The Tax Credit for Foreign Autonomous Vehicles (EVs): The Challenge and Opportunities for the Supply Chain of Batteries, Minerals, and Components
The new tax credit for foreign vehicles does not apply to nine models, most from Hyundai and Nissan. Some of these brands are building factories in the US to assemble their vehicles, and in the coming months and years it will likely change.
Most of the eligible cars so far are manufactured by the big three EV manufacturers in the US.
If you leased a vehicle, you can qualify for a tax credit of $7,500, which means consumers can choose to purchase or lease instead, without having to worry about the final assembly or batteries.
That represents a serious challenge to most automakers — and now for customers interested in buying an EV. Under the current supply chain, the vast majority of EVs have batteries, minerals, and components heavily sourced from other countries, China in particular. The law seeks to reduce the auto industry’s reliance on China, which accounts for some 70 percent of the global supply of battery cells.
The critical mineral requirement mandates a certain percentage of the value of the critical minerals that power EV batteries — like lithium, nickel, graphite and copper — must be extracted or processed in the United States, or a country that it has a free-trade agreement with. The minerals could have also been recycled in North America. The requirement for the manufacture or assembly of the battery components in North America is part of the battery component requirement.
The requirements will increase over time. The percentage will rise from 40% in 2023 to 80% by the year 2027. For battery components, the percentage will start at 50% and ramp up each year to 90% by 2028.
The US and many other countries have free trade agreements on critical minerals.
But experts and officials say the start of the critical mineral supply chain — mining and refining critical minerals — will be the most difficult aspect to change. That’s in large part because China has a tight grip on it. There are a few mines in Nevada. Companies are vying to start mining lithium around California’s Salton Sea, though no commercial operations have started yet.
The last few months have seen a wave of announcements from car companies that are moving their EV and battery production factories to the US and neighboring countries.
The Department of Energy “can give a loan to build a battery manufacturing facility,” Boylan said. “It’s a whole different ballgame from talking about permitting an open-pit lithium mine.”
New Tax Credits for Electric Vehicles and Plug-in Hybrid Vehicles: The Last Countdown to the 2022 Inflation Reduction Act
Plug-in hybrid vehicles are on the list and have a combination gas engine and electric motor. It also includes a number of electric vehicles that haven’t gone on sale.
The Nissan Leaf and BMW X5 are some of the models that will lose their credit tomorrow.
A quick refresher: the Inflation Reduction Act of 2022 includes a revised tax credit for electric vehicles and plug-in hybrid vehicles that imposed strict new rules regarding assembly, battery materials, and supply chain. In order to qualify for the full $7,500 credit, a vehicle and its battery would need to be sourced from and assembled in North America or a qualifying trade partner.
But it should be emphasized: this is not the final list. Automakers plan on launching dozens of models in the coming years, some of which will make it on the list. Others will get re-added as companies break ground on new factories in the US and other eligible countries. And still, others will drop off the list as the Inflation Reduction Act’s tough new rules get stricter by the year.