The battery sourcing requirement significantly affects the eligibility of vehicles for the federal tax credit under the Inflation Reduction Act (IRA). There are two primary battery-related requirements: critical minerals and battery components. Each requirement is worth $3,750, and a vehicle must meet both to receive the full $7,500 credit, in addition to other criteria such as final assembly in North America and price caps.
Battery Component Requirement
- Manufacturing Location: The battery components must be manufactured or assembled in North America. In 2023, at least 50% of the value must be sourced from North America to qualify for a $3,750 credit.
- Ramp-up of Requirements: The percentage of North American-sourced components increases annually:
- 2023: 50%
- 2024 and 2025: 60%
- 2026: 70%
- 2027: 80%
- 2028: 90%
- 2029 and after: 100%.
Critical Minerals Requirement
- Sourcing Rules: Starting in 2023, a vehicle must have at least 40% of its battery critical minerals mined, processed in North America, or a U.S. free trade partner country, or recycled in the U.S.
- Future Increases: This percentage will also increase over time, similar to the battery components requirement.
Additional Restrictions
- Foreign Entities of Concern: Beginning in 2024, vehicles cannot include battery components from foreign entities of concern (like China and Russia) to qualify for the tax credit. By 2025, this restriction extends to critical minerals.
In summary, the battery sourcing requirements play a crucial role in determining whether a vehicle qualifies for the federal clean vehicle tax credits. Meeting these requirements is essential for eligibility, alongside other criteria such as final assembly and price limits.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-battery-sourcing-requirement-affect-eligibility/
