The battery component requirement and the critical minerals requirement are two distinct criteria for clean vehicle batteries that must be met to qualify for tax credits under the Inflation Reduction Act, with differences in focus, metrics, and thresholds over time.
Key Differences Between Battery Component and Critical Minerals Requirements
1. Basis of Requirement
- Critical Minerals Requirement: Focuses on the sourcing of critical minerals contained within the battery. To meet this requirement, a certain percentage of the value of the critical minerals (such as lithium, cobalt, nickel, etc.) must be extracted, processed, or recycled in the U.S. or in countries with a free trade agreement with the U.S., or recycled in North America.
- Battery Component Requirement: Focuses on the manufacturing or assembly location of the battery components themselves. A required percentage of the value of the battery components must be manufactured or assembled in North America.
2. Percentage Thresholds and Timing
- Critical Minerals Percentage Requirements:
- 2023: 40%
- 2024: 50%
- 2025: 60%
- 2026: 70%
- 2027 and beyond: 80%
- Battery Components Percentage Requirements:
- 2023: 50%
- 2024-2025: 60%
- 2026: 70%
- 2027: 80%
- 2028: 90%
- 2029 and beyond: 100%
The battery component requirement generally starts at a higher percentage in 2023 and escalates to full domestic manufacturing or assembly by 2029, while the critical minerals requirement caps at 80% from 2027 onward.
3. Credit Eligibility
- Meeting the critical minerals requirement alone qualifies a vehicle for a $3,750 credit.
- Meeting the battery component requirement alone also qualifies a vehicle for a $3,750 credit.
- Meeting both requirements qualifies the vehicle for the full $7,500 credit.
Summary
| Requirement | Focus | Location Criteria | 2023 Threshold | 2027+ Threshold | Full Compliance Year |
|---|---|---|---|---|---|
| Critical Minerals | Value of critical minerals in battery | Extracted/processed/recycled in US, FTAs, or North America | 40% | 80% | 2027+ (80%) |
| Battery Components | Value of battery components | Manufactured or assembled in North America | 50% | 80% | 2029 (100%) |
In essence, the critical minerals requirement targets the supply chain sourcing of raw mineral materials, while the battery component requirement targets the manufacturing and assembly of the parts that make up the battery pack. Both requirements progressively tighten their domestic content standards over time but differ on scope and timing.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-battery-component-requirement-differ-from-the-critical-minerals-requirement/
