(Adds reaction from South Korean government)
By David Shepardson and David Lawder
WASHINGTON, March 31 (Reuters) - The U.S. Treasury
Department unveiled stricter electric vehicle tax rules on
Friday that will reduce or remove tax credits on some
zero-emission models but grant buyers another two weeks before
the new requirements take effect.
The rules are aimed at weaning the United States off
dependence on China for EV battery supply chains and are part of
President Joe Biden's effort to make 50% of U.S. new vehicle
sales by 2030 EVs or plug-in hybrids.
The EV battery sourcing guidance issued on Friday triggers
new requirements for critical minerals and battery components
and takes effect for vehicle purchases starting April 18.
U.S. officials acknowledged some vehicles will see credits
cut or eliminated. Tesla said on Wednesday the Model 3
rear-wheel drive credit will be reduced as a result of the
guidance. The government will publish by April 18 a revised list
of qualifying models and tax credit amounts.
The $430 billion Inflation Reduction Act (IRA) signed by
Biden in August eliminated manufacturers' EV sales caps but
imposed new conditions on EV credits. They included a North
American assembly requirement from August, price and buyer
income eligibility caps from Jan. 1, and now the battery and
critical minerals sourcing rules, effective April 18.
Alliance for Automotive Innovation CEO John Bozzella said in
a statement his best guess is "few" EVs on the market will
qualify for the full $7,500 credit after April 17. He noted the
requirement for EVs be assembled in North America to qualify for
any credit eliminated 70% of models.
"Some EVs will certainly qualify for a partial credit. Given
the constraints of the legislation, Treasury's done as well as
it could to produce rules that meet the statute and reflect the
current market," Bozzella said.
The IRA requires 50% of the value of battery components to
be produced or assembled in North America to qualify for a
$3,750 credit and 40% of the value of critical minerals sourced
from the United States or a free trade partner also for a $3,750
credit.
Treasury proposes a three-step process for determining the
value percentage of critical minerals and a four-step process
for determining battery component value.
On Tuesday, the United States and Japan inked a trade deal
on EV battery minerals. Treasury says newly negotiated critical
minerals agreements can be considered free trade agreements. The
guidance lists Japan as having a U.S. free trade deal.
The South Korean government welcomed the new rules, adding
they reflected the opinion of the South Korean battery industry
substantially and removed a "great deal of uncertainty".
In a statement on Saturday, the country's trade ministry
said the government plans to hold further negotiations with the
U.S. on the requirements of South Korean companies if necessary.
Senate Energy Committee chair Joe Manchin, a Democrat, said
Treasury is ignoring the intent of the IRA in writing the
guidance.
"American tax dollars should not be used to support
manufacturing jobs overseas," Manchin said. "It is a pathetic
excuse to spend more tax payer dollars as quickly as possible
and further cedes control to the Chinese Communist Party in the
process."
Treasury is not immediately issuing guidance on "Foreign
Entities of Concern", a provision due to start in 2024 barring
credits if any components or minerals used in EV batteries are
made in countries like China.
China has previously criticised EV related rules in the IRA,
saying in September they could be violating WTO regulations.
Ford said in February it would invest $3.5 billion to
build an EV battery plant in Michigan, using technology from
Chinese battery company CATL .
Republican Senator Marco Rubio introduced legislation this
month seeking to block EV tax credits for batteries produced
using Chinese technology, saying it would "significantly
restrict the eligibility of IRA tax credits and prevent Chinese
companies from benefiting."
The public will have until mid-June to comment on the
proposed guidance.
(Reporting by David Shepardson and David Lawder; Additional
reportitng by Hyunsu Yim; Editing by Sonali Paul and Muralikumar
Anantharaman)
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