New EV tax credit exemption will benefit US consumers, but also China

In a bid to make electric vehicles (EVs) more accessible to American consumers, the White House announced a new policy shift Friday, May 3, on its federal tax credits. The move for more affordable EVs stands to benefit U.S. consumers, but also China.

Earlier this year, the Biden administration implemented sourcing requirements for EVs to qualify for federal tax credits. The aim was to reduce dependence on Chinese dominance in the EV battery supply chain and prevent China from profiting off the growing EV market in the United States. However, the new rules proved challenging for many automakers to meet.

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Following the enforcement of these requirements, 24 EV models that previously qualified for tax credits no longer met the criteria. This left only a handful of options available for consumers to receive the full credit, with just five electric vehicle models and one plug-in hybrid option to choose from.

In response, the Biden administration has decided to grant a two-year exemption on sourcing requirements for certain low-priced minerals essential for EV batteries. This includes graphite, of which every average electric vehicle battery needs about 200 pounds to build, but it is also a mineral that China is responsible for producing nearly two-thirds of the world’s supply.

While energy security groups have expressed concerns that this exemption may perpetuate U.S. dependence on foreign adversaries for critical minerals, automakers have welcomed the decision. They hope that the exemption will enable more of their vehicles to qualify for tax credits, making EVs more affordable for consumers.

The Alliance for Automotive Innovation contends that the availability of tax credits for a wider range of EV models will stimulate demand and rejuvenate EV adoption efforts nationwide. By allowing automakers to offer lower prices with government support, they believe that this policy change will play a crucial role in driving the transition towards electric vehicles in the United States.