The US Treasury Department released the Critical Minerals and Battery Components Requirements last week, specifying rules about sourcing battery materials locally. Several automotive OEMs have said the guidance will cut tax credits for many of their vehicles.
The Treasury Department announced the guidance on March 31, planning to publish it officially on April 17. The rules will determine whether an EV can be eligible for a US$3,750 tax credit for critical battery minerals and another US$3,750 for battery components.
The EV tax credits are enabled by the Inflation Reduction Act (IRA). To receive the incentive for critical minerals, for 2023, a vehicle must use batteries containing at least 40% of minerals extracted or processed in the US or a country with which America has a free trade agreement, or otherwise recycled in North America. The percentage will increase yearly and reach 80% at the beginning of 2027.
In the new guidance released last week, the Treasury Department said it had formed a three-step process for determining the percentage of the critical mineral value in a battery. A manufacturer must first determine the procurement chain or chains for each critical mineral and evaluate the chains separately. It will then identify qualifying minerals and calculate the mineral content.
The agency also identified 20 countries that are the free trade partners of the US, including Australia, Canada, Chile, South Korea, and Morocco. Japan, with which the US recently finalized a Critical Minerals Agreement, will also enjoy the same status as the above countries in the battery rules.
IRA requires an EV to use a certain percentage of battery components manufactured or assembled in North America to be eligible for the tax credits. This year, the portion is 50% and will rise to 100% at the beginning of 2029. The Treasury Department proposed a four-step process in the guidance to calculate the battery component content in a battery.
According to Reuters, several OEMs have said the new rules will reduce the tax credits that their EVs can receive. On April 5, Ford and Stellantis said the guidance will halve the incentives for their plug-in and battery EVs later this month.
Carlos Tavares, Stellantis CEO, said the company will make sure its products are eligible for the subsidies because the tax credits will impact the affordability of an EV and are a main driver for the automotive industry.
General Motors said models like the Bolt can still get some of the US$7,500 tax credits, Reuters reported. Tesla also said that based on the new guidance, credits for Model 3 rear-wheel drive will be halved to US$3,750.
