September 25, 2023

U.S. automakers and a group of Senate Democrats are working to override provisions of the inflation-reducing law aimed at bolstering the domestic supply chain of critical minerals, bar China from benefiting from U.S. taxpayer subsidies and would put the US on a path to renewable energy independence.

Sen. Debbie Stabenow (D-MI) told reporters this week that rules requiring key components to come from the U.S. and allied trading partners should be changed to allow consumers to get tax credits for cars that don’t meet the requirements of the current version of the bill.

The bill, which is a compromise between Sen. Joe Manchin (D-WV) and Majority Leader Chuck Schumer (D-NY), includes nearly $370 billion in investments related to “climate change and energy security” . Among the provisions are tax credits and other incentives to promote electric vehicles, investments in renewable energy and investments in vital minerals.

A technician installs batteries in a new energy vehicle on the production line of Kaiyi Auto in Sanjiang New Area of ​​Yibin, southwest China's Sichuan Province, July 20, 2022. The 2022 EV & ES Battery World Congress kicked off here on Thursday, showcasing the latest EV & ES battery technologies and sustainable modes of travel.  (Photo by Wang Xi/Xinhua via Getty Images)

A technician installs batteries in a new energy vehicle at Kaiyi Auto’s production line in Sanjiang New Area of ​​Yibin, southwest China’s Sichuan Province, July 20, 2022. (Photo by Wang Xi/Xinhua via Getty Images)

Among the provision is an extension of $7,500 in tax credits to help consumers buy electric vehicles. The bill removes the existing 200,000 vehicle cap under current law and creates a $4,000 credit for used electric vehicles.

The bill also significantly revises the criteria for which vehicles are eligible for tax credits in a manner consistent with economic nationalist goals. Final assembly of the vehicles should be done in North America. Initially, forty percent of the value of critical minerals used in electric vehicle batteries would have to come from countries where the US has a free trade agreement, rising to 50 percent in 2024 and 80 percent in 2027. Vehicles that satisfy the critical minerals requirement would be eligible for a $3,750 tax credit.

The bill also allows for an additional $3,750 tax credit if at least 50 percent of the battery’s components are manufactured or assembled in North America. This rises to 100% by 2029.

Importantly, the bill would prohibit the above tax credits from being applied when a vehicle’s battery contains “any” critical minerals from China, Russia or any “foreign entity of concern.”

Automakers reportedly have he protested that they cannot meet the requirements and thus their customers will not be able to take advantage of the tax credits. Although tax credits go directly to car buyers, they benefit manufacturers by subsidizing sales. Senator Manchin denied their protest.

From Reuters:

“Tell (automakers) to get aggressive and make sure we mine in North America, process in North America and put a line in China,” Manchin told reporters. “I don’t believe we should build a mode of transport on the backs of foreign supply chains. I’m not going to do it.”

Manchin said the United States is building its own gasoline vehicles and engines. “Now suddenly—now can’t we?” asked the senator from West Virginia. “Come.”

Currently, most of the world’s refining of critical minerals for batteries is done in China. This makes EV production dependent on Chinese manufacturers, similar to how Germany depends on Russian gas, giving China leverage over the US through its stranglehold on battery materials. In addition, critical mineral refining capacity would be even more difficult to replace with Russian natural gas, requiring much more time and greater capital investment.

Stabenow has he claimed that U.S. automakers are “working really, really hard” so that supply chains don’t have to go through China, but argued that this will take years, according to Invitation card. In the meantime, he wants restrictions eased. The effect would be for the US tax breaks to enrich China’s refiners and discourage the diversification of global refining capacity.

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