Washington bureaucracy could save Democrats from their electric vehicle tax credit problem

There’s already a playbook for circumventing geographic procurement requirements: a decades-long program called “Buy America,” intended to ensure road and transit projects are made from materials made in the United States. Requirements, especially for things like steel, which is cheaply produced overseas, have been difficult to meet since its inception – and that’s exactly why they are sometimes waived.

For example, although Congress enacted tough new Buy America rules in last year’s massive infrastructure act, they were immediately lifted temporarily to give states and cities more time to adapt.

And new procurement requirements for electric vehicles that currently seem out of reach could also go the Buy America way. In fact, automakers and electric vehicle interest groups are already asking for more time before they are enforced.

The Zero Emission Transportation Association isn’t seeking waivers, but executive director Joe Britton said the association and its members have gone to Capitol Hill to ask Congress to extend the bill’s compliance deadlines from 12 to 18. month.

“We want as much time as possible,” Britton said. “My view is that every six months we can get an extension, which is materially beneficial.”

Where the rubber meets the road

In order to receive an electric vehicle purchase tax credit, the budget deal Democrats are pushing to pass requires battery minerals to be at least 40% sourced from North America or other countries. an American trading partner. from 2024 and onwards. And by 2029, battery components should be 100% made in North America.

Perhaps the toughest bar, however, given China’s dominance in lithium-ion batteries and other minerals and components which vehicles need, is the stipulation in the agreement that the credit will not apply to a vehicle whose battery components are manufactured from an “entity of concern”, such as China, by 2024, and no critical minerals from these sources by 2025.

Not a single electric vehicle currently on the market would qualify. This is not surprising, given that the United States accounts for only 8% of global lithium-ion battery production, compared to 76% for China.

In some cases, companies may not even be able to trace the source of minerals or sub-components in their own products.

“We’re an American company that makes American products, and we believe we’re in line with Buy America,” said Desmond Wheatley, CEO and president of electric vehicle infrastructure company Beam Global. “However, it’s actually very, very difficult to know where the components and raw materials you’re using come from.”

“It’s a minefield,” he added. “We’re terrified that we might declare we’re compliant and someone down the road might claim we don’t because three or four levels of provenance it turns out that some things come from abroad and we don’t even know it.”

How these requirements could be removed, relaxed or rigged

The Reconciliation Bill expressly does not provide for any waiver. But how the requirements are defined and enforced by the Treasury Department and the IRS could provide some wiggle room.

ZETA’s Britton said that while “the law is the law”, the Treasury has the power to determine how US companies are allowed to interact with “entities of concern”, for example – and the IRS will decide how and when to calculate how much one the battery is of foreign manufacture.

An infrastructure trade official suggested there may be even more need for exemptions for electric vehicle credits than for Buy America.

“Maybe it’s not apples to apples, but it’s comparing fruit,” said AASHTO executive director Jim Tymon, whose organization represents state departments of transportation, including those seeking waivers from Buy America. “With a vehicle or a battery, it’s a much more detailed analysis to figure out where these materials are coming from.”

Indeed, there are notable differences between Buy America’s requirements for infrastructure projects and materials like steel, where the requirements have been in place for years and the supply chain is well understood, and the requirements for private automotive companies to source battery components from a supply chain that currently does not exist.

Tymon said the temporary waiver put in place by the DOT allowed infrastructure projects that had been in the planning process for years to proceed this summer. Without it, some projects have been delayed.

“We understand there’s kind of a chicken or egg situation here,” Tymon said. “If we’re not able to prove to America and Congress that we can get dollars out of the community, that doesn’t bode well for us when we have to go back to Congress and push for a level of similar investment.”

GM CEO Mary Barra acknowledged Thursday that while national procurement language in the reconciliation bill will “help spur new investments in American manufacturing and sustainable, scalable, and secure supply chains,” these goals “cannot be achieved overnight”.

Republicans who do not support the reconciliation bill are trying to make mineral supply requirements even stricter.

Sen. Marco Rubio (R-Fla.) plans to file an amendment to the bill that would require electric vehicles to source 100% of their batteries and battery components from the United States or a country where the United States has entered into a free trade agreement immediately, rather than allowing for a transition period. Rubio’s amendment, if passed, would make electric vehicle tax credits inaccessible for years.

But no Republicans are likely to vote for the bill, and the wording of the bill is unlikely to change significantly, given the delicate balancing act it took to get all 50 Democratic senators to sign on.

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