Biden administration grants flexibility for automakers in EV tax credit rule

The Biden administration granted automakers some flexibility Friday on qualifying for electric vehicle (EV) tax credits.

The new final guidance, issued as part of the 2022 Inflation Reduction Act, incorporates a two-year exemption to provisions of the law that bar vehicles from eligibility if their battery minerals come from China, Russia, Iran and North Korea. 

The exemption applies only to minerals of low value that are considered difficult to trace — and the Biden administration extended it to graphite, which frequently comes from China. 

The decision may rankle Sen. Joe Manchin (D-W.Va.) a key architect of the law. He criticized the proposed exemption even before it was expanded to graphite. 

The change won praise from an automaker lobbying group, the Alliance for Automotive Innovation.

“This updated guidance from the Treasury Department is something we recommended. It makes good sense for investment, job creation and consumer EV adoption,” John Bozzella, president and CEO of Alliance for Automotive Innovation, said in a written statement. 

Others, including the energy security group Safe, offered a measured response. 

“We need a clear exit strategy, lest we continue our dependencies on adversaries and further undermine the competitiveness of U.S. and allied critical minerals projects,” Abigail Hunter, executive director of Safe’s Center for Critical Minerals Strategy, said in a written statement. 

These provisions come as part of a broader guidance that cements the Biden administration’s rules eligibility for EV tax credits, which expanded under the 2022 law.

The law came with stipulations regarding which vehicles can qualify for the credits — based on where the EV’s battery minerals are sourced and where its components are made. Twenty models qualify for the tax credits.

Officials told reporters Thursday that this number is not expected to change immediately but they could not say how many could lose eligibility when certain stipulations come into play next year.

Friday’s final guidance solidifies a previously proposed provision that allows car buyers to redeem the credits upfront instead of having to wait for when they file their taxes. 

Broadly, the Biden administration has sought to jumpstart EV adoption as part of an effort to fight climate change. Notably, it set restrictions on automakers that are expected to dramatically increase the share of car sales that are electric in the years ahead.