Washington The US Treasury Department has unveiled long-awaited rules on EV purchase incentives. The new regulations, which were published on the authority’s website, are scheduled to come into force on April 18 – and have been met with fierce criticism in advance.
At the heart of the plan are tax credits of up to $7,500 available to electric car buyers. However, there are a number of regulations for this, for example on the origin of the raw materials used in batteries.
All automakers active in the US market who want to claim the subsidies for their models must provide extensive information to the US government in the coming weeks, a senior White House official said.
Washington wants to get an overview of where the raw materials and components for batteries currently come from and under what circumstances the electric cars are assembled. The corporations are “obligated to provide correct information,” said the official, otherwise there was a risk of fines.
The new guidelines provide:
- To qualify for one-half of the tax credit, 40 percent of a battery’s critical minerals must be extracted, processed, or recovered in the United States or in a country with which the United States has a free trade agreement. This level is expected to rise to 80 percent by 2027. At the moment, most of these raw materials, such as lithium, nickel, manganese, graphite and cobalt, come from China.
- To qualify for the other portion of the tax credit, at least 50 percent of a vehicle’s battery components must be manufactured or assembled in North America by 2023, and 100 percent by 2029.
- Cars priced over $55,000 and trucks, vans, and SUVs priced over $80,000 are not eligible for the tax credit. In addition, there are income limits for buyers.
The rules that have now been published are already being met with criticism. “It’s very confusing,” Michelle Krebs, an analyst for Cox Automotive, told the Washington Post. “Is it better to lease, do you want to buy? How much money will I save as a customer? Is a specific model even eligible for the credit? How much does it all cost in the end? Everyone is confused, including the dealers,” she criticized.
Almost 40 electric vehicle models currently qualify for tax breaks in the USA – at least according to the current funding conditions. This number should initially shrink significantly until the manufacturers meet the new conditions. “We’re optimistic, but there’s still work to be done,” Biden’s chief strategist John Podesta said this week, acknowledging, “It’s complicated.”
EU manufacturers are at a disadvantage
The rules that have now been published are likely to bring new unrest to the transatlantic battery dispute. The American subsidy program for green technologies, the Inflation Reduction Act (IRA), has been testing the relationship for months. The USA is thus investing at least 370 billion US dollars in the promotion of climate-friendly technologies, the subsidies are not limited so far. The new EV rules are part of the IRA.
Since the EU does not have a free trade agreement with the USA, European manufacturers are effectively excluded from the subsidies unless they build their electric cars in North America – and warn of disadvantages for them in the US market. The US government has already made concessions to the EU: leasing vehicles from European car manufacturers will be able to qualify for at least part of the credits.
The IRA subsidies could lead to European automakers shifting parts of their production to North America.
(Photo: AP)
Biden and EU Commission President Ursula von der Leyen therefore recently agreed on talks for a new transatlantic raw materials partnership. The goal is a new supply chain network for critical raw materials, minerals and rare earths.
>> Read also: How German automakers could still get US billions
In this way, European battery manufacturers hope to be able to fully benefit from US subsidies after all. So far, however, there is no contract, only a declaration of intent for negotiations. The USA recently concluded an extensive raw materials agreement with Japan; there is no free trade agreement between the two countries. However, the raw materials agreement could serve as a model for the contract between the USA and the EU.
The EU and the USA are currently negotiating a raw materials partnership.
(Photo: IMAGO/UPI Photo)
What is striking is that Japan is explicitly included in the guidelines that have now been published and can therefore benefit from the incentives. The European Union is not mentioned.
In addition, these countries are on the list: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.
However, one door remains open for the EU: “Other countries” could be included in this list, writes the Ministry of Finance, after “re-negotiated agreements on critical minerals”.
Brussels warns of factory closures in Europe
European Commission Vice-President Margrethe Vestager said on Thursday that she was optimistic that an agreement could be reached soon. At the same time, she again warned of a subsidy race and criticized that the massive subsidies from the IRA could endanger the EU as an industrial location because European manufacturers could shift more of their production to the USA.
>> Read also: The automotive industry is increasingly relocating production abroad
The billions from the IRA are already causing e-car and battery production in the USA to boom, and a number of new gigafactories and e-car plants are being planned. By 2030, according to Biden, 50 percent of new US cars should be electric.
The structure of the transatlantic raw materials agreement is unclear. According to Yellen, the contract does not require the approval of the US Congress. However, Democratic Senate Finance Committee chief Ron Wyden called on Biden to “get Congress and the Senate involved in trade policy.”
And Democrat Joe Manchin, head of the Senate Energy Committee, has already blocked the confirmation of two Biden candidates for government posts – as a sign of protest against concessions in the battery dispute. He called for an “end to the political games” and a consistent implementation of the subsidies.
The Democrat fears that if there are too many exceptions, Chinese commodities will continue to flow into the US. Because of the narrow majorities in the US Senate, Biden can hardly afford to alienate members of his party.
The battery dispute has triggered many global raw material initiatives. Coveted resources play an increasingly important role in national security on both sides of the Atlantic. However, neither the USA nor the EU have enough raw materials, so both continents are trying to establish partnerships with countries in Africa, Asia and Latin America that are rich in raw materials.
More: Billions for cleantech companies – EU proposes new investment fund