Biden's 'EV Revolution' Faces Delays as Utilities and Carmakers Await Key IRS Guidance on Inflation Reduction Act

The 2022 Inflation Reduction Act (IRA) holds the potential to accelerate the adoption of electric vehicles in the United States, yet its realization depends on forthcoming guidance from the Internal Revenue Service (IRS). Stakeholders, including utilities, automakers, and policy analysts, caution that the law's labor, equity, and domestic content provisions must not overcomplicate the purchasing process for consumers or impose burdensome sourcing changes on manufacturers.

A January report from Energy Innovation projected that the IRA's expanded tax credits and funding could move EVs "into the fast lane" by fostering a domestic supply chain and charging infrastructure network. Atlas Public Policy found in September 2022 that the IRA, together with the Infrastructure Investment and Jobs Act, provides "nearly 30 times" the total EV funding of all previous federal programs combined.

However, current rules governing tax credit eligibility contain complexities that could "discourage consumers and EV industry investments," according to Nick Nigro, founder of Atlas Public Policy. He added that "eligibility will be more complicated when it includes requirements for battery component and critical battery material sourcing."

The Treasury Department's IRS has received more than 880 stakeholder filings requesting guidance on implementing various IRA provisions, including comments from Ford, Dow, and Samsung. These filings underscore the urgent need for clarity.

Katherine Stainken, vice president of policy at the Electrification Coalition, emphasized that IRS guidance can create "a new future for U.S. transportation" if it "balances the needs of drivers, the EV industries, and the intent of the law." She acknowledged the complexity but noted that "months of delay will mean little against decades of transformation."

Policy analysts agree that Treasury must fulfill the law's intent to revitalize the U.S. auto industry. This requires developing rules that allow carmakers to verify battery component and critical mineral sourcing in ways that remain simple for car buyers—a challenging conundrum, as stakeholders concur.

The Good News

The IRA's central EV provision is $12.5 billion to extend and expand the federal tax credit of up to $7,500 for new EV buyers, according to the Environmental and Energy Study Institute. However, the new domestic sourcing and labor requirements are far more complex than existing vehicle assembly obligations.

The credit is limited to buyers with annual incomes up to $300,000 for joint filers, $225,000 for heads of household, and $150,000 for individuals, per the IRS. It applies to new cars priced at $55,000 or less and new trucks, vans, or SUVs at $80,000 or less.

For used EVs, the credit covers up to 30% of the cost, with a maximum of $4,000 for qualified vehicles at least two years old and priced up to $25,000, subject to income limits. The IRA also retains the $1,000 residential charger credit and provides $10.4 billion to raise the commercial charger credit from 30% of cost (capped at $30,000) to a maximum of $100,000 per charging station, according to the Department of Energy. However, the enhanced credit is restricted to chargers in non-urban or low-income areas.

IRA grants and loans will fund state and local electrification projects, as well as domestic battery and critical minerals manufacturing and recycling, per the White House IRA guidebook. A "direct pay" option allows entities with limited tax liability or tax-exempt organizations to receive upfront cash instead of tax deductions.

Energy Innovation estimates that IRA tax credits could reduce light-duty EV costs by up to $9,050 per vehicle and boost sales by as much as 67% by 2032, depending on Treasury guidance. The credits would also enable more stringent federal vehicle standards at lower cost and higher consumer benefit.

The IRA and Treasury's Preliminary Plans

The IRA mandates that battery components and critical minerals be sourced domestically or from Free Trade Agreement partners, and not from "foreign entities of concern," as stated in the White House guidebook. Yet, only Treasury guidance—expected by the end of March—will definitively clarify how sourcing is measured and applied to tax credits, according to Genevieve Cullen, president of the Electric Drive Transportation Association (EDTA), and others.

A December 2022 Treasury white paper offered preliminary interpretations that "seem like a logical approach," said Stainken. Many stakeholders largely agreed.

Treasury's plan would allow new vehicle tax credits of up to $3,750 for meeting battery component requirements and up to $3,750 for critical minerals, explained Cullen. For 2023, 50% of battery component value must be domestically sourced, rising to 60% for 2024-2025, with 10% annual increases to 100% after 2028. For critical minerals, vehicles placed in service in 2023 must have 40% domestic content (extracted, processed, or recycled in the U.S., FTA countries, or North America), increasing 10% annually to 70% in 2026 and 80% thereafter.

The white paper stressed that defining "extraction, processing, and recycling" and "where those activities occur" in multi-step supply chains is vital for compliance certification. A three-step "transition rule" through 2024 would give manufacturers time to develop necessary capabilities.

First, battery makers would identify critical mineral procurement chains, then determine if extraction, processing, or recycling qualifies as domestic, and finally calculate the value share of those minerals in each battery. However, unresolved complexities remain, such as how "constituent materials" containing critical minerals affect total battery component valuations.

Stainken acknowledged that implementation will be complicated but is "critical to meeting the intent of the law to transform transportation." She noted Treasury "seems to be working methodically on clarifications," but cautioned that a final rulemaking may follow in six months, potentially reshaping compliance.

Meanwhile, Treasury is reviewing over 880 filings, many with opposing views on key questions.

Three Key Questions

The U.S. EV ecosystem awaits answers on simplifying tax credit eligibility for buyers, the maximum credit for charging infrastructure, and how to align IRA rules with global supply chain complexities.

Will Buyers Understand?

Currently, a vehicle's tax credit eligibility can be checked by entering the VIN into the DOE decoder, as reported by Plug-In America. However, significant questions remain about verifying domestic content, buyer income, and carmaker prices under IRA rules.

"The simpler for consumers, the better," said Atlas's Nigro, because lack of clarity "can create market turmoil" and a complex process could deter EV purchases. A November GfK AutoMobility survey confirmed this: 93% of interested buyers said the credit is important, and 70% of those viewing it as "very important" would change plans if their first-choice vehicle were ineligible, with 15% not buying an EV at all.

Nigro warned that a difficult process "could be the difference between accessibility to thousands of dollars of tax credits for a car buyer and billions of dollars in EV industry investments."

What Is a Charging Station?

To meet the federal goal of 50% zero-emission new vehicle sales by 2030, the U.S. may need nearly 20 times more chargers than currently installed, per an April 2022 McKinsey analysis. Utilities like Consolidated Edison and Arizona Public Service are awaiting Treasury guidance before finalizing deployment plans.

Treasury may confirm that investor-owned utilities can "use the credit for electrical equipment or electric service upgrades" and "install and own" EV chargers, said Kellen Schefter, senior director of electric transportation at the Edison Electric Institute. The IRA allows tax credits for each installed "single item" for charging, and the increased $100,000 credit "will support the more expensive faster charging" needed at high-demand sites, said James Ellis, director of energy and utilities at EV Connect.

However, eligibility depends on yet-to-be-finalized wage and apprenticeship requirements and definitions of low-income locations. The meaning of "single item" must be clarified: a station with two ports might qualify for $100,000 or $200,000, affecting credit amounts. EDTA and NRDC filings also raised these questions, stressing the need to avoid outdated technology and enable solar-powered and bidirectional chargers.

Guidance is essential for private builders, utilities, and tax-exempt entities like rural cooperatives that can use the "direct pay option" to build and own infrastructure, Ellis added.

What Is Domestic?

Christopher A. Smith, Ford's chief government affairs officer, wrote in an IRS filing that the U.S. "is at an inflection point," and guidance can ensure "the EV revolution is Built for America." Most stakeholders agree. The IRA can help "shift overall U.S. policy toward building an EV industry that does not repeat the wrongs of the fossil fuel-powered vehicle industry or the human and environmental abuses of some battery supply chain providers," said Nigro.

Yet, that may be difficult until carmakers "realign their supply chains and record keeping" with new domestic content rules, acknowledged RMI in its Treasury filing. Resources for the Future noted that only a small percentage of critical minerals come from the U.S. or FTA countries, and most battery manufacturing occurs outside North America.

NRDC wrote that "the global supply chain for vehicles, components, batteries, and the minerals of which those batteries are made is an extremely complex web that no one can accurately depict at this time." RMI suggested that inclusive definitions and better supply chain tracing can improve transparency and enable implementation.

Both the International Material Data System and the Global Battery Alliance Battery Passport offer digital platforms for tracking sourcing, RMI added. However, guidance is still needed on the meaning of "foreign entities of concern," as raised in filings from BYD Auto and the Coalition for American Battery Independence. BYD argued that U.S.-based subsidiaries should not be excluded without evidence of government control.

Nigro concluded that the IRA "was written to build a domestic and sustainable supply chain for the EV transition," but Treasury guidance is needed. "And when it comes, the companies ready to comply with it will be first movers and will get a big boost in the race to the top."