US weighing reprieve for automakers on electric vehicle tax credits

The Biden administration has discussed granting automakers a temporary reprieve from new rules poised to limit a consumer tax credit for electric vehicles that contain certain materials from foreign adversaries, a Michigan senator said Tuesday.

Administration officials have discussed phasing in enforcement for the rules which would disqualify automobiles that use battery parts or minerals from China and other foreign adversaries from the full $7,500 incentive, Democratic Senator Debbie Stabenow said. 

“We’re in ongoing discussions,” Stabenow said in an interview, adding she was in talks with officials from the Treasury and Energy departments but had yet to see the final version of the rules. “I certainly weighed in to express support for the concerns of the automakers.”

Even a temporary delay would have major implications for electric vehicle makers like Tesla Inc., General Motors Co. and Ford Motor Co. as well as on consumers. Tesla already has warned customers the tax credit likely will be reduced next year under the new rules.

The requirements, which were included in President Joe Biden’s signature climate law, don’t allow tax breaks for vehicles containing battery components or critical minerals from foreign entities of concern starting in 2024 and 2025, respectively. One of the overarching goals of the climate law is to make the U.S. less reliant on China, which dominates the EV battery supply chain.

“The Inflation Reduction Act is increasing our energy security by encouraging investments in America and building secure supply chains,” the Treasury Department said in a statement. “By building in America with American workers, we are putting the United States and U.S. automakers in a position to lead the clean energy transition and pushing down costs for clean energy technology.”

Guidance expected this week by the Treasury Department will define which nations are foreign entities of concern and spell out details of how much content from foreign adversaries will be allowed in the electric vehicle battery supply chain. It will also outline what percentage of Chinese ownership would exclude a supplier from receiving the tax credit. 

Scott Sklar, president of The Stella Group Ltd., a strategic clean energy technology firm, said Treasury officials had discussed with him a transition period to give the U.S. domestic battery industry time to ramp up.

“We are going to have lots of battery capacity in the United States. It’s just not right this second,” Sklar said, adding that 14 battery plants are under construction in the U.S.

The requirements were put in place at the behest of Democratic Senator Joe Manchin, who provided the law’s pivotal vote last year and voiced concern the tax credit was subsidizing nations hostile to U.S. interests. 

In an interview Tuesday, Manchin said Treasury’s rules shouldn’t allow any content from adversarial nations, adding if he thought the administration wasn’t following the law he would help companies sue it.

“We’re going to hold them very much to the intent of the bill and not the intent of what they want,” Manchin said, referring to the Biden administration with which he has frequently clashed. “They are trying to implement a piece of legislation they couldn’t pass.”