The new battery sourcing requirements, established as part of the Inflation Reduction Act (IRA), significantly affect the eligibility of electric vehicles (EVs) for federal tax credits. Here’s a breakdown of these requirements:
Battery Sourcing Requirements
- Manufacturing Location: To qualify for the battery portion of the tax credit (up to $3,750), EVs must have a specific percentage of their battery components manufactured or assembled in North America. The thresholds are as follows:
- 2023: 50%
- 2024 and 2025: 60%
- 2026: 70%
- 2027: 80%
- 2028: 90%
- 2029 through 2032: 100%
- Critical Minerals Requirement: Another $3,750 of the credit is dependent on the sourcing of critical minerals. The IRA requires that a certain percentage of critical minerals in the EV’s battery be extracted or processed in the U.S. or in a country with a free-trade agreement with the U.S. The thresholds are:
- 2023: 40%
- 2024: 50%
- 2025: 60%
- 2026 through 2032: 80%
Impact on EV Eligibility
- Combined Requirements for Full Credit: To qualify for the full $7,500 tax credit, an EV must meet both the battery sourcing and critical minerals requirements. If it meets only one, it may qualify for a partial credit of $3,750.
- Commercial and Leased Vehicles: Commercial EVs do not face the same sourcing restrictions but can still qualify for up to $7,500 in tax credits. Leased vehicles also qualify without these restrictions under specific conditions.
These requirements aim to reduce reliance on foreign materials, particularly from countries like China, which dominates global battery cell production. As a result, EV manufacturers must adapt their supply chains to meet these standards, affecting the eligibility of their vehicles for the federal tax incentives.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-the-new-battery-sourcing-requirements-affect-the-eligibility-of-evs-for-tax-credits/
