Automakers Beg Treasury To Relax Battery Sourcing Regulations And Make EVs Cheaper For Everyone

Automakers Beg Treasury To Relax Battery Sourcing Regulations And Make EVs Cheaper For Everyone

The Alliance for Automotive Innovation believes it would make the transition to EVs easier for everyone.

The Alliance for Automotive Innovation is pleading with the US Treasury Department to rethink its electric vehicle tax credit rules to make the transition to electric vehicles easier for everyone, reports Automotive News.

The Treasury’s latest rules, designed to reroute EV battery production away from certain countries, could mean consumers will lose out on the lucrative $7,500 EV incentive because a vehicle contains battery materials from countries such as China, Russia, Iran, or North Korea.

This extends to companies – which may be subsidiaries of US companies – owned, operated, or controlled by the aforementioned nations. Since January 1, new electric vehicles have been disqualified from receiving the tax credit if any of the components in the battery were made or produced by a “foreign entity of concern.”

As a result of these strict requirements, the number of EVs that qualify for the tax credit has shrunk considerably.

Eligible vehicles include the Tesla Model Y, the Ford F-150 Lightning, specific Rivian R1S and R1T iterations, the Chevrolet Bolt EV, and the Tesla Model 3 Performance. The list also covers several plug-in hybrids, but full electric vehicles, like the newly launched Chevrolet Blazer EV and the Silverado EV, no longer benefit from the $7,500 tax credit. However, GM is working around this for the time being.

This could sway a customer’s decision when purchasing a new vehicle, especially as the $7,500 incentive went a long way to reducing an EV’s price. And it’s set to get worse, with the exclusion stretching to critical minerals mined or processed by these “foreign entities of concern” in 2025.

“It is unlikely that industry will have developed such standards or systems by 2027,” said Dan Bowerson, Vice President of energy and environment at the Alliance for Automotive Innovation. “Tracing those materials is challenging and costly, and seemingly unnecessary.”

To accommodate affected automakers, Treasury’s proposed guidance from December provides a transition rule that will be in place until December 31, 2026. This will allow the greater industry time to transition and put the necessary framework in place to trace electric vehicle battery materials that have less than 2% of the value of critical components.

The alliance – comprised of several automakers and battery suppliers – believes that Treasury should push the threshold to 5% and extend the transition rule to cover the EV tax credit program.

Numerous automakers have called on the government to formalize the tracking of battery components, as there currently is no industry-wide standard for this practice. Europe, for example, has put rules in place for this, but the idea is not established enough to be evaluated.

Another problem is that many essential battery materials are mainly produced and refined by China, one of the countries deemed a “foreign entity of concern.”

Treasury’s solution would be to track battery components deemed acceptable under the new rules. This would be done by monitoring them to compliant EVs and PHEVs using an identification system.

Per Automotive News, vehicles delivered in 2025 will be tracked by the IRS with a battery ledger. Car manufacturers would then submit estimates for the compliant batteries they expect to purchase that year, along with documentation.

Rivian’s Senior Manager of Public Policy, Corey Ershow, said it “may be a challenge for OEMs to obtain reliable disclosures from battery manufacturers due to their confidentiality obligations to suppliers and a lack of harmonization between internal systems used by various supply chain counterparties.”

Alliance members have called for a shared portal allowing stakeholders to privately enter the necessary compliance information without fear of a data breach. This proposed portal would also have a list of suppliers that could be used without violating rules.