The critical mineral sourcing requirements directly impact the eligibility and amount of the federal electric vehicle (EV) tax credit under the Inflation Reduction Act (IRA).
Impact of Critical Mineral Sourcing on EV Tax Credit Eligibility
- To qualify for the full $7,500 tax credit, a new EV must meet sourcing requirements for both critical minerals and battery components contained in the vehicle’s battery.
- The credit is split into two halves of $3,750 each:
- One $3,750 portion is for meeting the critical mineral sourcing requirement.
- The other $3,750 portion is for meeting the battery component manufacturing or assembly requirement.
- Critical Mineral Requirement:
- A specific percentage of the value of critical minerals in the battery must be extracted, processed in the U.S. or a country with a U.S. free trade agreement, or recycled in North America.
- This threshold percentage increases yearly:
- 40% in 2023
- 50% in 2024
- 60% in 2025
- 70% in 2026
- 80% from 2027 onward.
- If the vehicle meets only the critical mineral requirement or only the battery component requirement, it qualifies for a partial credit of $3,750 instead of the full amount.
- Vehicles that meet neither requirement are ineligible for the credit.
- These sourcing rules are designed to promote domestic or allied-country supply chains and reduce reliance on foreign sources, particularly China, which dominates the global battery cell supply.
Additional Notes
- The IRS and Treasury Department have issued guidance on verifying these sourcing requirements and will require manufacturers to certify compliance for eligibility.
- The MSRP limits and other criteria also affect eligibility but are separate from the mineral sourcing requirements.
- For leased EVs, car dealers may qualify for the full $7,500 credit without these sourcing restrictions, according to certain provisions.
Summary
| Critical Mineral Sourcing Requirement | Tax Credit Amount Eligible |
|---|---|
| Meets both critical mineral and battery requirements | Up to $7,500 |
| Meets only critical mineral OR battery requirement | Up to $3,750 |
| Meets neither requirement | $0 (no credit) |
The critical mineral sourcing requirements thus play a crucial role in determining whether an EV buyer can claim the full or partial federal tax credit and encourage the development of domestic supply chains for minerals essential to EV batteries.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-the-critical-mineral-sourcing-requirements-impact-the-ev-tax-credit-eligibility/
