In a bid to address concerns over increased reliance on China, Senator Joe Manchin, Chair of the Senate Energy and Natural Resources Committee, is calling for Congress to vote on reversing recent Treasury Department guidance related to electric vehicle (EV) tax credits. This guidance, issued earlier this month, has the potential to make it easier for Chinese companies to benefit from EV tax credits, leading to worries about the impact on American taxpayers and the nation's dependence on foreign nations for vital battery and vehicle components.
Senator Manchin, a Democrat, contends that the Treasury's guidance could be detrimental to the United States by facilitating Chinese companies' access to EV tax credits. He expressed concerns that this could harm American taxpayers and further increase the nation's reliance on foreign supply chains, especially from China. The Treasury Department has not yet provided a response to these concerns.
One crucial aspect of the Treasury's guidance is its limitation on Chinese content in batteries eligible for electric vehicle tax credits, set to take effect next year. This restriction has already prompted leading automakers like Ford and Tesla to announce that certain electric vehicles will no longer qualify for tax credits in the coming year.
In a move seen as a victory for the automotive industry, the Treasury has decided to temporarily exempt specific trace critical minerals from the stringent rules that would have otherwise barred materials from China and other countries designated as a Foreign Entity of Concern (FEOC). These new rules, mandated by an August 2022 law, aim to reduce the United States' reliance on China in the electric vehicle battery supply chain.
The FEOC regulations are scheduled to be implemented in 2024 for completed batteries and 2025 for the critical minerals used in their production. The Alliance for Automotive Innovation, a group representing nearly all major automakers, has welcomed the decision to grant exemptions for these trace materials over a two-year period, stating that it was both significant and well-advised. Without these exemptions, a substantial portion of vehicles could have become ineligible for tax credits.
The Treasury Department has clarified that the materials being exempted through 2026 each account for less than 2% of the value of battery critical minerals, emphasizing the limited scope of the exemption.
The outcome of Senator Manchin's efforts to reverse the Treasury's guidance remains uncertain, but this development reflects ongoing debates surrounding the United States' approach to fostering a robust domestic electric vehicle industry while mitigating reliance on foreign supply chains, especially those from China.