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New electric vehicle credit rules set, over Manchin’s objections

Guidance on qualifying for subsidies up to $7,500 set to be published April 17

An electric vehicle charging station is seen in a Whole Foods parking garage in Washington.
An electric vehicle charging station is seen in a Whole Foods parking garage in Washington. (Tom Williams/CQ Roll Call file photo)

The Treasury Department laid out specifics on how automakers can certify whether their electric cars qualify for new subsidies of up to $7,500 enacted in last year’s climate spending package.

The new guidance released Friday largely stays the course with what Treasury telegraphed in a “white paper” late last year on sourcing requirements intended to force supply chains out of China. It’s set to be formally published April 17, meaning new rules that could reduce the number of vehicle models that qualify for the full $7,500 will take effect the following day.

The roughly two-week delay will give auto manufacturers time to figure out if their electric vehicles qualify under the new guidance, enabling them to certify sourcing and price information so consumers know which models can get the government-provided discount.

Currently, 37 makes and models of all-electric cars and plug-in hybrids from 13 manufacturers are listed on an Energy Department website as options for subsidized purchases by consumers who meet the law’s income requirements. That list will be updated April 18 when the proposed rule takes effect, though changes could still be made in a final rule after the 60-day public comment period.

“Today, Treasury is taking an important step that will help consumers save up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas, while creating American manufacturing jobs and strengthening our energy and national security,” Treasury Secretary Janet L. Yellen said in a statement.

Treasury’s decision to largely stick with what it spelled out in December is likely to please congressional supporters like Sen. Debbie Stabenow, D-Mich., who were concerned that a more stringent reading of Democrats’ climate, tax and health care law could choke off electric vehicle sales.

Groups representing electric vehicle manufacturers welcomed the clarity from Treasury on Friday.

John Bozzella of the Alliance for Automotive Innovation, a major trade group for automakers, said in a blog post that he expected few models of electric vehicles currently on the market will be eligible for the full $7,500 credit in mid-April. But he said Treasury has “done as well as it could to produce rules that meet the statute and reflect the current market,” given what was written into the climate law.

The law got rid of a limit on how many electric vehicle tax credits can be used to buy specific manufacturers’ cars after some major U.S. companies, including General Motors Co. and Tesla Inc., hit the cap while others were nearing it. But to get centrist Sen. Joe Manchin III, D-W.Va., on board, the law added new sourcing rules that escalate in the coming years in an effort to force supply chains currently dominated by China to instead run through the U.S. and friendly nations.

Manchin has pressed Treasury to get the sourcing requirements in place faster and adhere to a strict reading of the rules as he weighs whether to run for reelection next year in what Inside Elections with Nathan L. Gonzales rates a battleground race.

He once again slammed Treasury’s handling of the electric vehicle credits on Friday morning, saying in a statement that the new guidance completely ignores the intent of the August law to bring manufacturing jobs to the U.S. and ensure reliable, secure supply chains.

“American tax dollars should not be used to support manufacturing jobs overseas,” Manchin said. “It is a pathetic excuse to spend more tax payer dollars as quickly as possible and further cedes control to the Chinese Communist Party in the process. The guidance includes a 60 day comment period and I ask for every American to comment. My comment is simple: stop this now — just follow the law.”

Mineral mandates

The credit’s sourcing rules split the subsidy in half, allowing car buyers to get $3,750 knocked off the price of an electric vehicle if it meets one requirement but not the other.

Half the subsidy is based on meeting sourcing rules for acquiring minerals used in electric vehicles’ batteries, which are mined and then refined to create powders.

Much of the public concern over the rules’ direction has been related to the mineral requirements, particularly since it takes longer to build out some aspects of new mineral supply chains like mines. And China currently dominates the refining process for key minerals used in electric vehicles.

A portion of minerals that make their way into a battery must be mined or refined in the U.S. or a country with a free trade agreement in effect to qualify for half the credit. They can also be recycled in North America. That threshold will start at 40 percent of minerals used in a car’s battery as of mid-April and climb to 80 percent after 2026.

Treasury is using a transition rule for 2023 and 2024 that allows a mineral to count toward that tally if half of the value added during the mining, refining or recycling process happens in approved countries.

Exactly which countries fall under the “free trade agreement” umbrella has spurred some controversy after Treasury determined that’s not a clearly defined term. The new guidance counts 20 countries with formal trade pacts in place and Japan, which signed a targeted agreement with the U.S. this week for trading critical minerals used in electric vehicles.

The guidance allows more countries to qualify down the line if they strike deals with the U.S. that contain typical trade commitments like reducing restrictions on exports, including mineral-specific agreements. For example, the administration is negotiating another mineral-specific pact with the European Union that will likely qualify.

The Alliance for Automotive Innovation had urged Treasury to take a more expansive approach that could include new mineral-specific agreements. And Manchin has said he’s comfortable with new pacts as long as they’re with allied countries that have secure supply chains.

Other lawmakers on both sides of the aisle have taken issue with the terms of the deals themselves, and with the administration’s move to negotiate and agree to them without formal consideration by Congress.

Several said Friday that Treasury’s new interpretation of the term “free trade agreement” contradicts lawmakers’ intention when the broader law was enacted last year.

Oregon Rep. Earl Blumenauer, the top Democrat on the House Ways and Means Trade Subcommittee, urged the administration to reverse course and work with Congress. “The Administration is proposing more than guidance around a clean vehicle tax credit, it is redefining a Free Trade Agreement,” he said in a statement.

Ways and Means member Brad Schneider, D-Ill.,  said in a statement that Treasury had put forward a “concerning, expansive definition” that Congress didn’t intend.

And Ways and Means Chairman Jason Smith, R-Mo., said in a statement criticizing the guidance that the administration was also using it to justify “fake trade agreements” negotiated secretly without congressional approval.

Battery manufacturing

The other half of the subsidies are based on where car batteries are put together. As of mid-April, half of battery parts — based on their cost — will have to be made or assembled in North America. That threshold rises gradually to require the full battery to be made on the continent after 2028.

The subsidies are also limited to car models that typically go for a price below $80,000 for vans, SUVs and pickup trucks, or $55,000 for smaller cars like sedans. And buyers can only claim the benefits if they make less than $150,000 per year, or $300,000 for married couples who file taxes together.

The new guidance from Treasury doesn’t include its interpretation of a part of the law that bars electric vehicles containing any battery parts made by a “foreign entity of concern” from qualifying for subsidies starting in 2024, or that bans any cars containing critical minerals mined, refined or recycled by a “foreign entity of concern” beginning in 2025. ​Treasury plans to roll out guidance on that provision at a later date.

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