Senator asks Treasury to bar Chinese battery firms, minerals from US EV tax credits

Illustration shows Car miniature, "Electric vechicles (EVs)" words, U.S. and Chinese flags

By David Shepardson

WASHINGTON (Reuters) - Democratic Senator Joe Manchin urged the U.S. Treasury on Monday to adopt the "strictest possible standards" to prevent Chinese-produced minerals or Chinese battery companies from winning electric vehicle tax credits.

Manchin, who chairs the Senate Energy Committee, raised concerns in a letter to Treasury Secretary Janet Yellen about reports Chinese battery companies are actively pursuing business opportunities to take advantage of the credits, adding U.S. tax credits "cannot be allowed to be hijacked by adversaries engaging in mineral laundering."

In 2022, Congress passed the Inflation Reduction Act barring $7,500 in future consumer EV tax credits if any battery components are manufactured or assembled by a "foreign entity of concern."

The rules were aimed at weaning U.S. battery supply chains away from China, which Manchin noted is currently responsible for 74% of the world’s cathode production, 92% of anode production, and 76% of lithium-ion battery cell production.

The auto industry is awaiting detailed guidance from the Treasury on what is considered a "foreign entity of concern" as they make investment decisions on producing batteries for their transition to electric vehicles.

The foreign entity of concern rules come into effect in 2024 for completed batteries and 2025 for critical minerals used to produce them.

A Treasury spokesperson said as the clean energy market shifts "we will continue to assess and respond to any national security concerns associated with both international and domestic supply chains."

The Chinese embassy in Washington did not immediately comment.

Manchin said the law does not allow for a "value added test" exception and it "would be unconscionable to reward bad actors through a loose or deliberately weak interpretation."

A key decision in the guidance is whether Ford Motor deal to license the technology of Chinese battery manufacturer CATL for use in Ford-owned U.S. battery plants will meet the Treasury's standards to access the tax credits. The arrangement has raised concerns among U.S. lawmakers.

Ford put its planned $3.5 billion Michigan battery plant on hold in September and said it was awaiting "final language" from the Treasury on whether batteries made using Chinese technology will qualify for tax credits.

Manchin said Yellen should "use the strictest metrics possible to ensure there are no loopholes that will lead to the laundering of minerals and materials from China or other nations of concern."

(Reporting by David Shepardson; Editing by Chris Reese and Jonathan Oatis)