The Biden administration unveiled final rules Friday for lucrative electric vehicle tax credits that attempt to balance trying to boost EV adoption to fight climate change with curbing China’s dominance of the supply chain.
But the suite of rules, which includes hard-fought concessions for automakers, provoked outrage from the mining sector and some in Congress who want to see the U.S. adopt a more aggressive approach to China, while making it more difficult for consumers to actually take advantage of the financial assistance to buy EVs.
The announcement marks the final step in implementing the tax credit program, which provides up to $7,500 for the purchase of a new EV.
“The direction we’re headed is clear — toward a future where many more Americans drive an EV or a plug-in hybrid and where those vehicles are affordable and made here in America,” said John Podesta, senior White House adviser on climate issues, in a statement.
The rules released by the Treasury and Energy departments highlight the challenges the Biden administration faces heading into an election year in attempting to juice EV adoption and meet its target for new cars to be zero-emission by 2030, while also ensuring adversaries like China don’t benefit.
The rules are intended to block companies from claiming the credit for vehicles built with batteries or battery materials that come from “foreign entities of concern,” primarily Chinese companies and officials. But they also allow a two-year grace period for graphite and synthetic graphite, a crucial component of current lithium-ion batteries.
The graphite exemption is a crucial break for domestic carmakers because most of the graphite used in EV batteries comes from China or Chinese companies.
From a consumer standpoint, the rule narrows which cars and trucks qualify for the credit. Currently, about 40 vehicles, including plug-in hybrids, could be eligible for all or part of the credit, according to EPA. But that will change in 2025 when the ban on minerals from foreign adversaries — except for graphite — kicks in, and again in 2027 when the grace period for foreign-sourced graphite expires, senior administration officials told reporters on a conference call. The rules for the credit will continue to evolve until 2029.
While automakers praised the rule, it drew pushback from mining companies and Democratic Sen. Joe Manchin of West Virginia, who wrote much of the Inflation Reduction Act’s section on electric vehicles.
John Bozzella, president and CEO of the Alliance for Automotive Innovation, applauded the rules for offering temporary flexibility as mineral and material supply chains are built up in the U.S and among its allies. But Bozzella, whose group includes major automakers General Motors and Ford, also acknowledged the credits will be harder to secure going forward.
“I’ve talked about the importance of the EV consumer tax credit … even while lamenting that it’s still hard to get — about 20 percent of EVs for sale today and slated to get even more restrictive in the years ahead,” said Bozzella.
The agencies’ work is already facing legal and regulatory threats from both sides of the aisle and will officially be open to those challenges after it’s published in the Federal Register on Monday.
Rich Nolan, president and CEO of the National Mining Association, blasted the rules for including grace periods and exceptions not in the underlying law. “Congress created these tax incentives to secure our supply chains and generate American jobs while supporting EV adoption; they did not intend for loopholes to be created that essentially amount to a blank check from the American Taxpayer to China,” said Nolan in a statement.
Manchin in a statement accused the administration of including loopholes in the rule, cutting requirements for IRA-compliant minerals and providing a long-term pathway for China to take part in EV supply chains.
“It’s outrageous and illegal,” Manchin said. “I will lead a Congressional Review Act resolution of disapproval and will support any entity that has been negatively impacted by the illegal implementation of the law to restore the goal of domestic opportunity and security.”
EV graphite concession
The rule includes wiggle room for EV makers that have for months warned about the difficulty of obtaining graphite outside of China — an argument that miners and synthetic graphite producers have dismissed as inaccurate.
China currently processes all natural graphite globally and last year moved to restrict exports of both natural and synthetic graphite. The dark, metallic mineral — the largest ingredient in EV batteries — hasn’t been mined in the United States for decades. And while EV makers are looking to synthetic graphite, little production currently exists in the U.S.
Administration officials insist they’re taking the necessary steps to boost mineral production, including for graphite, through incentives and loan guarantees and noted that DOE propped up a new program focused solely on supporting supply chains.
National climate adviser Ali Zaidi on a call with reporters Thursday flagged 15 gigafactories slated to open in the U.S. as proof that EV production and adoption is accelerating under Biden’s leadership. The same can be seen for battery minerals and materials, he said, pointing to Talon’s union-backed facility in Duluth, Minnesota, and a project for lithium extraction in California’s Salton Sea.
“I think there’s a well-justified optimism here, grounded in the president’s leadership and the track record of an unleashed manufacturing renaissance that we’re seeing as a result,” said Zaidi.
Jennifer Safavian, president and CEO of Autos Drive America, a trade group for foreign automakers that make vehicles in the United States, said it will take time for the production of graphite and other critical minerals needed to produce EVs to match the strict standards required by automakers.
“Until then, sourcing flexibility is paramount as automakers in the U.S. work to build up domestic supply chains and diversify their sourcing,” said Safavian.
In an attempt to thread that needle, the final rule designates both synthetic and natural graphite as “impracticable-to-trace” — meaning automakers through 2027 can continue to rely on graphite flowing out of China.
Administration officials in the final rule concluded it’s too difficult to trace the origins of synthetic graphite back to the petroleum coke, a waste byproduct, from which it’s made. The agencies noted that synthetic and natural graphite can be mixed before going into a battery anode, which also makes that material difficult to trace and track. Administration officials say there’s a clear end-date to this exemption and they expect investments in the graphite sector currently in the works to meet demand by 2027.
But Abigail Hunter, executive director of SAFE’s Center for Critical Minerals Strategy, said that while the administration has moved to bolster graphite production, the timelines on commercialization of these projects lag behind the urgency of near-term EV deployment goals.
Hunter reiterated that the auto industry needs a “clear exit strategy” to ensure the U.S. and its allies aren’t reliant on adversaries and voiced support forbipartisan legislation, H.R. 8187, which aims to track critical minerals as they move through the world’s supply chains.
Ben Steinberg, a spokesperson for the Battery Materials & Technology Coalition, a trade group for members of the supply chain that includes graphite producers, said that allowing Chinese graphite companies to gain access to the tax credit over the next two years is antithetical to the IRA and puts standing up the North American supply chain at risk.
But Steinberg also noted that the rule includes a requirement for manufacturers relying on the grace period to show how they’ll comply by 2027 in securing IRA-compliant graphite. According to the rule, that’s expected to include “robust documentation” around efforts companies are making to secure new supplies from domestic or compliant suppliers and ultimately ink offtake agreements.
An alliance made up of graphite producers in the U.S. and Canada called on the administration to “stringently impose” its requirement for automakers to source IRA-compliant graphite by 2027.
“Only then will the producers be able to obtain the financing necessary to begin scaling production to fulfill demand by 2027,” said Erik Olson, a spokesperson for the North American Graphite Alliance.