Treasury delays final rules on Manchin EV tax credit to March

The US Treasury Department sketched out its interpretation of content requirements for electric-vehicle tax credits in President Joe Biden’s signature climate bill, while delaying final rules until March of next year.

The action intends to provide enough clarity for automakers to move forward with supply-chain investments, while giving Treasury officials more time to address the complexities of the law. Approved by Congress in August, the Inflation Reduction Act aims to substantially increase the government’s investment in clean energy. 

The Treasury originally had until Dec. 31 to issue final rules detailing much of the law’s implementation.

In documents released Thursday, Treasury officials addressed which EV models qualify for a full consumer tax credit of $7,500 per vehicle. They also outlined the process for carmakers to comply with the act’s content requirements on critical minerals and battery components. These may limit automakers’ eligibility for the full tax credit, but only once they go into effect in March.

Until then, existing rules that grant tax credits based on the size of an EV battery will apply. Cars will still be required to be assembled in North America to qualify, and be subject to price and income thresholds as prescribed by the act, a Treasury official said. Raw materials in the batteries must also be extracted and processed in countries that have trade agreements with the US.

Credit Limits

West Virginia’s Senator Joe Manchin, who provided Democrats a pivotal vote on the legislation, fought to include new limits on who could claim the tax credits, which he previously dismissed as “ludicrous.” He argued that without tough rules mandating manufacturing in the US and rules on content, the act would subsidize production in China and by other US adversaries. 

The legislation, which provided a record $370 billion in spending to combat climate change, passed on a party-line vote.

The auto industry has lobbied to loosen Manchin’s content requirements, saying the new provisions are too stringent for manufacturers to meet. Some automakers have argued the rules unfairly discriminate against manufacturers based in ally countries including South Korea and Japan.

Also watching closely are governments whose EV industries appear locked out of some subsidies because they only apply to producers in North America. 

European Union leaders — including French President Emmanuel Macron during a December visit to the White House — have complained that the legislation will damage EU industry already suffering from high energy costs due partly to the war in Ukraine. 

The guidance released by the Treasury on Thursday doesn’t appear to address the EU’s major concerns with the law.

Other critics include South Korea — home to the Hyundai Motor Co. and Kia Corp. car brands — as well as Argentina, the world’s fastest-growing producer of lithium, a critical battery material.

Mineral Suppliers

Treasury officials hinted that more countries that produce the minerals critical to battery production may be added as eligible suppliers under the law before the final rules are published in March.

“Treasury and the IRS expect to propose that the secretary may identify additional free-trade agreements for purposes of the critical-minerals requirement going forward,” officials said in the document. They “will evaluate any newly negotiated agreements for proposed inclusion during the pendency of the rulemaking process or inclusion after finalization of the rulemaking.” 

To give car buyers more clarity, the administration published a list of vehicles automakers have indicated will be eligible for the tax credit on Jan. 1. The list will grow as carmakers submit eligibility data, an official said. It’s also created a website where consumers and dealers can enter a vehicle identification number to determine eligibility.