The U.S. Treasury Department announced Friday that U.S.-made electric vehicles that use battery components made in China will no longer be eligible for full government subsidies starting next month. These are subsidies paid under US President Joe Biden’s so-called “climate law” – the Inflation Reduction Act (IRA), he writes Financial Times.
Under the new rules, subsidies will also not be provided for electric vehicles from automobile manufacturers affiliated with the Chinese government or manufactured under a licensing agreement with an operator based in China or controlled by the PRC authorities.
“With these policies and the clarity they will provide, we are ensuring that the future of U.S. electric vehicles is made in America.” said John Podesta, senior adviser to the president for clean energy innovation and adoption. He took note of that “China continues to dominate supply chains of critical technology.” “It is completely ahead of the United States and our allies in producing batteries and their components.” Podesta emphasized.
With the implementation of the new rules, the number of electric vehicle models eligible for the full IRA tax deduction of $7,500 per unit is expected to significantly decrease. The new rules also impact $6 billion in grants to manufacturers provided under the U.S. Infrastructure Investment and Jobs Act of 2021 and beginning in 2025 for critical minerals used in electric vehicle components.
The Alliance for Automotive Innovation, which represents U.S. car and battery manufacturers, warned that overly strict regulations could lead to all available electric vehicles disappearing from the market. The alliance estimates that only about a fifth of electric vehicles sold in the U.S. will be eligible for the full tax credit after the new rules are implemented.
Given the downside, authorities have set a two-year transition period for automakers to adapt to regulations on small battery parts, for which there are no traceability standards. The Biden administration has set a goal for electric vehicles to account for 50% of all new vehicle sales by 2030.
The Chinese Embassy in Washington criticized the new rules, calling them “another example of American unilateralism and economic intimidation.” Note that China not only dominates the production of electric vehicles and batteries, but also processes more than half of the world’s lithium, cobalt and graphite, which are critical resources.