- The White House has announced EVs with Chinese parts will be disqualified from a crucial tax break.
- It comes as the US aims to break China’s stranglehold over the global electric battery supply chain.
- Key US automakers like Tesla and Ford are still using Chinese technology in their electric cars.
China is well and truly winning the EV race — and now the White House has unveiled new rules to try and keep Chinese companies out of the US electric car market.
The US government announced plans on Friday to make it more difficult for US-made electric vehicles with Chinese parts to qualify for crucial tax breaks, as it seeks to challenge China’s EV dominance.
Under the Inflation Reduction Act (IRA), the climate bill passed by Congress last year, buyers of US-made EVs were eligible to receive a $7,500 per vehicle tax break.
The IRA blocked all foreign-made electric vehicles from receiving tax breaks in an attempt to try and protect the US EV market — and now, the White House has introduced new regulations to prevent US car companies from using materials and parts from China and Russia in their EVs.
From 2024, EVs with battery components manufactured by a “foreign entity of concern” will not be eligible for the $7,500 tax break, per the new rules.
A foreign entity of concern is defined as any company “owned by, controlled by, or subject to the jurisdiction or direction” of China, Russia, Iran, or North Korea.
From 2025, those rules will be even stricter, with eligible EVs not allowed to contain any critical materials extracted, processed, or recycled by foreign-controlled entities.
The new restrictions could be a headache for US auto manufacturers, which have traditionally relied on China for their battery technology.
Morgan Stanley estimated that 90% of the global EV battery supply chain runs through China, with the Asian superpower having cornered the market on crucial materials like cobalt, lithium, manganese, and nickel.
China’s electric car market has boomed and now accounts for 64% of global EV production. The American EV market, meanwhile, has stuttered in recent months, with legacy automakers slashing investment and cutting back targets.
The US is rushing to catch up with its rival, with the IRA setting aside $200 million to help build an end-to-end battery supply chain on US soil.
However, some companies are still reluctant to ditch Chinese know-how, with Ford facing fierce backlash after announcing plans to use technology from Chinese firm CATL in its new $3.5 billion Michigan battery plant in February.
Elon Musk’s Tesla also sources key components from China.
The New York Times reported that the electric carmaker said in submissions to the government that restrictions should apply only to major battery parts, not to smaller components and minerals mined in China.
