Draft rules in Senate climate package mean few current vehicles would be eligible, say lobbyists
by Mike Colias and Jennifer Hiller, The Wall Street Journal, August 4, 2022
Major auto makers are pressing lawmakers to ease a proposed battery-sourcing requirement for electric-vehicle tax breaks, saying that few, if any, plug-in models on sale today would qualify.
The Senate climate package proposed last week would extend until 2032 a current $7,500 tax credit for electric-vehicle purchases, a consumer incentive that has been in place for more than a decade. The legislation, a deal struck between Sen. Joe Manchin (D., W.Va.) and Senate Majority Leader Chuck Schumer (D., N.Y.), could get a Senate vote by this weekend.
The bill would enhance the electric-vehicle tax credit in some ways, including making vehicles produced by General Motors Co., Tesla Inc. TSLA -6.63%▼ and Toyota Motor Corp. TM 0.41%▲ eligible for the subsidy again.
But the proposal would stiffen the requirements for an electric vehicle to qualify. Only U.S.-built vehicles would be eligible. It also pushes car companies to bring more manufacturing to North America, including setting minimum thresholds for the value of battery components that must be manufactured or assembled in the region. Essentially any EVs with battery components made or processed in China would be ineligible for the subsidy.
These thresholds also target crucial battery materials, such as lithium and nickel, requiring a certain percentage to be sourced domestically or from the U.S.’s free-trade partners.
Car-industry lobbyists say meeting the new requirements on batteries could take years to achieve. The majority of processing for major battery minerals, including lithium, nickel and cobalt, is done in China, according to research firm Benchmark Mineral Intelligence.
Most electric-vehicle models on the market today wouldn’t qualify for the EV tax credit as drafted because they have too much battery content sourced outside of North America, the industry lobbyists say.
Instead, GM, Ford Motor Co. and other car companies are asking for a longer timeline to reach the requirements, and to expand the number of countries from which minerals can be sourced, according to people familiar with their lobbying efforts.
Tesla has been investing in a battery supply chain for longer than traditional auto makers. Still, its vehicles likely wouldn’t qualify for tax credits under the proposed rules, people familiar with the company said. The company didn’t reply to a request for comment.
Many car manufacturers have said they support the broad goal of developing a domestic battery-supply base and continue to review the specific measures in the legislation.
“We totally support the notion that we have to build supply chains within North America. But that won’t happen overnight,” said John Bozzella, head of the Alliance for Automotive Innovation, which represents major car companies.
The new eligibility restrictions for the electric-vehicle tax credit are intended to prod auto and battery manufacturers to build out more of a supply base in the region, rather than rely on China for these critical automotive parts.
When asked about the auto industry’s concerns, Mr. Manchin said during a Tuesday news conference that auto makers need to work faster to build a domestic electric-vehicle supply base.
“Tell them to get aggressive and make sure that we’re extracting in North America, that we’re processing in North America and we quit relying on China,” he said.
Car companies and battery manufacturers are in the early stages of developing a North American supply base for electric-vehicle batteries, including billions of dollars earmarked for battery-cell factories in the U.S.
But most projects are years away from coming online. Tesla operates a large facility in Nevada, and GM is opening a battery-cell facility with joint-venture partner LG Energy Solution 373220 0.68%▲ in Ohio in coming weeks.
The battery-material thresholds are even more difficult because the processing of minerals such as lithium and manganese is so concentrated in China that it could take years of investment in North America before those could be met, auto-industry and electric-vehicle lobbyists say.
The bill through 2023 would require 40% of the battery minerals for electric vehicles to be mined and processed in the U.S. or partner countries or recycled in North America, rising to 80% after 2026. The target for North American battery-component manufacturing and assembly would rise from 50% to 100% after 2028.
Car makers have outlined plans to process more of their battery raw materials in North America. GM, for example, joined with a Korean company to build a $400 million plant in Quebec to produce cathode material. Ford F -0.46%▼ said in July that it is exploring supply deals for U.S.-based lithium and graphite.
For now, though, China dominates the market for the processing of electric-vehicle minerals. The country accounts for 59% of global lithium processing, compared with 4% for the U.S., according to Benchmark. It processes 68% of the world’s nickel, compared with 1% for the U.S., the firm’s data show.
“There is and remains a total domination by China on the processing side,” said Morgan Bazilian, director of the Payne Institute and professor at the Colorado School of Mines. “It’s definitely not changing in the short term. That would be a decadal shift.”
Only about 15% of electric-vehicle minerals are extracted or processed in the U.S. or by its free-trade partners, said Douglas Johnson-Poensgen, chief executive of Circulor, a startup that has helped several European auto makers trace the origins of their battery content.
Documenting how much foreign battery content is used in a battery would also be a challenge, because auto makers don’t always have great visibility into their supply chains.
Mike O’Kronley, CEO of battery recycler and engineered-materials company Ascend Elements Inc., said investments are being made to shift toward a U.S. supply chain, but if electric-vehicle adoption accelerates quickly in the next two years, it could be a challenge to meet demand for domestically produced materials and batteries. Ascend Elements said Monday that it would invest $310 million in the first phase of a plant in Hopkinsville, Ky., to produce EV battery material.
Electric-vehicle startups Rivian Automotive Inc. and Fisker Inc. FSR -2.02%▼ have criticized other parts of the bill, including a sticker-price limit that would disqualify EV trucks and sport-utility vehicles priced above $80,000 from receiving the tax credit.