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Electric vehicles are one of the main characters in this newsletter, so I thought it would be worth noting a less visible — yet fundamental — aspect of the EV storyline here in North America.
I’m talking about new guidance from the U.S. Treasury Department (by way of the Energy Department) regarding what it will take for EVs to qualify for the federal tax credit, starting January 1.
The long-awaited guidance disqualifies EVs from the tax credit if any of the battery components are made or assembled by a foreign entity of concern such as China, Iran, Russia and North Korea. (China is the country to pay attention to since the nation has been the dominant and primary supplier of components and raw materials for batteries.) The guidance expands in 2025 to cover raw minerals that are extracted, processed or recycled by any of these entities of concern.
Importantly, the departments go further to clarify how they determine what is a “foreign entity of concern,” or FEOC. There are two ways: if an entity is subject to the jurisdiction of a foreign country that is a covered nation (such as China) or if a company is owned by, controlled by or subject to the direction of a government of a foreign country that is a performing the relevant activities in a covered nation. What does owned by or controlled by mean? The two departments have an answer: the entity has a cumulative direct or indirect control greater than 25% of board seats, voting rights, or equity interest by a covered nation or if a non-FEOC has entered into a licensing agreement with an FEOC that gives it “effective control” over business operations.
The Zero Emissions Transport Association goes deeper into the guidance for those who want the full analysis. Also, here’s an overview of North American battery factories (we update this list and chart periodically).
The tl;dr is that it will get more difficult for EVs to qualify for the tax incentive. However, the industry seems to support the rule since it provides much-needed guidelines and a greater level of certainty as automakers plow billions of dollars into domestic EV and battery manufacturing.