits to be mined.

One of the world’s largest lithium deposits is located in Maine. The deposit is estimated to be around 11 million tons, providing an economic value of about $1.5 billion.

However, Maine has some of the most stringent environmental laws in the United States. The state bans digging for metals in open pits larger than three acres. As a result, Maine has not had any metal mining since 1977.

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