Update: What the new Treasury rules mean for EV supply chains

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Dec 7, 2023

The podcast discusses the new Treasury rules that restrict battery parts and materials for EV tax credits. They highlight the dominance of Chinese companies in the battery industry, loopholes in the law, and the challenges in avoiding Chinese-controlled entities. The complexity of the tax credits, recent announcements of cathode production plants, and the controversy surrounding the Treasury rules are also explored.

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Introduction

00:00 • 2min

Update on Foreign Entities of Concern and Battery Sourcing for Electric Vehicle Tax Credits

02:20 • 4min

Implications of the New Treasury Rules on EV Supply Chains

06:20 • 3min

The Challenge of China's Dominance in EV Supply Chains

09:12 • 2min

Complexity of Tax Credits for EV Supply Chains

11:24 • 9min

Recent Announcements of Cathode Production Plants and Battery Factories

20:44 • 22min

Controversy and Uncertainty Surrounding Treasury Rules for EV Supply Chains

42:22 • 5min

The U.S. Treasury proposed guidance last Friday that would significantly restrict what battery parts and materials can qualify for incentives in the Inflation Reduction Act. The rules label China and several other countries as “foreign entities of concern.” These rules will prevent materials and parts sourced from those countries, starting in the next few years, from counting toward the IRA’s electric vehicle tax credits.

The new rules are meant to push battery companies to develop supply chains outside the control of Chinese officials and companies, which control much of the world’s battery industry. They come following a first batch of guidance released this year by the Treasury, which the IRA tasked with developing specific rules for implementing the law.

So what does the new guidance mean for battery supply chains?

This episode features two conversations with Sam Jaffe, senior director of business development at Addionics. The first is a short update on last week’s proposed rules. The second is a longer conversation Shayle had with Sam in April about the first batch of rules, which focused on which battery ingredients count as “constituent materials” under the IRA. Both discussions are relevant to understanding what’s happening now.

In this update they cover topics like:

Defining what counts as a material controlled by a foreign entity of concern, such as percentage ownership in a joint venture
Key loopholes in law, such as licensing arrangements and small percentages of low-value materials, like cathode binder and electrolyte salts
The parts of the supply chain most significantly affected by the rule, such as Chinese graphite, Indonesian nickel, and Congolese cobalt
Upcoming deadlines in 2025 and 2026, and whether onshored or friend-shored facilities can begin supplying materials before then

Recommended Resources:

Canary: The US EV industry now faces a choice: Tax credits or Chinese batteries
Heatmap: It’s Suddenly a Mystery Which EVs Will Qualify for a Tax Credit in 2024

Sign up for Latitude Media’s Frontier Forum on January 31, featuring Crux CEO Alfred Johnson, who will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.

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