US Proposes Norms To Counter Chinese Domination In Battery Manufacturing

US Proposes Regulations To Counter Chinese Batteries Manufacturing

The US Department of Treasury and the IRS (Internal Revenue Service) has now proposed guidelines on clean vehicles credits under the Inflation Reduction Act (IRA). It is expected to lower costs for consumers, spur growth in the US vehicle manufacturing, and strengthen energy security. The move is also likely to reduce the dependency of the local clean vehicle manufacturing players against imports and its dependency on other countries, referred as foreign entity of concern (FEOC) under the IRA.

As per the proposed norms, these provisions would also provide clarity on definitions with respect to new clean vehicles eligible for the clean vehicle credit. The proposed regulations would affect qualified manufacturers of new clean vehicles and taxpayers who purchase and place in service new clean vehicles.

“Today’s Notice of Proposed Rulemaking (NRPM) provides clarity and certainty around the IRA’s foreign entity of concern (FEOC) requirements. To strengthen the security of America’s supply chains, beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured or assembled by a FEOC, and, beginning in 2025, an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a FEOC. In conjunction with today’s Treasury NPRM, the Department of Energy has released proposed guidance defining what entities are a FEOC,” a statement from the department said.

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It also added, “In addition to the FEOC requirement, clean vehicles must also continue to meet additional statutory criteria, including additional sourcing requirements for both the critical minerals and battery components contained in the vehicle, a requirement that vehicles undergo final assembly in North America, and a requirement that vehicles do not exceed a Manufacturers Suggested Retail Price of $80,000 for a van, pickup truck, or sport utility vehicle, or $55,000 for any other vehicle.”

The department claim to achieve this by building a resilient supply chain with allies and partners. Supporting this, since the IRA was enacted, nearly $100 billion in private-sector investment has been announced across the U.S. clean vehicle and battery supply chain. “The Inflation Reduction Act (IRA) has unleashed an investment and manufacturing boom in the United States, and since President Biden enacted the law, ecosystems have developed in communities nationwide to onshore the clean vehicle supply chain,” said Secretary of the Treasury Janet L. Yellen. “The Inflation Reduction Act’s clean vehicle tax credit saves consumers up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas, while creating American manufacturing jobs and strengthening our energy security.”

The NPRM proposes a temporary transition rule through 2026 that would give the industry time to develop tracing standards for these low-value materials. The proposed rules would provide a transition rule to expedite certification for new clean vehicles that do not contain battery components manufactured or assembled by a FEOC and are placed in service in 2024 between January 1 and 30 days after the rules are finalized. For new vehicles placed in service in 2025 or later, the IRS would track FEOC compliance via a compliant-battery ledger.

Each year, automakers would be required to submit to the IRS an estimate of the number of FEOC-compliant batteries they expect to procure each year, along with supporting documentation, and the Department of Energy would review these submissions. Once the ledger reaches zero for a year, the automaker can no longer submit vehicles as qualifying for the clean vehicle credit under Section 30D.

Battery Component Requirement

To meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components must be manufactured or assembled in North America.

• For 2023, the applicable percentage is 50 percent.
• For 2024 and 2025, the applicable percentage is 60 percent.
• For 2026, the applicable percentage is 70 percent.
• For 2027, the applicable percentage is 80 percent.
• For 2028, the applicable percentage is 90 percent.
• Beginning in 2029, the applicable percentage is 100 percent.

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