Source: Wall Street News Author: Du Yu
The new regulations will come into effect on April 18. The requirements for the origin of key minerals and the places where battery modules are manufactured and assembled will be stricter, and the application conditions will become more stringent in the next few years. Just before these conditions came into effect, Americans began to buy electric vehicles in the fourth quarter of last year. According to some analysts, the new regulations may take the lead in cracking down on related sales.
On Friday March 31, the US Treasury Department and the Internal Revenue Service jointly issued rules clarifying what efforts automobile manufacturers should make in terms of “key minerals” and “battery components” to help eligible consumers claim the full $7,500 new electric vehicle tax credit.
The new rules will take effect on April 18. According to some analysts, this will make it more complicated to buy new passenger electric vehicles in the US and apply for federal tax credits, and will also make it significantly less tax-eligible models for some time to come.
Origin requirements for key minerals and manufacturing and assembly site requirements for battery components are more stringent
In terms of key minerals,To be able to receive a tax credit of $3,750 this year, the new regulations require that at least 40% of the key minerals (including lithium, nickel, manganese, graphite, and cobalt) in electric vehicle batteries must be extracted, processed, or recycled in the US or countries with free trade agreements with the US. This ratio will increase to 50% in 2024, 60% in 2025, 70% in 2026, and 80% after 2026.
The “three-step qualification process” provided by the US Treasury Department to automobile manufacturers is to find the origin of key minerals in batteries; determine which minerals in batteries meet the key minerals stipulated in the “US Inflation Reduction Act” that came into effect in August last year; and calculate the percentage of minerals in electric vehicle batteries that are key minerals.
In terms of battery componentsIn order to receive the other half of the tax credit of 3,750 dollars this year, the new regulations require that at least 50% of the components in electric vehicle batteries in terms of value must be manufactured or assembled in North America. This ratio will increase to 60% in 2024 and 2025, 70% in 2026, 80% in 2027, 90% in 2028, and 100% in 2029.
The relevant “four-step qualification process” is to determine which battery modules are manufactured or assembled in North America; calculate the incremental value of each component; determine the total value of all battery components; and calculate the percentage of eligible battery modules by value.
The EU and the UK are not yet eligible, and the definition of “foreign interested entity” will be clearly defined in the near future
According to the new regulations, countries that are eligible and have free trade agreements with the US currently include: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and Japan.
Some analysts point out that the EU and the UK are not yet eligible. However, EU Commissioner for Competition Affairs Vestag said yesterday, “The EU is very optimistic that it can reach an agreement with the same substantive scope between the US and Japan this week.”
On Tuesday, March 28, the US and Japan reached a trade agreement on the supply of electric vehicle battery minerals, which is critical to strengthening the two countries' battery supply chains and allowing Japanese automakers to obtain more extensive US electric vehicle tax credits.
On Wednesday, it was reported that the EU and the US are close to reaching a similar agreement on key minerals, which will enable EU companies to receive some of the huge green subsidies provided in the US “Inflation Reduction Act.” People familiar with the matter revealed that the agreement may include a promise not to impose restrictions or export tariffs on cobalt, graphite, lithium, manganese and nickel used in electric vehicle batteries, which can be seen as equivalent to a free trade agreement.
The new regulations issued by the US government on Friday also stated that guidance on another key rule will be issued in the near future, that is, to clarify the definition of “foreign entity of interest” (foreign entity of interest).
According to regulations, electric vehicles containing any key minerals from “foreign interested entities” will not be able to claim US federal tax credits after 2025, and electric vehicles containing any battery components from “foreign interested entities” will not be eligible for credits starting 2024.
Ahead of more stringent tax credit conditions, Americans began to buy electric vehicles in the fourth quarter of last year
The new regulations require each car manufacturer to calculate and tell the IRS which models are eligible to claim the credit. The US government will publish a list of qualifying vehicles determined by car manufacturers on FuelEleconomy.gov starting April 18.
According to media reports, since the US passed the “Inflation Reduction Act” focusing on clean energy last year, the conditions for applying for federal tax credits for new passenger electric vehicles purchased have been tightened more and more, which contributed to the popularity of electric vehicle sales at the beginning of this year to a certain extent, because people wanted to “get on the bus quickly” before stricter restrictions on key minerals and battery components came into effect.
The Automotive Innovation Alliance, an industry-leading organization, found that according to the new standards, only a few electric vehicle models sold in the US can get a full 7,500 US dollar tax credit. Currently, 43% of electric vehicles on the market are eligible for tax credits, far lower than 92% before the “Inflation Reduction Act” in August last year required cars to be manufactured in North America.
After the US Treasury Department predicted in advance that it would delay completing the implementation rules for key minerals and battery components until March of this year, the US sold more than 282,000 electric vehicles from October to December last year, surging 51% over the previous year, accounting for 8.5% of all automobile sales. According to the latest data, electric vehicle sales in the US reached a record high in January this year, accounting for 7.1% of all vehicle sales, up from 4.3% in the same period last year.
Everything changed after the “US Inflation Reduction Act” came into effect in August last year, and it changed over and over
The change process for buying a new passenger electric vehicle in the US and applying for full federal tax credit benefits is as follows:
A year ago, as long as a car manufacturer hadn't sold 200,000 electric vehicles, consumers could directly receive $7,500 in full tax credits. At the time, Tesla and GM no longer complied with the regulations, Toyota was about to reach the upper limit, and the Korean manufacturer Hyundai and Enterprise, as well as Ford, which launched the new Mustang Mach-E and F-150 Lightning, had an advantage.
Subsequently, the “US Inflation Reduction Act” was signed into effect on August 16, 2022. Only electric vehicles “finally assembled” in the US, Canada, and Mexico were eligible for the credit, but Hyundai, Kia, and most German luxury models were excluded.
The application rules on January 1, 2023 were changed again, and the sales limit of 200,000 vehicles was lifted, Tesla and GM were able to re-enter the market, and at the same time, new regulations on prices for eligible vehicles and income limits for buyers were introduced.
For example, electric sedans that cost more than $55,000, and electric trucks, vans, and SUVs that cost more than $80,000 are not eligible for the tax credit. Single people with an adjusted annual income of more than 150,000 US dollars, heads of households over 225,000 US dollars, and married couples who have jointly declared income of more than 300,000 US dollars are not eligible for the credit.
At the time, some analysts discovered that automobile manufacturers showed their own ingenuity in order to qualify for the credit. Tesla helped more models get shortlisted by lowering the price, while GM re-classified the Cadillac Lyriq EV as an SUV with a higher price limit and obtained the qualification.
Currently, as long as the three conditions of vehicle assembly, sales price, and consumer income limit are met, basically all electric vehicles purchased in the US can receive a full tax subsidy of 7,500 US dollars, and more additional conditions will change everything again from April 18.
Analysis: New regulations may take the lead in cracking down on US electric vehicle sales, Western countries question America's discrimination against overseas companies
Some analysts say that starting next month, it will be more difficult to apply for a full tax credit for purchasing a new electric vehicle in the US, which may hurt electric vehicle sales to a certain extent. The new regulations will urge automakers to establish the US battery industry from scratch. This may be a costly competition, and the origin of key minerals is strictly limited, and may not be able to fully meet the industry's needs.
Other analysts say that although it is difficult to define who the “winners” and “losers” are under the new regulations, manufacturers that have long focused on producing batteries in the US, such as Tesla and GM, may profit, and car companies that rely more on overseas resources, such as Ford, have a slight disadvantage. Others say that Indonesia, which is rich in nickel resources, has no free trade agreement with the US for the time being, and this situation may change.
At the same time, applications for tax credits for commercial electric vehicles are not restricted by many of the new regulations mentioned above, which may make leasing companies prefer to buy models from overseas manufacturers such as South Korea's Hyundai Motor Company.
US Treasury officials said that with the entry into force of the new regulations, it is expected that the number of models that consumers can apply for full tax credit will temporarily drop, but in the long run, the US and foreign companies are building new domestic automobile and battery factories in the US, which means more cars will meet the requirements. Since the “Inflation Reduction Act” came into effect, 75 related facilities have been planned to be built, with a total investment of more than 45 billion US dollars.
However, there are still US senators who are dissatisfied with the government's interpretation of the law in the new rules, saying that too many foreign companies are still allowed to participate. The purpose of the “Inflation Reduction Act” should have been to bring manufacturing back to the US rather than support overseas manufacturing jobs.
According to other analysts, the US electric vehicle tax credit rules have also triggered dissatisfaction in the European Union, South Korea, Japan, and the United Kingdom. They suspect that requirements such as local assembly and battery procurement in North America discriminated against overseas companies and attracted commercial investment originally targeted at these countries.
edit/lambor