The Inflation Reduction Act, which the Senate passed last week, revamps the electric vehicle Federal tax credit of $7,500 (earlier post). Among the changes are an extension of the tax credit through 2032, the removal of the unit-sales cap of 200,000 per OEM, and a new mandate for qualified cars being assembled in North America.

Further, the bill as currently written mandates escalating levels of critical minerals to be sourced from the US or a country with a free-trade agreement with the US.

Specifically, the bill requires (Part 4, Sec. 13401. subsection (e)(1)(A)) that the “percentage of the value” of the applicable battery critical minerals (as defined later in the bill) extracted or processed in the US or a US free-trade partner or recycled in North America, be:

• 40% for a vehicle placed in service before 1 January 2024;

• 50% for a vehicle placed in the service during calendar year 2024;

• 60% for a vehicle placed in service during calendar year 2025;

• 70% for a vehicle placed in service during calendar year 2026; and

• 80% for a vehicle placed in service after 31 December 2026.

The bill places similar restrictions on the percentage of value of the components, but leading up to a 100% requirement for vehicles placed in service after 31 December 2028.

The bill then goes on to exclude specifically any vehicle placed in service after 31 December 2024, with respect to which any of the applicable critical minerals contained in the battery of the vehicle (as described in sub-section (e)(1)(A)) were extracted, processed, or recycled by a “foreign entity of concern”.

The bill then defines a long list of applicable critical minerals:

• Aluminum converted from bauxite to a minimum purity of 99% alumina by mass, or purified to a minimum purity of 99.9 percent aluminum by mass.

• Antimony converted to antimony trisulfide concentrate with a minimum purity of 90% antimony trisulfide by mass, or purified to a minimum purity of 99.65% antimony by mass.

• Barite which is barium sulfate purified to a minimum purity of 80% barite by mass.

• Beryllium which is converted to copper-beryllium master alloy, or purified to a minimum purity of 99% beryllium by mass.

• Cerium which is converted to cerium oxide which is purified to a minimum purity of 99.9% cerium oxide by mass, or purified to a minimum purity of 99% cerium by mass.

• Cesium which is converted to cesium formate or cesium carbonate, or purified to a minimum purity of 99% cesium by mass.

• Chromium which is converted to ferrochromium consisting of not less than 60% chromium by mass, or purified to a minimum purity of 99% chromium by mass.

• Cobalt which is converted to cobalt sulfate, or purified to a minimum purity of 99.6% cobalt by mass.

• Dysprosium which is converted to not less than 99%t pure dysprosium iron alloy by mass, or purified to a minimum purity of 99% dysprosium by mass.

• Europium which is converted to europium oxide which is purified to a minimum purity of 99.9% europium oxide by mass, or purified to a minimum purity of 99% by mass.

• Fluorspar which is converted to fluorspar which is purified to a minimum purity of 97% calcium fluoride by mass, or purified to a minimum purity of 99% fluorspar by mass.

• Gadolinium which is converted to gadolinium oxide which is purified to a minimum purity of 99.9% gadolinium oxide by mass, or purified to a minimum purity of 99% gadolinium by mass.

• Germanium which converted to germanium tetra-chloride, or purified to a minimum purity of 99.99% germanium by mass.

• Graphite which is purified to a minimum purity of 99.9% graphitic carbon by mass.

• Indium which is converted to indium tin oxide, or indium oxide which is purified to a minimum purity of 99.9% indium oxide by mass, or purified to a minimum purity of 99% indium by mass.

• Lithium which is converted to lithium carbonate or lithium hydroxide, or purified to a minimum purity of 99.9% lithium by mass.

• Manganese which is converted to manganese sulphate, or purified to a minimum purity of 99.7% manganese by mass.

• Neodymium which is converted to neodymium-praseodymium oxide which is purified to a minimum purity of 99% neodymium-praseodymium oxide by mass, converted to neodymium oxide which is purified to a minimum purity of 99.5% neodymium oxide by mass, or purified to a minimum purity of 99.9% neodymium by mass.

• Nickel which is converted to nickel sulphate, or purified to a minimum purity of 99% nickel by mass.

• Niobium which is converted to ferronibium, or purified to a minimum purity of 99% niobium by mass.

• Tellurium which is converted to cadmium telluride, or purified to a minimum purity of 99% tellurium by mass.

• Tin which is purified to low alpha emitting tin which has a purity of greater than 99.99% by mass, and possesses an alpha emission rate of not greater than 0.01 counts per hour per centimeter square.

• Tungsten which is converted to ammonium paratungstate or ferrotungsten.

• Vanadium which is converted to ferrovanadium or vanadium pentoxide.

• Yttrium which is converted to yttrium oxide which is purified to a minimum purity of 99.999% yttrium oxide by mass, or purified to a minimum purity of 99.9% yttrium by mass.

• Any of the following other minerals, provided that such mineral is purified to a minimum purity of 99% by mass: Arsenic; Bismuth; Erbium; Gallium; Hafnium; Holmium; Iridium; Lanthanum; Lutetium; Magnesium; Palladium; Platinum; Praseodymium; Rhodium; Rubidium; Ruthenium; Samarium; Scandium; Tantalum; Terbium; Thulium; Titanium; Ytterbium; Zinc; and Zirconium.

Commenting on the passage of the bill through the Senate, John Bozzella, president and CEO of the trade association Alliance for Automotive Innovation, said:

Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive. That’s a missed opportunity at a crucial time and a change that will surprise and disappoint customers in the market for a new vehicle. It will also jeopardize our collective target of 40-50 percent electric vehicle sales by 2030.

In an earlier comment, Bozzella noted that:

There are 72 EV models currently available for purchase in the United States including battery, plug-in hybrid and fuel cell electric vehicles. Seventy percent of those EVs would immediately become ineligible when the bill passes and none would qualify for the full credit when additional sourcing requirements go into effect. Zero.

Auto Innovators comprises the manufacturers producing nearly 98% of new cars and light trucks sold in the US as well as original equipment suppliers, technology and other automotive-related companies, and trade associations.