Ford Wants U.S. Government To Be Lenient With EV Tax Credit Requirements

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Ford wants the U.S. to be a bit loose in determining whether EVs comply with new EV tax credit requirements. Read on for what’s going on here.

Some Background

Rare-earth minerals are a big deal. By mining rare-earth minerals, we are then able to obtain the rare-earth elements needed for renewable energy, mobile devices, and the Internet of Things. All of these items work together to automate many tasks that were previously done manually — making life more convenient in general. Additionally, green technology like this helps reduce pollution and address climate change. While neodymium is the most popular rare-earth element in the cleantech industry due to it’s electric motor and generator production, as well as 16 other elements being utilized by militaries, hospitals, etc., there are a number of life-and-death industries that use these minerals.

And these are important before you consider the other mineral materials that we need for batteries. Lithium, cobalt, and other materials are something the growing EV industry just can’t do without.

However, there is one major potential problem: China has been the biggest supplier of rare-earth elements and has threatened to withhold them from countries that don’t agree with its policies. Most recently, it has made this threats against the United States, but in the past, Japan was also a victim of these tactics.

“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” a state-run newspaper said in 2019. “Undoubtedly, the U.S. side wants to use the products made by China’s exported rare earths to counter and suppress China’s development. The Chinese people will never accept this!”

Although the feared shortage of rare-earth elements didn’t come to fruition in 2019, recent events have been worrying many that it could happen soon. The conflict over Taiwan has seen mounting tensions. The territory has been contested since 1949 when a civil war came to an end, but it is a source of high concern at the moment. Although it is currently governed by a democratic government, China seems interested in taking control. The recent issue has gotten so out of hand that President Biden was forced to answer questions about it during a town hall. According to Biden, if the mainland Chinese government tries to take over Taiwan by force, then the United States is committed to helping Taiwan — which could potentially lead to severe conflict or even war between China and America.

More recently, tensions have appeared to ratchet down, but Taiwan’s status is not the only point of pain in U.S.–China relations that might lead to Xi Jinping pulling the rare earths and battery minerals card. The South China Sea, Hong Kong protesters, and a variety of other disputes and issues could lend themselves well to threats or an actual cutoff of rare earths and cleantech materials.

The Inflation Reduction Act

So, it should be no surprise that the U.S. government has been taking action to reduce dependence on key cleantech minerals from China. As Zach Shahan, the head honcho here, points out in an excellent article, one of the primary problems is that “foreign entities of concern” can’t provide battery minerals for a car if the buyer wants to get a tax credit/rebate. The key legislative language can be found on page 390 of the act and states:

‘‘EXCLUDED ENTITIES.—For purposes of 2 this section, the term ‘new clean vehicle’ shall not include—

‘‘(A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in subsection (e)(1)(A)) were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or

‘‘(B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in subsection (e)(2)(A)) were manufactured or assembled by a foreign entity of concern (as so defined).’’

Though it would be ideal to fix this issue by simply buying American-made products, the market for these goods is not yet booming. China and Russia currently dominate in this area, with China having a stronger hold than Russia. Furthermore, it can take years to establish mining and processing sites for everything that goes into batteries.

While this will mean some short-term pain for the market, I’ve written a number of articles in the last few months about new mineral deals being struck. Canada, Australia, and other friendly countries are going to be increasing production for not only American cars, but for those going to Europe.

Ford Still Isn’t Happy About This

In a piece from earlier this month at Reuters, we learn that Ford still isn’t happy with the new law’s requirements.

“While Ford appreciates and supports the overall objective of the law to bolster the localization of battery production and critical mineral mining and processing in the U.S. and with our trading partners and allies, an overly expansive interpretation of this provision risks undermining that very same objective by making the clean vehicle credit largely unavailable,” the company said to both the federal government and to media.

Ford stated that it wants the Biden administration to guarantee that joint ventures related to critical mineral extraction, processing, or recycling will not cause vehicles to be automatically excluded. The company also said any U.S.-based organization should not trigger the foreign entity rules — regardless of who owns it. According to Ford, there needs to be a “de minimis standard” implemented for foreign entity reporting requirements. This is so that consumers don’t get disqualified from getting a tax credit because of small traces of critical minerals that unintentionally came from the wrong places.

Ford’s Both Right & Wrong Here

When it comes to things like trace amounts of mineral from the wrong countries, Ford is absolutely right. If a company has made a good faith effort to get the minerals from the right places, the vehicles should qualify for the tax credits. But, this doesn’t mean that an automaker should be allowed to keep skating on once a tainted supply comes to their attention.

When it comes to joint ventures, we need to be a lot more careful what holes we open up. If we allow companies to create complicated paper trails to pencil whip their way around requirements, we will remain dependent on minerals from suppliers that could be turned against us.

Featured image: Ford’s upcoming battery plant in Tennessee. Image provided by Ford.