U.S. Treasury Proposes Guidance to Sustain U.S. Manufacturing Boom in Batteries and Clean Vehicles, Enhance Energy Security

The U.S. Department of the Treasury and Internal Revenue Service (IRS) have issued proposed guidance on the clean vehicle provisions of the Inflation Reduction Act (IRA). This initiative aims to reduce costs for consumers, stimulate U.S. manufacturing, and fortify energy security by establishing resilient supply chains in collaboration with allies and partners. Since the enactment of the IRA, private-sector investment exceeding $100 billion has been announced across the U.S. clean vehicle and battery supply chain.

Treasury Secretary Janet L. Yellen highlighted the positive impact of the Inflation Reduction Act, stating, “The Inflation Reduction Act has unleashed an investment and manufacturing boom in the United States…saving consumers up to $7,500 on a new clean vehicle and creating American manufacturing jobs while strengthening our energy security.”

Key points from the proposed guidance include:

  1. Foreign Entity of Concern (FEOC) Requirements: To enhance supply chain security, starting in 2024, eligible clean vehicles must not contain battery components manufactured or assembled by an FEOC. In 2025, clean vehicles must not contain critical minerals extracted, processed, or recycled by an FEOC.
  2. Statutory Criteria: Clean vehicles must meet additional criteria, including sourcing requirements for critical minerals and battery components, final assembly in North America, and maximum Manufacturers Suggested Retail Prices (MSRP).
  3. Compliance and Due Diligence: Manufacturers are required to conduct due diligence in compliance with industry standards for tracing battery materials. Compliance for battery components and critical minerals would be determined at various stages, and a temporary transition rule is proposed for critical minerals tracing.
  4. Enforcement Framework: An upfront review system, starting in 2025, would provide oversight of FEOC compliance. Automakers would submit annual estimates of FEOC-compliant batteries, reviewed by the Department of Energy. In cases of inadvertent errors, there are provisions for curing errors; intentional disregard may lead to loss of credit eligibility and penalties.
  5. Battery Component and Critical Mineral Requirements: Eligible clean vehicles must meet specific percentage requirements for the value of battery components and critical minerals, with increasing percentages in subsequent years.

The proposed guidance seeks to balance the promotion of U.S. manufacturing and the security of supply chains while considering practical challenges in tracing critical minerals. Public comments will be considered before issuing final rules.