Some of the biggest electric vehicle makers in the U.S. are warning the Biden administration that the complexity and cost of tracing battery materials — an impending requirement for securing lucrative federal tax credits — could end up making even more EVs ineligible for those incentives.
The Alliance for Automotive Innovation, which represents Ford, Honda, Toyota, Stellantis, General Motors and other companies, told the Treasury Department that the auto sector may not be able to create a system for tracking critical minerals like lithium, cobalt, graphite and nickel to a specific vehicle by 2025.
“The auto industry is in the process of building transparency of our supply chains, but this takes time, and it is unclear if this will be complete by 2025 for critical mineral tracing,” wrote Dan Bowerson, the alliance’s vice president of energy and environment.
The remarks highlight the myriad challenges the Biden administration is facing in its push to ensure the credits are widely available to juice demand for EVs and combat climate change, while also decoupling from China, which dominates the processing of key EV battery ingredients.
Automakers have repeatedly pushed for wider access to the credits. Yet the number of cars and trucks that qualify for the incentives fell from 43 in 2023 to 19 in 2024 as the requirements spelled out by the Inflation Reduction Act kicked in.
The alliance’s comments respond to a Treasury proposal unveiled late last year, which bars consumers who purchase EVs from receiving any of the IRA’s $7,500 tax credit if their suppliers have ties to “foreign entities of concern,” including China, Iran, North Korea and Russia. The restrictions apply this year to EV battery components and extend to minerals like graphite, lithium and nickel in 2025.
Treasury is also proposing a two-year grace period for automakers to trace other materials of lesser value — a category the agency hasn’t defined but said could include electrolyte salts, electrode binders and electrolyte additives. In addition, Treasury has said automakers won’t have to trace these specific minerals to compliant EV batteries until 2027.
But even with that flexibility, Bowerson warned the time frame for tracking low-value materials, which can end up commingled through different production processes, is too tight. He also underscored that the exercise will be expensive.
“It is unlikely that industry will have developed such standards or systems by 2027,” Bowerson wrote. “Tracing those materials is challenging and costly, and seemingly unnecessary.”
Environmental groups have a more positive view of the requirements and are pushing to connect any tracing system to stronger environmental and social standards governing how materials are mined and processed. They say that creating a system to track materials of lesser value, for example, is ambitious but achievable, and point out that Europe will require the same system by 2026.
“We want to adopt what the European Union has done for that reason, we want American competitiveness,” said Aaron Mintzes, senior policy counsel at Earthworks. “Otherwise, how would we be able to sell our cars and batteries in Europe?”
Mintzes signed onto comments that a large coalition of environmental groups sent to Treasury, including the Center for Biological Diversity, Earthjustice, Earthworks, the League of Conservation Voters, Public Citizen, the Sierra Club and the Union of Concerned Scientists.
In the letter, the groups said that until the tracing of EV battery metals is fully developed, voluntary standards that tap into multi-stakeholder governance with “independent, publicly available, third-party auditing” can help.
The groups called on Treasury to adopt the definition of “due diligence” and guidelines developed by the Organisation for Economic Co-operation and Development — which are required by the European Union’s battery law — as well as standards that the Initiative for Responsible Mining Assurance is developing.
“These tracing and due diligence options will facilitate the responsible use of American tax dollars, the protection of public interest, and regulatory certainty for companies,” they wrote.
The Global Battery Alliance, an international group that includes Tesla and Volkswagen, unveiled prototypes for a “battery passport” at the World Economic Forum’s annual meeting in Davos, Switzerland, earlier this month. The passports are meant to track data that shows a battery’s technical specifications and carbon footprint, as well as whether it was made from materials that meet certain human rights standards.
Graphite and ‘market realities’
Treasury’s proposal is also fueling debate about how quickly miners and critical mineral companies outside of China can ramp up production.
EV battery makers like SK On called on Treasury to exempt graphite from its proposed rules excluding materials from certain prohibited countries. SK On, the fifth largest EV battery manufacturer in the world, said it could take three to four years to develop and mass-produce new battery materials, chemistries and processes to replace Chinese graphite.
SK On said graphite should be exempt from the rules until 2027 for companies that can show they have plans to procure the material from non-Chinese suppliers. One of SK On’s subsidiaries, SK Battery America, is building two manufacturing facilities in Georgia and plans to build two EV battery gigafactories in Kentucky and Tennessee through a joint venture with Ford.
“‘Foreign entities of concern’ compliance for critical minerals is required as of January 1, 2025, but given these market realities, the proposed regulation will effectively block manufacturers from receiving the tax credit due to certain minerals such as graphite,” wrote David Hahm, who heads SK On’s North America public affairs.
Companies poised to ramp up production of EV battery materials and technologies pushed back at that idea.
The Battery Materials & Technology Coalition urged Treasury in a final rule not to exempt cobalt, graphite, lithium, manganese and nickel from having to meet the foreign entities of concern requirements. The coalition is made up of companies that mine, extract, process, manufacture and recycle battery materials, as well as those that develop battery technologies in North America.
“These five minerals are critical to the battery industry and have high-risk supply chains,” the coalition wrote. “They are also included in all critical minerals and materials lists by the administration, including those managed by the 3 Departments of Interior, Energy, and Defense.”
Even if the critical minerals are in low-value constituent materials like electrolyte salts, electrode binders and electrolyte additives, or battery components, the coalition said it wants assurances that the five minerals would “not be included in the list of ‘non-traceable’ materials.”
“These important minerals should be held fully accountable to the [foreign entities of concern] rules throughout the full life of the credit,” the coalition wrote.