The United States has amended its electric vehicle (EV) battery regulations under the Inflation Reduction Act, broadening the eligibility for tax credits up to $7,500. This change favors a wider range of EVs, despite critiques that it may advantage Chinese suppliers.

The Treasury Department released the final criteria for these credits on Friday. The new rules extend the deadline for automakers to comply with battery mineral sourcing requirements. Previously, the guidelines mandated substantial production and sourcing from the U.S. or its allies.

Tax Credit Details

Under the revised policy, new EV purchases could see tax credits ranging from $3,750 to $7,500, while used EVs might benefit from up to $4,000 in incentives. These measures support the Biden administration’s aim for half of all new vehicles sold by 2030 to be electric. Additionally, buyers can now receive these credits immediately at the point of sale from certified dealers.

Criteria for Credit Eligibility

Eligibility for these tax credits depends on various factors, including the buyer’s income, the vehicle’s sale price, and strict guidelines on battery components and mineral sourcing. To qualify, EVs must be manufactured in North America, with select plug-in hybrids also eligible.

This year’s more stringent regulations seek to encourage a domestic EV supply chain and lessen reliance on certain foreign nations. A notable adjustment permits the exclusion of small amounts of specific minerals, like graphite, from these sourcing restrictions until 2027 due to traceability issues.

The National Mining Association criticized the exemptions, arguing they weaken U.S. supply chain efforts and inadvertently support Chinese mining operations. Senator Joe Manchin echoed these sentiments, labeling the regulatory adjustments as contradictory to the Inflation Reduction Act’s goals and potentially unlawful.

Future Regulatory Landscape

By 2025, to qualify for tax credits, EV batteries cannot contain critical minerals sourced from specified adversarial countries. Despite initial stricter intentions, consultations with the auto industry led to a temporary relaxation of these rules, potentially increasing the number of eligible EVs through 2026.

The auto sector remains wary, with companies working to trace the origins of their battery minerals accurately. John Bozzella, CEO of the Alliance for Automotive Innovation, expressed support for the changes, emphasizing their role in promoting investment, job creation, and the adoption of EVs among consumers.

Despite adjustments on EV battery regulations, EV sales in 2023 have grown only modestly. This slow uptake suggests the industry’s expectations for EV popularity might have been overly optimistic last year.

Image Source: Dynamic Ratings