U.S. Delays Key Step for EV Subsidy Program After Foreign Pushback
The electric-vehicle tax incentives are meant to accelerate a transition to cleaner vehicles
The Treasury Department received hundreds of submissions during a public comment period for the rules relating to EV tax incentives.PHOTO: GRAEME SLOAN/BLOOMBERG NEWS
WASHINGTON—The Biden administration on Monday delayed proposing detailed rules for new tax incentives for electric vehicles, following strong pushback from European and Asian allies that the subsidy program discriminated against their companies.
The department said, however, it will release “information on the anticipated direction” of the battery requirements before year-end to help manufacturers prepare to identify vehicles eligible for the tax credit. It didn’t specify what information would be made available then.
The EV tax incentives, part of the Inflation Reduction Act that President Biden signed into law in August, are designed to accelerate a transition to cleaner vehicles. But it also includes complex requirements aimed at boosting domestic production of electric vehicles and batteries, setting off complaints from European and Asian governments as well as auto makers.
To qualify for the full $7,500 in tax credit, vehicles must go through their final assembly in North America, a requirement that disqualifies many electric vehicles from non-U.S. car makers since they are typically assembled overseas.
The new rules also require EVs to have at least 40% of their critical minerals for batteries sourced in the U.S. or countries that have free-trade agreements with the U.S., starting in 2023. That threshold is set to rise to 80% by 2026.
At least 50% of the components in the batteries must be manufactured or assembled in North America by 2024, with that percentage rising gradually to 100% by 2028.
A Treasury official said the department needed more time as it works through the complexities of crafting the technical rules.
Following a meeting with French President Emmanuel Macron in early December, President Biden said the U.S. could offer what he called tweaks to the programto make it easier for European countries to participate.
The Treasury Department said the details on battery requirements will come as part of a notice of proposed rule making in March and noted that the new requirements will take effect only after the proposed rule is issued.
The Treasury Department received more than 800 submissions during a public comment period ended last month, including requests for revising the program from the governments of the European Union, South Korea and Japan, underscoring the high stakes involved.
“It doesn’t feel like a surprise in that just the size of the task and the shortness of the time frame, but at the same time it’s really challenging for manufacturers and dealers and consumers who are scrambling to figure out who’s eligible for the credit and how to make it work,“ said Genevieve Cullen, president at the trade group Electric Drive Transportation Association.
Ms. Cullen said several elements of the regulations still needed defining, including exactly which countries have free-trade agreements with the U.S.
“There’s a lot of definitions that need clarifications,“ she said.
Overall, Ms. Cullen said the delay wouldn’t create huge complications in the next few months, though she said that she hopes Treasury clarifies how the credits will work between January and March next year.
“Folks really are anxious for some certainty and some clarity, but it’s important that we get this right,“ she said.
Write to Yuka Hayashi at Yuka.Hayashi@wsj.com and Andrew Duehren at andrew.duehren@wsj.com