The specific battery sourcing requirements for the federal EV tax credit, as outlined in the Inflation Reduction Act (IRA), involve several key conditions:
- Critical Mineral Sourcing:
- Requirement: At least 40% of the value of certain critical minerals in the EV’s battery must be extracted or processed in the United States, in a country with a free-trade agreement with the U.S., or from materials recycled in North America.
- Annual Increase: This percentage increases annually, alongside battery component requirements.
- Battery Component Manufacturing:
- Requirement: At least 50% of the EV battery components must be manufactured or assembled in North America.
- Annual Increase: This percentage also increases annually.
- General Sourcing Requirements:
- Implementation: These requirements do not take effect until official guidance is published by the Treasury Department regarding the certification process for manufacturers to verify sourcing.
- Target: Reducing reliance on foreign countries, particularly for battery materials sourced from China.
- Value Added Test:
- Implementation: Starting in 2024, the IRA requires a “Traced Qualifying Value Add Test” to measure the value-added percentage of critical minerals across the supply chain, including extraction, processing, and recycling.
For new electric vehicles, depending on whether these requirements are met, the federal tax credit can be up to $7,500, combining both critical mineral and battery sourcing credits.
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