Democratic West Virginia Sen. Joe Manchin scorched the Biden administration on Friday after it released federal guidance allowing Chinese companies to exploit taxpayer electric vehicle (EV) tax credits.
Manchin, who chairs the Senate Energy and Natural Resources Committee, said the guidance contravenes the intent of the 2022 Inflation Reduction Act (IRA), which he authored, and that he would both pursue legislation striking the guidance and support any lawsuit challenging it. The Treasury Department guidance opens the door for Chinese firms to continue providing EV battery parts and materials to EVs eligible for credit.
“I remember waiting in line at the gas station in 1974 after the oil embargo, and I can tell you that I do not intend to wait in line for a battery produced in China if I am forced to buy an EV. The United States has never had to rely on foreign adversaries to build our cars and trucks,” Manchin said in his statement Friday.
“We’ve always been able to make our own transmissions, our own alternators, and our own engines, and I do not understand why President Biden is allowing his administration to now route our essential supply chains through China,” he continued. “The proposed Treasury rules on Foreign Entities of Concern are another example of the Biden administration clearly breaking the law to try to implement a bill that it could not pass.”
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Under the IRA, EVs are prohibited from receiving a $7,500 federal credit if they are assembled with any battery components or critical minerals sourced from a “foreign entity of concern” (FEOC) beginning in 2024 and 2025, respectively.
The Treasury’s guidance explains that the federal government interprets an FEOC as an entity “incorporated in, headquartered in and operating within” one of the covered nations: China, Russia, North Korea and Iran. The Treasury’s guidance also states that a covered nation’s government is considered an owner of an entity if 25% or more of the entity’s board seats, voting rights or equity interest are controlled by the government.
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While the administration touted the guidance as a win in its efforts to bolster the domestic EV industry and onshore EV production, its definition of an FEOC opens the door for Chinese firms linked to China’s government to take advantage of taxpayer subsidies through indirect means, such as entering into joint ventures and investments, partnerships and licensing deals with companies in the U.S.
In addition, the Treasury Department created a new multiyear exemption on Friday, saying “non-traceable battery materials (and associated constituent materials) may be excluded from the determination of whether a battery cell is FEOC-compliant.” According to the industry group Alliance for Automotive Innovation, without the exemption, the EV tax credit “may have only existed on paper.”
“The Inflation Reduction Act clearly states that consumer vehicles are ineligible for tax credits if ‘any of the applicable critical minerals contained in the battery’ come from China or other foreign adversaries after 2024,” Manchin added. “But this administration is, yet again, trying to find workarounds and delays that leave the door wide open for China to benefit off the backs of American taxpayers.”
“The Inflation Reduction Act is a once-in-a-lifetime opportunity to onshore our supply chains and invest in American workers,” he said. “I will take every avenue and opportunity to reverse this unlawful, shameful proposed rule and protect our energy security, that includes pushing the Treasury Department to make revisions, pursuing a Congressional Review Act resolution and supporting any lawsuit against the rule.”
China currently dominates the EV supply chain, a hurdle to President Biden’s goal to quickly transition the U.S. transportation sector to EVs while increasing the number of U.S. auto industry jobs. Biden set a goal shortly after taking office of ensuring 50% of car purchases are electric by 2030, and his administration has since pursued aggressive regulations targeting future gas-powered cars.
According to the International Energy Agency, China produces about 75% of all lithium-ion batteries, a key component of EVs, worldwide. The nation also boasts 70% of production capacity for cathodes and 85% for anodes, two key parts of such batteries.
In addition, more than 50% of lithium, cobalt and graphite processing and refining capacity is located in China, the data showed. Those three critical minerals, in addition to copper and nickel, are vital for EV batteries and other green energy technologies. Chinese investment firms have also been aggressive in purchasing stakes in African mines in recent years to ensure a firm control over mineral production.
