The U.S. Treasury Department and U.S. Department of Energy are offering fresh guidance to clear up confusion about restrictions placed on EV tax credit eligibility by its “foreign entity of concern” rules, with a request for public commentary on the proposed interpretation.
The new interpretation of EV tax credit requirements will cut the number of current electric vehicle models eligible for federal tax credits, which currently range as high $7,500.
The new guidance indicates that EVs with battery components sourced from foreign entities of concern (FEOC) will not qualify for the full EV tax credit. The foreign entities referred to include at least four geopolitical rivals of the USA, with China, Russia, North Korea and Iran all on the list.
The restrictions will be applied in several stages. EVs made with battery components actually assembled or manufactured in one of the hostile countries will lose EV tax credit eligibility on January 1st, 2024. In 2025, this rule will be broadened to include batteries that use critical minerals extracted in or sold by these entities, widening the scope to raw materials as well as finished parts.
Ownership of a raw material producer or battery component manufacturer is also covered by the rule regardless of the supplier’s physical location. If the supplier is incorporated or headquartered in the enemy country, or if a hostile government has a 25 percent or greater ownership stake in it, then the EV tax credit restriction also applies.
The rule in the Inflation Reduction Act and its current clarification are meant to incentivize building an EV battery supply chain in the U.S. itself, reducing dependency on foreign rivals, particularly China. The government is also handing out $6 billion in grants for developing American processing and manufacturing plants for EV battery materials.
Notably, all current models of GM electric vehicles qualify for the full $7,500 EV tax credit under this new interpretation of the rules, with the exception of the GMC Hummer EV SUV and GMC Hummer EV Pickup. Among the models eligible for the credit are the Chevy Bolt EV, Chevy Bolt EUV, Chevy Blazer EV, Chevy Silverado EV and Cadillac Lyriq.
The previous interpretation of the sourcing rules went into effect on April 18th, 2023. More recently, the Department of Energy announced funding and loans of $15.5 billion to speed up the adoption of EVs, Finally, in October, the U.S. Department of the Treasury said EV tax credit reimbursement to dealers will occur within 72 hours of the sale of an eligible vehicle.