Why Biden’s EV Tax Credit Could Become Hard to Claim (WSJ, 12-13)
China-related restrictions on the subsidy are likely to kick in before automakers figure out how to replace China-produced graphite
GM CEO Mary Barra and President Biden with a Silverado EV at the Detroit auto show in September 2022. PHOTO: KEVIN LAMARQUE/REUTERS
The Biden administration hopes to use generous tax credits to boost electric-vehicle sales and push automakers away from Chinese suppliers. A key material in EV batteries shows why it is proving hard to do both at once.
A 2022 law that President Biden championed revamped a $7,500 tax credit for consumers who buy electric vehicles. Among the new rules, the law stipulated that the credits can’t go toward buying any EVs containing battery parts from a “foreign entity of concern,” which includes China.
Graphite is the largest component of EV batteries, making up roughly one-quarter of a battery’s weight. While graphite is plentiful around the world, China produces about 97% of the rarefied form used in rechargeable batteries, according to Benchmark Mineral Intelligence.
Automakers have been scrambling to retool their EV supply chains since Congress passed the tax-credit changes, and Biden administration officials say they have had some success in prodding the U.S. auto industry to shed its reliance on China.
They acknowledge that the China-related restrictions on the subsidy, which the administration formally proposed this month, will kick in before many automakers find new sources. As a result, consumers might have a hard time claiming the tax credit in the years ahead.
China has said it will tighten restrictions on exports of graphite, including the highly refined material used in batteries. PHOTO: XIE JIANFEI/XINHUA/ZUMA PRESS
Employees on the production line of an EV battery manufacturer in eastern China. PHOTO: ALY SONG/REUTERS
“I would want to know how any automaker, based on the supply chain they’re working with today, meets these standards in 2025,” said Jay Turner, a professor of environmental studies at Wellesley College who wrote a book about batteries.
Starting in 2025, no EVs with critical minerals sourced in China, Russia, North Korea or Iran will qualify for the $7,500 tax credit. A similar requirement for battery components manufactured in those countries kicks in next year.
The number of EVs for which car buyers can claim the tax credit has already been whittled down by other requirements in the 2022 Inflation Reduction Act, including a provision that eligible vehicles must be assembled in the U.S.
Tesla has said some of its EVs won’t be eligible for the full $7,500 tax credit next year, when the “foreign entity of concern” rule begins for battery components. A Ford Motor spokesman said its Mustang Mach-E EV is unlikely to qualify for the tax credit beginning Jan. 1. A General Motors spokeswoman said it is “well positioned to maintain the consumer purchase incentive for many of our EVs in 2024 and beyond.”
Battery experts said it is unlikely that U.S. and European automakers can find enough processed graphite supply outside China to keep the list of eligible EVs from narrowing again in 2025. For some automakers, it is possible none of their models will qualify for the tax credit.
Democrats created the “foreign entity of concern” rule out of worries that China could weaponize its dominance over clean-energy technology against the U.S. In October, Beijing said it would tighten restrictions on exports of graphite, including the highly refined material used in batteries, citing national-security concerns.
At the same time, the Biden administration has said it wants half of new-vehicle sales in the U.S. to be electric by 2030, up from about 8% today. Tax credits are supposed to help bring down the price of EVs to make them more competitive with gasoline-powered cars and attract more buyers.
While rules released Dec. 1 by the administration leave room for U.S. companies to work with Chinese partners outside China, restrictions on minerals from China will pose a challenge to the administration’s goals over the next few years.
Ford said its Mustang Mach-E EV is unlikely to qualify for the tax credit beginning Jan. 1. PHOTO: KEITH SRAKOCIC/ASSOCIATED PRESS
China produces 93% of the world’s battery-grade manganese, a key component of most lithium-ion batteries, 65% of refined lithium and 76% of refined cobalt, according to Benchmark. Overall, China is responsible for more than 80% of the production of battery cells, the building blocks of EV batteries.
Graphite, a crystalline form of carbon, is the primary material in the anode side of most lithium-ion batteries, which can contain roughly five to 10 times as much graphite as other key materials such as lithium.
In recent months, White House officials have held calls with graphite executives and other battery-industry representatives to discuss the challenges posed by China’s dominance.
“The White House is trying to figure out, is this a big deal?” said Jon Jacobs, chief commercial officer at Westwater Resources, which is building a graphite-processing plant in Alabama. He said he participated in the calls.
Jacobs said administration officials “were thinking, if we chuck money at this problem, graphite will be available tomorrow.” The problem, he said, is that it takes years to build a processing plant. New mines can take 10 or more years to develop. A steep decline in battery-mineral prices this year has caused mining companies to suspend or delay new projects and expansions.
A Biden administration official said the EV tax credit, paired with other subsidies encouraging manufacturing in the U.S., will eventually succeed in building up U.S. battery capacity. The official acknowledged that it could take several years and that the EV tax credit could be difficult to claim over the next couple of years.
“We recognize and acknowledge that it’s not going to be easy to make this transition,” the official said. “We think there is reason for optimism.”
EV makers have been scrambling to secure graphite supplies outside China. Syrah Resources, an Australian mining company that mines graphite in Mozambique, has an agreement to supply material to Tesla.
There are few cheap substitutes for graphite in a battery’s anode. Some companies, such as California’s Sila, are developing anodes that use silicon as the main material, which they say is more efficient than graphite. Battery experts say that the technology for using graphite is more established and that it will remain the primary anode material for years to come.
Sila announced Monday that it has an agreement to supply its silicon anodes produced in Washington state to Panasonic Energy, which supplies batteries to Tesla. Sila also has an agreement to supply its anodes to Mercedes-Benz. Production on the anodes will start in 2025, Sila said.
Sila hopes to be a big winner in the administration’s push for more domestic supplies of battery minerals and production in the U.S. Moving battery supplies outside China “is the intent of the law,” said Gene Berdichevsky, Sila’s chief executive, referring to the Inflation Reduction Act. “If you don’t create the incentive, you will not get the response.”
Tesla, maker of the Cybertruck pickup, has said some of its EVs won’t be eligible for the full $7,500 tax credit next year. PHOTO: RICHARD VOGEL/ASSOCIATED PRESS
Mike Colias contributed to this article.