The battery sourcing requirements significantly affect the eligibility of hybrid vehicles for federal tax credits, particularly under recent regulations such as those stemming from the Inflation Reduction Act.
Key Battery Sourcing Requirements Affecting Hybrid Vehicle Eligibility
1. Critical Mineral Sourcing:
– At least 40% of the critical minerals used in the vehicle’s battery must be sourced from the U.S. or countries with which the U.S. has a free trade agreement. Critical minerals include lithium, nickel, cobalt, manganese, graphite, and others defined in the tax code.
– Recycling of these minerals in North America can also count toward this requirement.
2. Battery Component Assembly:
– At least 50% of the battery components (such as electrodes, separators, cells, and modules) must be manufactured or assembled in North America.
These sourcing requirements apply to vehicles placed in service on or after April 18, 2023. If a vehicle’s battery does not comply with these sourcing rules, it is ineligible for the full federal tax credit and may be disqualified entirely depending on the circumstances.
Hybrid Vehicle Specifics
- Hybrid vehicles are eligible for certain tax credits, but the battery must meet the above sourcing thresholds to qualify.
- For hybrids, additional limitations apply: the available credit for gas or diesel-powered vehicles (which includes some hybrids) is capped at 15% of the vehicle value, with a maximum credit of $7,500 for vehicles under 14,000 pounds.
- The vehicle must also have a minimum battery capacity of 7 kilowatt-hours and be assembled in North America.
Other Eligibility Criteria Related to Battery Sourcing:
- Vehicles with battery components from countries designated as “foreign entities of concern” are not eligible starting in 2024.
- The vehicle must undergo final assembly in North America to qualify for the credit.
- The manufacturer must be an IRS-qualified manufacturer of clean vehicles.
Summary
Battery sourcing requirements impose strict conditions on the origin of critical minerals and assembly of battery components for hybrid vehicles to qualify for federal tax credits. At least 40% of minerals must come from the U.S. or free trade partners, and at least 50% of battery components must be assembled in North America. If hybrids do not meet these requirements, they may lose eligibility for the clean vehicle tax credit or only qualify for a reduced credit. These rules aim to encourage domestic sourcing and supply chain transparency while advancing environmental policies.
Thus, hybrid vehicle buyers and manufacturers must carefully consider the battery supply chain’s compliance with these sourcing requirements to ensure eligibility for available tax incentives.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-the-battery-sourcing-requirements-affect-the-eligibility-of-hybrid-vehicles/
