Vast Majority of Comments Asks for Longer Phase-in for EV Tax Credits

On passage of the Inflation Reduction Act, electric vehicles manufactured overseas were instantly disqualified from the $7,500 tax credit. In January, even cars manufactured in the U.S. will be eligible only if they are below certain price thresholds, and meet battery component local content thresholds. Those thresholds ramp up in 2024, as do those for the critical minerals in batteries.

The Treasury Department sought comments on how the regulations should be written to implement the law, and by the Nov. 4 deadline, more than 650 comments had been posted, though few from the manufacturers who are tasked with meeting the new compliance standards.

Nearly all comments posted to date are from individuals, and hundreds of them say the timeline is too stringent, either for the battery inputs, or for both those guidelines and the requirement that final assembly take place in Mexico, Canada or the U.S. Several dozen submitted a form letter, but many more wrote in their own words that the abrupt changes are unfair, not feasible for manufacturers, and will delay adoption of electric vehicles, contrary to the spirit of the law.

Many cited a bill introduced by Sen. Raphael Warnock, D-Ga., (see 2210030040), which would postpone both the NAFTA-region manufacturing requirement and the battery inputs requirements until 2026. Others said a delay of 18 months or two years for battery inputs is needed. Some said any company already in the process of opening a U.S. assembly plant should get a grace period until that plant is producing cars.

About 100 said they had put down deposits on electric vehicles that no longer qualified for the credit because they were built outside the U.S., mostly for VW ID4s built in Germany, but also Subarus, Hyundais, a Nissan, Audi, Volvo and a Polestar. Some commenters said they or their family members no longer qualified because the U.S.-built vehicle is outside the price cap, or because their income is above the cap.

Several of these automakers are in the process of opening factories in the U.S., but even then, it may not be enough because of the battery component rules.

One commenter said he ordered the VW ID4 a year ago, and still had not received the car, and the company allowed him to shift his reservation to a VW ID4 that will be assembled in Chattanooga, Tennessee. Production of the EVs began in late July. "However, no one can say whether it will be eligible for the full tax credit, because there is no way to know where the battery components have come from." The commenter said. Several commenters argued any U.S.-built car -- or the VW specifically -- should be able to qualify for the credit.

Anthony Robinson represented many commenters when he said, "I don't understand how Congress thought electric vehicle makers could change direction so quickly."

Rivian, a new electric truck maker that sells at least some trucks that come in under the $80,000 price cap, gave detailed suggestions about how to consider components and minerals' value and provenance. It said that baseline manufacturers' suggested retail price should be the price considered for the cap.

"Given our current exposure to the challenges of this manufacturing environment, we urge the Administration to maximize flexibility for new U.S. manufacturers who are currently ramping up production and facing significant uncertainty in mineral supply chains and commodity markets," Rivian said.

The definition of critical mineral processing should be more clear, the company said, and the value should be pegged to the premium grade ready for battery manufacturing, not the raw material. Also, if any extraction or processing to battery grade happens in the U.S. or a country that the U.S. has a free trade agreement with, that should count, it argues.

When measuring the value of battery components, Rivian says subcomponents' origin and value should not be considered. "If the final assembly takes place in North America (even with subcomponents which are not of North American origin) this should count toward the applicable percentage," Rivian said.

It suggested that materials, manufacturing price and logistics price, including tariffs and storage, should all count in the methodology.

"A new rule established under the USMCA provides that, where a non-originating material is used in the production of a good, both the value of processing of the non-originating materials undertaken in the territory of one or more of the Parties and the value of any originating material used in the production of the non-originating material undertaken in the territory of one or more of the Parties may be counted as originating content for purposes of calculating RVC under either method...," Rivian noted, and asked that the IRA use the same calculation.

It wants a tariff shift rule for battery components, so that 100% of the value of the component counts as domestic, even if there were foreign subcomponents, as long as it was manufactured in the U.S.

"If non-critical minerals from covered nations are used in a battery component, and the component itself is manufactured in the US, that should not trigger a foreign entity of concern exclusion," Rivian suggests.

"Rivian encourages Treasury to consider a 'hold harmless' rule for a good faith error and provide a higher de minimis quantity in the near term for an otherwise domestic component, or the origin of those minerals is indeterminable, that could gradually sunset as content percentages increase over time," its submission said.

"Seventy-five percent of Rivian customers are first-time EV owners, and many have been waiting for years to take delivery. Based on this, we ask the Treasury Department to consider our customers’ longstanding intention to receive the tax credit when purchasing a Rivian before the IRA’s changes to the Clean Vehicle tax credit and honor the enforceable written binding contracts to purchase signed prior to August 16, 2022," Rivian said.

Lotte Aluminum also submitted a detailed comment about how components are defined, noting that the law mentions anode foil and cathode materials, but not the cathode foil it will be producing in the U.S. Lotte said that material should count toward U.S. battery input calculations.

Several commenters said Fisker, a U.S. manufacturer, should continue to qualify for the credit. Its vehicles are too expensive to qualify. WAEV, a U.S. manufacturer of electric low-speed street-legal golf carts, asked that its vehicles count.

Many commenters said it's not right that binding contracts are defined so narrowly, because they had deposits that were non-refundable, but still didn't count as a binding contract, because the vehicle hadn't been built yet. Numerous commenters said they canceled their reservations because they could no longer afford the car without the $7,500 credit. Others said they were able to receive the car they were waiting for sooner because someone else backed out since the credit was no longer available after Aug. 16. All said everyone who had a deposit on a car before the law changed that would have qualified for the credit should be able to get the credit for cars delivered in calendar year 2022.

Robert Lynn said he waited 408 days to receive his VW ID4, and finally got it on Oct. 13, too late to qualify for the credit. "I'm keeping my word," he wrote, and purchased the car. "I wish my government would keep it too." Lynn said he didn't know he needed a deposit of 5% of the value for it to count as a binding contract, and also said that VW established production in Tennessee only because of the strong demand American buyers showed in 2020 and 2021.

The Southeast United States Korean Chamber of Commerce said there should be a one- to two-year phase-in for "strategic economic allied nations" such as Korea. "This tax credit disallowance provision is leading to confusion within the international trade community. It sends the wrong message to trading allies and global economic partners of the U.S. about how we value their relationship," the group wrote.

One commenter wrote, "I ask if the intent of the bill is to support clean energy or just U.S. manufacturing. The way it stands now, it accomplishes neither."

Tim Sargent wrote, "I find it counter-intuitive and counter productive that the new 2022 IRA legislation will actually provide fewer incentives for increasing EV ... adoption than the legislation it's replacing."

In 2023, Tesla and GM, which have the lion's share of the EV market in the U.S., will qualify again for the credit, as long as the vehicles' batteries are sufficiently local. Those carmakers' vehicles were no longer eligible because there was a volume cap by manufacturer under the old law.