The US Department of Treasury will grant EV makers a two-year extension for restrictions on some hard-to-trace battery materials, including China-dominated graphite. The move was welcomed by automakers while upsetting some US politicians.
Under the US Inflation Reduction Act (IRA), an EV can win up to US$3,750 of tax credits for locally sourced critical battery minerals and US$3,750 for battery components. The law also prohibits manufacturers from sourcing battery components and critical minerals from Foreign Entities of Concern (FEOC) starting in 2024 and 2025, respectively. FEOCs include China, North Korea, and other countries.
According to final rules released by the US Treasury and Internal Revenue Service (IRS) on May 3, the agencies identified certain impracticable-to-trace battery materials, including graphite and some critical minerals used in electrolyte salts, binders, and additives.
The Wall Street Journal reported that natural graphite is frequently blended with synthetic graphite, making it challenging to trace the origin. Therefore, the US government will allow manufacturers to exclude some hard-to-trace materials from FEOC compliance until 2027 if they form a plan to comply with the restriction by then.
Graphite is a critical material for battery anodes. According to the US Geological Survey, China topped the world's graphite production in 2023 with 1,230,000 metric tons, followed by Madagascar and Mozambique. The Alliance for Automotive Innovation, an industry group representing major automakers, said the new rules provide temporary flexibility regarding where the critical minerals in EV batteries can be sourced.
However, Reuters reported that US Senate Energy Committee chair Joe Manchin criticized the Treasury for providing a long-term pathway for FEOC countries to remain in US supply chains. Some analysis in China stated that the new rules may imply that the US has difficulties cutting ties with China, where most of the battery supply chain is located. The US will need Chinese suppliers to accelerate its EV ambition and reduce costs.
According to the US Treasury, EV tax credits worth more than US$700 million have been claimed at the point of sale this year. The industry has invested US$173 billion in the US clean vehicle and battery supply chain, the agency said.
