U.S. Treasury Stalls EV Tax Credit Guidance

On Monday, the United States Treasury Department said it will issue proposed guidance for the updated EV tax credit scheme in March of 2023. However, the Inflation Reduction Act (H.R. 5376) directed the department to finalize its recommendations before 2022 was over by setting a December 31st deadline. While it sounds like bad news for automakers, the delay may actually work to their advantage by delaying new mineral and battery component requirements that may have made vehicles using foreign-sourced batteries ineligible.

Based upon earlier reports, there were two aspects of the revised EV tax credit plan (which was slipped into the so-called Inflation Reduction Act) that were rubbing automakers the wrong way. Item number one involved linking credits to unionized labor, which would have had sweeping political ramifications while favoring domestic manufacturers working with the UAW. Item number two involved material content requirements, because most batteries and their raw materials have to be imported from other parts of the world.

The whole thing is supposedly designed to incentivize domestic EV production. But how it’s being done has resulted in rolling criticism, as regulatory actions do run the risk of rustling in favoritism. Some feel like EV tax credits have run their course and are devolving into federal handouts now that production caps have been done away with. Though automakers don’t seem to mind them sticking around, as long as they benefit their businesses specifically. The government has attempted to strike a balance by adding income caps and vehicle price limitations.

Those items will still go into effect on January 1st, 2023. What will be missing is the critical mineral and battery component requirement that would determine how much of a vehicle’s battery would need to be assembled in North America to qualify for government subsidies. By delaying any decisions until March, automakers could theoretically still source batteries from other parts of the world without suffering any financial ramifications stemming from the updated EV tax credit scheme.

"Treasury will issue a notice of proposed rule-making (NPRM) in March with proposed guidance on the critical minerals and battery components requirements," the department stated on its website. "By statute, the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule."

While the original legislation requires 50 percent of all battery components to be made or assembled in North America by 2024. By 2029, that number swells to an even 100 percent for any business hoping to see some tax money floated on a per-vehicle basis. But none of that can happen until the Treasury Department issues a comprehensive annual plan that irons out all the details.

"As much as automakers and policymakers would like this transition to happen faster, increasing access to critical raw materials, expanding manufacturing capacity and broadening our domestic supply chains will not happen overnight," the Alliance for Automotive Innovation, which represents just about every large automaker on the planet, said in the comments filed to the Treasury in November.

Despite some of the content requirements being delayed until at least the spring, the department has said it still plans to 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” before the holidays are over and that companies “will be able to access tax benefits from many of the law’s climate provisions” starting on January 1st.

Interestingly, it seems that the Treasury didn’t have much trouble deciding how to handle most of the objectives and tax provisions outlined in H.R. 5376 – just the bit that would have forced automakers to produce batteries domestically or run the risk of having their vehicles become ineligible for tax subsidies.

[Image: DCStockPhotography/Shutterstock]

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