Automakers are worried about the federal government’s new subsidies for electric vehicles and want clarity now.
That’s the take-home news of comments auto companies sent to the IRS up until last Friday. They tried to show the many opportunities for automakers to run afoul of the rules and not be able to offer their customers a tax break.
The new rules should “take due account of the realities and complexities of the battery supply chain,” General Motors Co., America’s largest automaker, said in its comments.
Ford Motor Co., GM and Rivian Automotive Inc. responded to the new electric vehicle tax credit guidelines created by the Inflation Reduction Act, the climate and energy law that President Joe Biden signed into law in August.
The automakers said the government needs to draw clear lines through the many steps involved in making a battery and define how companies can avoid entanglement with China.
The law took the old formula — which a growing number of automakers didn’t qualify for — and replaced it with a complicated formula that rewards manufacturers for assembling batteries in North America and avoiding China in the supply chain for those batteries.
But the law’s explanations, like those related to battery processing, have automakers searching for specifics.
“Ford is asking the government to clarify the meaning of the term ‘processing,'” Ford wrote in comments it filed Thursday. “A clear definition will be fundamental to compliance.”
Interpretation is the job of the IRS, which has its hands full with the Inflation Reduction Act for creating a storm of clean energy tax credits. These include customer incentives for everything from solar panels to heat pumps to electric vehicles, as well as manufacturing credits that give battery manufacturers a discount on every kilowatt-hour of battery cells or packs they produce.
To make matters worse, the law has structured key provisions relating to China.
The inflation-mitigating law doesn’t name China, but it does steer the battery supply chain away from “worrying foreign companies” of which China is one. Battery materials must come from either domestic or recycled sources, or from countries with which the US has a free trade agreement. These rules begin in 2024 and 2025.
Another layer makes the task of the car manufacturers even more difficult. Battery assembly and supply chain regulations will come into effect over time. They start in 2023 – less than two months from now – with 40 percent for critical minerals and 50 percent for battery assembly. From these percentages, they increase by 10 percentage points per year.
So far, the federal government has never been asked to create detailed regulations for battery manufacture. But with tax stimulus — and with U.S. automakers and the Biden administration generally agreeing that half of new car sales should be electric by 2030 — there’s a new urgency.
Automakers are particularly concerned about the processing part of the supply chain, as there are many steps between raw rock mined from the ground and pure metals. Currently, China carries out most of this processing.
“Given the complex journey that critical minerals take from extraction to incorporation into an electric vehicle battery, it is not clear which leg(s) of the journey actually constitute ‘processing,'” wrote Ford.
Using lithium as an example, “ore is extracted, crushed, ground, filtered and shipped,” Ford said. From there, “the steps can be calcination, acid roasting, leaching, purification, filtration, magnesium and calcium removal, precipitation, digestion, ion exchange, crystallization, use of a centrifuge, drying and micronization.”
To get to lithium carbonate, the material suitable for batteries, “the steps can involve conversion, ion exchange, evaporative crystallization and drying,” Ford added.
Automakers also want to know exactly how far back in the supply chain they are responsible for sourcing correctly. GM said it won’t be easy.
“In many cases, minerals are purchased from a variety of geographic sources and then blended and processed at supplier facilities into a single end product,” GM wrote in its comments. “It’s impossible to track exactly which minerals go into which vehicle.”
Automakers have at times had different suggestions as to how to deal with these complexities. Most would limit their responsibility for complying with procurement rules.
Ford, for example, wants the rules in the supply chain to extend further to the Tier 1 suppliers that deliver the finished products to automakers. The rules should “exclude subcomponents or critical raw materials provided by Tier 2 suppliers (and beyond),” Ford wrote.
Rivian took a different route, asking for credit for looking outside of China for parts of the supply chain.
“If battery grade extraction or processing occurs in the United States or [a free-trade agreement] Country that should make a mineral…eligible,” Rivian said.
When asked when it would have its rules ready, the IRS did not respond in time for publication on E&E News.