Automakers might get their EV tax credit extensions—but there’s a catch

Automakers, who a few weeks ago were begging the US government to expand the $7,500 federal EV tax credit, are not entirely pleased now that such an extension has moved closer to reality.

Devil’s in the details: The Inflation Reduction Act, proposed last week, would eliminate the current cap on the existing federal EV tax credit and extend it through 2032. So far, so good for automakers. But here’s the rub: Starting in 2024, vehicles won’t qualify for the tax credit unless a certain percent of their battery minerals and components come from domestic sources, or the US’s free-trade partners.

• China, which currently dominates battery manufacturing and refining, does not fall into that bucket.
• And, as E&E News reported, much of the non-China mining, refining, and processing capacity is either in Russia or in countries like the Democratic Republic of Congo or Indonesia, with which the US does not have free-trade agreements.

Even so, by 2027, EVs would need to get 80% of their critical minerals and 70% of their battery components from compliant sources in order to qualify for the tax credit. Automakers and energy experts alike have criticized these timelines as unrealistic, arguing that the targets won’t be met and will likely dilute the effectiveness of the credits as a result.

• “These things aren’t in place, and might not be for more than a decade,” Morgan Bazilian, director of the Payne Institute at the Colorado School of Mines, told E&E News.

Big picture: Advocates of this strategy think that the potential short-term pain is worth the long-term gain of the US building out a robust domestic battery supply chain.

“Tell [automakers] to get aggressive and make sure that we’re extracting in North America, we’re processing in North America and we put a line on China,” Manchin told reporters on Tuesday, per Reuters. ”I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”