The existing regulations mandated that an EV needs to undergo final assembly in North America for credit eligibility.
The US Department of the Treasury announced that countries other than the United States and its free trade agreement (FTA) partners may be added to the Inflation Reduction Act as places of production eligible for US electric vehicle (EV) credit.
The existing rules of the IRA suggest that for any electric vehicle manufacturer to be eligible for the credit, the product needs to undergo final assembly in North America. It allows the imports of critical minerals from countries with free trade agreements to still qualify for incentives, but not imports of battery components. The law forbids tax credits for vehicles with any components or critical minerals sourced from a “foreign entity of concern,” such as China or Russia.
The term ‘final assembly’ refers to the process of producing a new clean vehicle at, or through the use of, a plant, factory, or another place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.
Currently, China controls 60% of the world’s lithium mining, 77% of battery cell capacity and 60% of battery component manufacturing. Many American EV makers, including Tesla, rely heavily on battery materials from China.
This latest update implies that an EV using a mineral extracted in a non-partner country is eligible for the subsidy if the mineral is processed in a partner country and an added value of at least 50% is created as a result of the processing. This means that an EV maker can secure credit on an EV even if it sources lithium from China, and processes it in an eligible country.
The US has made free trade agreements with 20 countries. Of these Canada, Australia, Chile, Indonesia and Argentina supply key EV battery minerals such as nickel and lithium. Fifty per cent of the global lithium reserves are in Chile.
Companies such as LG Energy Solution, LG Chem and POSCO Group are building plants in Indonesia for nickel procurement. SK Innovation and EcoPro are building a precursor plant in Indonesia. The POSCO Group is also increasing investment in Argentina for lithium procurement.
