IRA Battery Rules to Wait Until March

Electric vehicles that are assembled in the U.S., Canada or Mexico will qualify for the full tax credit the first few months of 2023, because the Treasury Department will not be ready to issue guidance on the critical minerals and battery component requirements by its Dec. 31 deadline.

This includes vehicles from Tesla and General Motors, which are not currently eligible because, under the previous EV tax credit, automakers graduated off the list once they sold a certain amount in the U.S.

The department said in a press release Dec. 19 that it will be issuing initial guidance on other aspects of the law, including the tax credit for energy efficient home improvement projects, by the end of the year.

The release said that Treasury officials "will also release information on the anticipated direction of the critical mineral and battery component requirements that vehicles must meet to qualify for tax incentives in the Inflation Reduction Act." That information will help manufacturers figure out which cars and trucks will qualify for the tax credit later in 2023.

The agency plans to issue a notice of proposed rulemaking in March on the critical minerals and battery components. The restrictions on the tax credit linked to those components can't go into effect until after the proposed rule is issued.

Ben Steinberg, executive vice president of the Battery Materials amd Technology Coalition, said in a phone interview that Treasury does not have experts in batteries or vehicles. "This is an incredibly complex global situation where the U.S. and Europe and Asia are regionalizing their supply chains and the IRA is bringing out these supply chain considerations to the forefront. It’s put the Treasury Department ... in a difficult position to try to have the work be done in North America but also partner with our allies to be able to secure necessary minerals and components for the U.S. EV manufacturing."

Steinberg said since there are so many jobs in the U.S. auto industry tied to internal combustion engines, you want to capture as much of the EV supply chain as you can, but at the same time, "we still want and need the partnership with our allies in Europe and Asia."

He said he expects the Treasury Department needs additional time to define foreign entities of concern, which battery components are included to reach the regional thresholds, and how to define a free trade agreement. If the last definition is a looser one than the Office of the U.S. Trade Representative's definition of an FTA, it could give European countries or Latin American countries more opportunities to share in the critical mineral supply chain serving the U.S. EV market.