The US Treasury Department is considering granting a temporary reprieve to automakers who are struggling to meet the new requirements for electric vehicle (EV) tax credits under the Inflation Reduction Act (IRA), according to a report by Bloomberg Law.
The IRA, signed by President Joe Biden in August 2022, extends the existing $7,500 tax credit for EV purchases and eliminates the 200,000-unit-per-manufacturer sales cap that phased out incentives for some automakers. However, the new law also imposes stricter rules on the sourcing and content of EV batteries and components, which are aimed at boosting domestic production and reducing reliance on China.
According to the law, vehicles can qualify for the full incentive if at least 50% of battery components are made in North America, and if 40% of the value of raw materials in the battery are extracted from or processed domestically, or in countries the US has free-trade agreements with. Additionally, automakers cannot source battery components and critical minerals from foreign entities of concern, which include US geopolitical adversaries.
Automakers Face Challenges
The new rules, which took effect on April 18, 2023, have reduced the number of models eligible for the full or partial tax credit to about 20, according to the government’s website. Many automakers are finding it difficult to comply with the new requirements, as they rely heavily on imported batteries and materials from China and other countries.
The Treasury Department has not yet finalized the definitions and procedures for determining the eligibility of EVs and batteries, and has asked automakers to self-certify their compliance based on the guidance issued in April. However, some automakers have expressed concerns about the lack of clarity and certainty, and the potential penalties for non-compliance.
Treasury Considers Reprieve
According to Bloomberg Law, the Treasury Department is weighing the option of granting a temporary reprieve to automakers who are unable to meet the new rules, allowing them to continue receiving the tax credit until they can adjust their supply chains and production. The reprieve could last for several months or until the end of the year, depending on the progress of the industry and the availability of domestic battery capacity.
The Treasury Department has not confirmed or denied the report, but has said that it is working closely with the industry and other stakeholders to implement the IRA in a way that supports the transition to EVs and the development of a competitive US battery industry. The department has also said that it expects the number of eligible EVs to increase in the long term, as more domestic production comes online.
The reprieve, if granted, could provide some relief to automakers who are facing pressure from the Biden administration to accelerate their EV plans and investments. The IRA also includes incentives for manufacturers, such as grants, loans, and tax credits, to build or expand EV and battery factories in the US. According to Bloomberg, more than $52 billion in EV and battery investment has been announced in the US since the IRA was passed.
