The critical minerals requirement directly impacts eligibility for a portion of the new clean vehicle tax credit under the Inflation Reduction Act. Specifically, to qualify for a $3,750 tax credit related to critical minerals, the battery in the vehicle must contain a certain percentage of critical minerals that are either extracted or processed in the United States, in a country with which the U.S. has a free trade agreement, or recycled in North America.
This requirement is phased over several years with increasing thresholds:
- For vehicles placed in service in 2023, at least 40% of the value of the critical minerals must meet this domestic or trade agreement-based sourcing or recycling standard.
- This percentage rises to 50% in 2024, 60% in 2025, 70% in 2026, and 80% beginning in 2027.
If the vehicle’s battery does not meet the applicable percentage for that year, it will not be eligible for the $3,750 credit portion related to critical minerals. Since the total maximum credit is $7,500, half of this amount relates specifically to critical mineral sourcing compliance.
This means that as the requirement becomes more stringent each year, manufacturers must increasingly source their critical minerals domestically, from free trade agreement countries, or recycled in North America to enable consumers to claim this portion of the credit.
In summary, the critical minerals requirement sets a progressive sourcing standard that must be met for the battery component of a clean vehicle to qualify for up to $3,750 of the total $7,500 tax credit, influencing both production and consumer incentives for new clean vehicles.
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