Biden administration rolls out rules for foreign entities in electric car tax credit eligibility

The Biden administration has issued rules for determining which foreign entities of concern (FEOC) are not eligible for electric vehicle tax credits under the Inflation Reduction Act (IRA). 

The definition used by the Treasury Department will determine who is eligible for a $6 billion battery manufacturing and grant program under the Bipartisan Infrastructure Law, as well as the IRA’s $7,500 tax credit for the purchase of electric vehicles. Beginning in 2025, eligibility will be restricted if the battery contains either components or critical minerals from a FEOC under the language of the IRA.

“We’re talking about companies under the control or jurisdiction of the government of a quote unquote, covered nation, which in this instance means North Korea, China, Russia or Iran, as written in the statute,” Deputy Energy Secretary David Turk told reporters on a call. 

The guidance includes exceptions for certain trace minerals sourced from China for the next two years, which the Treasury Department has said accounts for less than 2 percent of materials used in batteries.

To be considered an FEOC, an entity must be incorporated in, headquartered in and operating within one of the covered nations. The government of that nation must also directly or indirectly control at least 25 percent of a company’s voting or equity interests or board seats, regardless of the physical location where the company operates, and any companies that operate outside a covered nation but contract with or license technology from it must “retain certain rights over their operations for their vehicles to qualify,” Turk said.

The guidance comes as the Biden administration has sought to thread the needle on achieving its goals for renewable energy and electric vehicle buildouts in an international market where much of the supply chain is dominated by China, which dominates the refinement and production market for numerous critical minerals used in EV batteries, despite known deposits in the U.S.

Earlier this year, the Commerce Department made a preliminary determination that several Southeast Asian companies had circumvented tariffs on Chinese imports of solar panel components.

Administration officials on the call struck an optimistic note, portraying the guidance as an essential component in building up domestic production of renewable energy.

“The proposed guidance will provide clarity and certainty to the U.S. automakers, battery manufacturers and producers of critical minerals. It will encourage these industries to invest in diversified and resilient critical mineral and battery supply chains,” White House renewable energy adviser John Podesta said. “And it’ll support good-paying U.S. jobs … paving the way for an electric transportation future that’s built here in America.”