Key IRA Implementation Guidelines Pending, US Electric Vehicle Revolution Faces Delays

The labor, equity, and domestic content rules in the U.S. Inflation Reduction Act (IRA), if overly complex, could deter electric vehicle buyers or force automakers to undertake cumbersome supply chain adjustments—a concern expressed jointly by multiple industry organizations and stakeholders.

The 2022 Inflation Reduction Act expanded tax credits and injected funding, theoretically capable of putting electric vehicles on the "fast track" and accelerating the formation of a domestic U.S. supply chain and charging infrastructure network—according to a January 2023 report by Energy Innovation.

Research by Atlas Public Policy in September 2022 noted that electric vehicle-related federal funding provided by the IRA, together with the Infrastructure Investment and Jobs Act, amounts to "nearly 30 times" the total of all previous federal programs combined.

However, the complexity of current rules regarding tax credit eligibility could "undermine consumer confidence and investment in the electric vehicle industry," said Nick Nigro, founder of Atlas Public Policy. He added that once battery component and critical battery material procurement requirements are included, eligibility determination becomes "even more complex."

According to over 880 stakeholder comment documents received by the Internal Revenue Service (IRS) of the U.S. Treasury Department, there is widespread calls for clear implementation rules. Commenting organizations include Ford, Dow, and Samsung, among others.

Katherine Stainken, Vice President of Policy at the Electrification Coalition, believes that if IRS guidance can balance "driver needs, electric vehicle industry interests, and the intent of the law," it will bring a "new future" to U.S. transportation. She stated: "The rules are likely to be complex, but months of delay are trivial compared to decades of transformation."

Policy analysts point out that the Treasury Department must fulfill the law's intent to revitalize the U.S. auto industry, which requires automakers to identify and verify the complexity of battery component and critical mineral procurement in a way that is easy for car buyers to understand—a challenging problem, as stakeholders unanimously agree.

Positive side: unprecedented scale of funding and tax incentives

The core measure of the IRA supporting electric vehicles is providing $12.5 billion to extend and expand the federal electric vehicle tax credit of up to $7,500—according to data from the Environmental and Energy Study Institute (EESI). However, its domestic procurement and labor requirements will be far more complex than the current domestic vehicle assembly obligation, a point on which there is broad consensus.

Income limits for applicants of the new vehicle tax credit are: joint filers with annual income not exceeding $300,000, heads of household not exceeding $225,000, and single filers not exceeding $150,000—as stipulated by the IRS. Additionally, the new vehicle price must not exceed $55,000, and for trucks, vans, or SUVs, not exceed $80,000.

The used vehicle tax credit can cover 30% of the vehicle price, with a maximum credit of $4,000, applicable to qualified vehicles at least 2 years old and priced no more than $25,000, also subject to tiered income limits—as explained by the IRS.

The IRA retains the $1,000 residential charging station tax credit and increases the commercial charging station tax credit to 30% of costs, raising the maximum investment per site from $30,000 to $100,000—according to data from the U.S. Department of Energy (DOE). However, the new rules limit this credit to charging facilities in non-urban areas or low-income population areas.

IRA grants and loans will also fund state and local transportation electrification projects, as well as domestic battery, critical mineral manufacturing, and recycling—as explained in the White House IRA guidebook. Access to these funds expands the "direct pay" option, allowing entities with limited or no tax liability to receive support in the form of upfront cash rather than solely through tax deductions.

The Energy Innovation report projects that IRA tax credits could reduce the cost of light-duty electric vehicles by up to $9,050 per vehicle, with sales increases of up to 67% by 2032, depending on Treasury guidance. The organization also stated this would enable "stricter federal vehicle standards to be implemented at lower cost and deliver greater benefits to consumers."

IRA and the Treasury's initial proposal

The IRA requires that battery components and critical minerals be procured domestically or from free trade agreement partner countries, and must not come from "foreign entities of concern"—as stated in the White House IRA guidebook.

But only the guidance expected to be released by the Treasury Department at the end of March can ultimately clarify how these procurement requirements will be measured and applied to tax credits—according to Genevieve Cullen, President of the Electric Drive Transportation Association (EDTA), among others.

The Treasury Department's December 2022 white paper offered preliminary interpretations of the IRA's critical mineral and battery component requirements, which the Electrification Coalition's Stainken deemed "seemingly reasonable," with most stakeholders largely in agreement.

EDTA's Cullen explained that the Treasury's proposal allows for up to $3,750 for meeting battery component requirements and an additional up to $3,750 for meeting critical mineral requirements in the new vehicle tax credit.

The Treasury proposes that 50% of the total value of battery components be domestically sourced in 2023, rising to 60% from 2024 to 2025, then increasing by 10% annually thereafter, reaching 100% after 2028.

For critical minerals, vehicles placed in service in 2023 must have 40% domestic content (mined or processed in the U.S. or free trade agreement countries, or recycled in North America), increasing by 10% annually to 70% in 2026, and rising to 80% after 2026.

The Treasury white paper notes that clarifying the "mining, processing, and recycling" of critical minerals and their locations within multi-step supply chains is crucial for compliance certification. The white paper proposes addressing complexity through "transition rules" before 2024, providing manufacturers "time to develop necessary capabilities."

The specific process is: first, battery manufacturers need to identify the critical mineral procurement chain; second, determine whether the mining, processing, or recycling of minerals meets domestic standards; finally, calculate the proportion of these critical minerals in the total value of each battery—as proposed by the Treasury.

But stakeholders point out that other complexities remain unresolved. The Treasury acknowledges that "constituent materials" may "contain critical minerals used to produce battery components," creating uncertainty in the proposed assessment of total battery component value.

The Electrification Coalition's Stainken stated that implementation of the new rules could be complex, "but is crucial to the legal intent of achieving transportation transformation." She cautioned that the Treasury "appears to be methodically advancing clarification work," but "regardless of the next proposed guidance, the final formal rules will be issued about six months later and may further adjust compliance requirements."

Meanwhile, the Treasury is reviewing over 880 stakeholder comments, many of which hold opposing positions on key issues.

Three key questions

The U.S. electric vehicle ecosystem is awaiting answers to the following questions: how to make tax credit eligibility simple and understandable for car buyers; what is the maximum tax credit available for charging infrastructure; and how to reconcile the IRA with the complexity of global supply chains.

Can car buyers understand it?

Currently, car buyers can confirm tax credit eligibility by entering a vehicle identification number (VIN) into the DOE's interactive "decoder"—according to Plug-In America. However, the organization acknowledges that under IRA rules, how domestic content, buyer income, and automaker pricing are verified remains a significant issue.

Atlas's Nigro stated: "The simpler it is for consumers, the better," because a lack of clarity "could cause market turmoil," and "if consumers find the process difficult to understand and use, they may abandon purchasing electric vehicles."

Recent surveys confirm this concern. A November 2022 study by GfK AutoMobility showed that 93% of car buyers interested in electric vehicles said tax credits were "somewhat important" or "very important" to their purchase decisions. Among them, 70% who considered credits "very important" said they would change plans if their preferred model did not qualify, and 15% would not purchase an electric vehicle.

Nigro warned that an overly complex process "could mean the difference between car buyers receiving thousands of dollars in tax credits and the electric vehicle industry securing billions of dollars in investment."

What is a charging station?

To achieve the federal goal of zero-emission vehicles comprising 50% of annual new vehicle sales by 2030, the U.S. may need to increase existing charging station installations by nearly 20 times—according to an April 2022 analysis by McKinsey & Company.

Utility companies such as Consolidated Edison and Arizona Public Service stated that they are holding off on finalizing charging facility deployment plans until Treasury guidance is issued.

Kellen Schefter, Senior Director of Electric Transportation at the Edison Electric Institute (EEI), stated that the Treasury may confirm that investor-owned utilities can "apply credits to electrical equipment or power service upgrades" and can "install and own" electric vehicle charging stations and related infrastructure.

This construction is supported by tax credits available for each "single item" of charging facility installed as permitted by the IRA—as stated in the bill text. Raising the credit cap to $100,000 "will support the more expensive fast charging needed at high-demand sites (such as commercial fleet parking lots in low-income areas)," as well as charging facilities along "rural corridors connecting communities"—according to James Ellis, Director of Energy and Utilities at EV Connect.

But Ellis pointed out that charging station credit eligibility depends on wage and apprenticeship requirements that are not yet finalized, as well as low-income areas that are not yet fully defined. He emphasized that the meaning of "single item" must also be clarified.

Ellis explained that "single item" could refer to a charging station or a charging port; a dual-port station capable of charging two vehicles simultaneously could have an investment cap of $100,000 or $200,000, and a tax credit of $30,000 or $60,000. He said: "This is crucial as demand for greater charging capacity grows and more multi-port stations following the 'convenience store-gas station' model are built."

Ellis and other stakeholders also raised that "single item" could refer to utility system upgrades, equipment to meet new charging loads, or site modifications. EDTA and the Natural Resources Defense Council (NRDC) also raised the "single item" issue in their comments, arguing its importance lies in avoiding deployment of outdated technology and supporting the installation of solar-powered and bidirectional charging stations.

Ellis added that private charging station developers and utility companies, as well as tax-exempt entities such as rural electric cooperatives, publicly owned utilities, and non-profit organizations (now able to build and own charging infrastructure through the "direct pay option"), all need this guidance.

What is "domestic"?

Christopher A. Smith, Ford's Chief Government Affairs Officer, wrote in comments submitted to the IRS that the U.S. is "at an inflection point." Guidance could maintain its position as "a global economic and technological leader" and ensure "the electric vehicle revolution is built for America."

Most stakeholders agree with this view. Atlas's Nigro stated that the IRA helps "drive an overall U.S. policy shift toward building an electric vehicle industry, avoiding the mistakes of the fossil fuel vehicle industry or the human rights and environmental abuses of some battery supply chain suppliers."

But RMI acknowledged in comments to the Treasury that this goal may be difficult to achieve before automakers "readjust their supply chains and record-keeping" to meet new domestic content requirements. Comments from Resources for the Future added that the two major challenges are that "only a very small proportion of critical minerals" come from the U.S. or free trade agreement countries, and "most battery manufacturing" is located outside North America.

NRDC wrote: "The global supply chain of vehicles, components, batteries, and their minerals is an extremely complex network that no one can accurately depict at present."

RMI stated that inclusive definitions of mining, processing, manufacturing, recycling, and value, along with better supply chain tracking, can "enhance supply chain transparency" and improve "chain-of-custody reporting with end-to-end traceability, as well as cooperation across the entire supplier and recycler value chain," thereby enabling implementation under IRA complexity.

RMI added that the International Material Data System (IMDS) and the Global Battery Alliance Battery Passport database both provide digital platforms that can track sourcing origins and provide "clear information for dealers and consumers."

But comments from BYD's U.S. subsidiary (BYD Auto) and the Coalition for American Battery Independence both noted that clear guidance is still needed, especially regarding the meaning of "foreign entity of concern." BYD stated that U.S. subsidiaries established and operated under U.S. law, without "evidence of government control," should not be excluded from tax credit eligibility.

Atlas's Nigro concluded: "The IRA aims to establish a domestic sustainable supply chain for the electric vehicle transition, but Treasury guidance is essential." He added: "Once guidance is issued, those enterprises ready to comply will be first movers and gain a tremendous competitive advantage."