The Truth About Chinese Automakers and EV Tax Credits

No Chinese automakers are taking advantage of the Inflation Reduction Act’s tax credit for new electric vehicle purchases, according to Deputy Treasury Secretary Wally Adeyemo who spoke at a Senate panel.

“What we see to date is that the companies that are taking advantage of it are American companies who are using it to make the investments that they need to be able to build out the cars of the future, which are electric vehicles,” Adeyemo said at a hearing on federal EV incentives held by the Senate Committee on Energy and Natural Resources.

The remarks come after the Treasury and Energy departments in December issued vital guidance for automakers on how strictly the Biden administration will enforce a provision that blocks tax credits for new EVs that contain battery materials from foreign adversaries such as China.

All of this double speak. What does it really mean?

More than 7,000 dealers registered to offer point-of-sale EV tax credits for 2024. As of January 1st, new EVs are ineligible for the Section 30D tax credit, if any of the battery components are made or assembled by a “foreign entity of concern,” which includes companies — in some cases, subsidiaries of U.S. companies — owned or controlled by China, Iran, North Korea, or Russia. In 2025, the exclusion applies to critical minerals that are extracted, processed or recycled by one of those entities. How many vehicles does that leave with electric vehicle tax credits even less than today’s 13 cars that qualify.

In defining the provision, the Treasury and Energy departments tried to strike an achievable balance, heeding the law’s objectives while leaving some room for Chinese involvement as automakers reshuffle their supply chains into compliance. A too-strict interpretation of the term could have prevented any EVs from qualifying, while a too-lenient approach could risk the law’s national security and domestic production benefits.

Even so, the strict requirements have slashed the number of qualifying models to just 13 from 25, according to federal data from FuelEconomy.GOV. However, some automakers such as General Motors have said they expect more EVs will qualify as they adjust sourcing.

“Section 30D is helping Ford and GM be able to be in a position to not only compete with Chinese automakers… but to win not only here in the United States, but around the world,” Adeyemo said.

The Biden administration has faced harsh criticism for its implementation of the EV tax credits, namely from Republicans — none of whom supported the Inflation Reduction Act — and Senator Joe Manchin, Democrat from West Virginia, who held the key vote in passing the law and helped write it.

Manchin, who chairs the Senate Energy Committee, has blasted the administration for not going far enough in preventing Chinese involvement and instead allowing loopholes that could benefit China, which dominates the EV battery supply chain.

At issue, in part, is the Treasury’s foreign entity guidance, which includes a temporary transition rule through 2026 that gives the industry time to develop standards for tracing materials that account for less than 2 percent of the value of battery-critical minerals.

“My problem is not with EVs,” Manchin said at the hearing. “My problem is with my administration’s crusade to convert everyone over to an EV regardless of where the battery came from or what the law actually says.”

Republican Senators on the panel, including ranking member John Barrasso of Wyoming and Josh Hawley of Missouri, also scrutinized the administration’s implementation of the tax credit and the potential for Chinese participation.

“Your rule allows Chinese companies to get the tax break. It loosens up the restrictions, so now we are subsidizing our rivals,” Hawley argued.

Deputy Energy Secretary Dave Turk, who also testified at the hearing, defended the administration’s approach.

“I would strongly disagree with that,” said Turk, citing how fewer EVs are now eligible for the credit as automakers scramble to adjust their sourcing and meet the requirements.

Manchin, who last year said he would sue the Treasury over how it was planning to interpret the EV tax credit’s critical mineral and battery component provisions, again threatened legal action.

He said, ”I will support any entity that goes to court to correct the illegal liberalization of this law with an amicus brief to set the record straight on the bill Congress actually wrote.”

So don’t be surprised if in the near future, you see a lot of Chinese cars being available to the US with the federal tax credit. Because that’s the way the legislation was written. It certainly not in consumer favors. Nor is it in the favor of any car makers, except for the Chinese.

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