China Pushes Back On Biden's New EV Tax Credit Rules

Not everyone’s a fan of the Biden Administration’s new rules for the Inflation Reduction Act. The latest entity to push back on the new rules is China. The IRA’s revisions add new, stricter regulations on battery materials, making things a lot harder for EV manufacturers, and causing China to call foul play. 

Basically, the Biden Administration’s revisions remove eligibility for vehicle tax credits if more than trace amounts of battery materials come from countries deemed a “Foreign Entity of Concern,” or FEOC for short. That could mean North Korea, Russia, Iran, and now China – a big deal. In 2024, completed batteries that are made with components made by FEOCs make a vehicle ineligible, and by 2025 EVs that have battery minerals that go beyond trace amounts that come from FEOCs, also will not qualify. It’s why some variants of the Tesla Model 3 won’t be eligible for the full tax credit next year, and the Mustang Mach-E is now completely ineligible in 2024.

According to a report from Reuters, China has pushed back, asserting that this policy runs counter to WTO (World Trade Organization) rules. China says this policy is exclusionary and is a “ typical non-market orientated policy.” China also asserts that other WTO members have expressed concern about the policy, also agreeing that it violates the basic principles of the WTO. China thinks these policies could seriously impede and disrupt international trade and investment.

Is China right? It’s not quite clear yet, nor is it arguably all that important to the goal of getting drivers away from gas, and into EVs. Right now, this new policy could have a cooling effect on the EV market. Many EV battery packs for sale in cars on lots today, have significant Chinese content, and it’s not exactly possible to change those vehicles to an approved source overnight. Likewise, the potential for Biden to institute a 25% ownership cap on FEOC investment in companies could make plans, like Ford’s planned CATL joint venture battery plant, significantly more complicated. That plant in theory should make things easier for Ford to assemble battery packs stateside and thus make its EVs requalify for subsidies, but if the CATL plant is hurt by Biden’s new rules, then it’s all pretty much for naught.