The Treasury Department has released final rules refining the U.S. strategy on electric vehicles, extending the clean vehicle tax credit of up to $7500 and loosening regulations on tracing battery components to their point of origin. Certain battery materials deemed impracticable to trace can now be temporarily excluded from restrictions on sourcing from Foreign Entities of Concern until 2027, giving U.S. auto manufacturers time to adjust their supply chains.
The new rules introduce a “traced qualifying value add test” to determine qualifying critical mineral content in electric vehicle batteries, requiring an audit of supply chains to determine the value-added percentage for extraction, processing, and recycling. This test aims to enhance transparency and integrity in the supply chain for critical components like lithium, cobalt, and nickel, ensuring that minerals used in EV batteries are not sourced from FEOCs long-term.
The implementation of the Traced Qualifying Value Add Test will require manufacturers to meticulously trace their supply chains back to extraction points of origin, ensuring that the extraction, processing, and recycling of critical minerals align with U.S. economic and security interests. The goal is to reduce dependency on materials sourced from contentious foreign adversaries while giving American EV manufacturers the time and flexibility needed to shift supply chains and develop competitive technologies.
The new policies represent a strategy by the Biden administration to balance economic and security interests, threading the needle between avoiding financing geopolitical adversaries through critical mineral purchases and supporting American EV manufacturers. The U.S. must reduce its dependency on materials sourced from contentious foreign adversaries, but implementing rigid requirements without flexibility may do more harm than good in the long run.
Overall, the new rules aim to enhance the U.S. electric vehicle industry’s competitiveness while ensuring a secure and resilient supply chain for critical minerals. By extending the clean vehicle tax credit, loosening restrictions on sourcing materials, and introducing a value add test, the Biden administration seeks to support American manufacturers in transitioning to sustainable and secure supply chains for electric vehicle production. The Treasury Department’s final rules provide a roadmap for the U.S. to navigate the complex challenges of sourcing critical materials for EV batteries while safeguarding national interests.
