US to Restrict Chinese Companies and Electric Vehicle Battery Components

alwepo.com, On Friday (12/1/2023), the Biden administration announced new guidelines that will limit the use of Chinese content in batteries eligible for electric vehicle tax credits in America starting next year. This initiative aims to distance the US electric vehicle battery supply chain from dependence on China.

These guidelines, mandated by a law in August 2022, have been eagerly awaited by stakeholders in the automotive industry. The US Department of the Treasury decided to provide temporary exemptions for some critical minerals from the strict new regulations, which generally prohibit the use of materials from China and countries deemed “Foreign Entities of Concern” (FEOC).

The new rules, set to take effect in 2024 for finished batteries and in 2025 for the critical minerals used in their production, received a positive response from the Alliance for Automotive Innovation, a group representing nearly all major car manufacturers. They referred to the decision as a “significant and prudent” step, acknowledging that without it, almost all vehicles might lose eligibility for tax credits.

The Treasury Department stated that the exempted materials contribute to less than 2 percent of the value of critical battery minerals. For instance, Ford Motor confirmed that they are awaiting guidance to assess compliance with their licensing agreements with the Chinese battery maker CATL.

According to the Department of Energy, companies are considered FEOC if they are owned or controlled by a foreign government. This requirement also includes provisions that a company does not qualify if interested entities hold 25 percent of board seats, voting rights, or equity in that entity.

Countries falling under the FEOC category involve North Korea, China, Russia, and Iran. The automotive manufacturers’ group noted that companies operating in China appear to be considered FEOC, although specific Chinese entities might be allowed under certain conditions.

These rules are expected to further narrow down the criteria for electric vehicles qualifying for tax credits in the US. Previous legislation rendered vehicles ineligible if they were not assembled in the United States. With the new requirements concerning battery sources and minerals, it’s hoped that electric vehicles can better meet eligibility criteria and expedite the transition to environmentally friendly mobility.