BEIJING, December 5 (TMTPost)— The U.S. government is going to impose new limits on electic vechile (EV) tax credits, which is deemed as a new curb targeting Chinese firms.

Credit：Visual China

The U.S. Department of Energy (DOE) proposed interpretive rule and request for public comment on its interpretation of the statutory definition of “foreign entity of concern” (FEOC) in the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law (BIL). The new rule is designed to limit the participation of FEOCs within domestic battery supply chains, particularly within government-supported programs, and bolster the growth of domestic and friend-shored battery materials processing and manufacturing. FEOC refers to companies based in China and other countries, or with at least 25% voting interest, board membership or ownership by a government of these countries. The FEOC rules will come into effect in 2024. And the U.S. Treasury Department could not treat a clean vehicle containing any critical minerals that were extracted, processed, or recycled by a FEOC qualified for EV purchase incentive beginning in 2025.

The Inflation Reduction Act (IRA) introduced in August 2022 provides up to $7,500 in tax incentives for purchase of EVs, but imposes new conditions on these credits. The law requires 50% of the value of battery components to be produced or assembled in North America to qualify for a $3,750 credit, and 40% of the value of critical minerals to be sourced from the United States or a free trade partner also for a $3,750 credit. 

The new rules could pose risks about the U.S. government’s efforts to develop EV industry.Two thirds of global battery cell production is in China, while the United States accounts for just 10%, according to the International Energy Agency (IEA). China also leads the global processing of minerals needed for EV batteries. China announced in October that it will add three types of highly-sensitive graphite products that have both commercial and military applications to a list of export control from December 1, 2023, targeting the key material used in the batteries for EVs.

The EV limits on Chinese firms came as Beijing urged the Biden administration to stop the confrontation attempt after the U.S. Commerce Secretary called China “the biggest threat we’ve ever had” and stressed “China is not our friend.” Remarks of the US official contradict what President Biden once noted that the US is not seeking to halt China’s economic development or scientific and technological progress, so it will hardly win the trust from China and the rest of the world, Chinese Foreign Ministry spokesperson Wang Wenbin commented earlier this week.Wang said such contradiction reveals the deep-seated Cold-War mentality and hegemonic mindset of some in the US. China never bets against the U.S., and has no intention to challenge or unseat it. The United States needs to have a right understanding of China, work with China to earnestly deliver on the important common understandings reached between the two Presidents in their meeting in San Francisco, stop viewing China as an enemy, correct the wrong move of carrying out major-country confrontation under the pretext of competition, and avoid saying one thing and doing another,Wang stated.

The European Union (EU) officially launched an investigation into EVs from China at the beginning of October, about three weeks after European Commission President Ursula von der Leyen announced EU’s executive body is going to take the action. Global markets “are now flooded with cheaper Chinese electric cars”, and their price is “kept artificially low by huge state subsidies”, which is distorting European market, von der Leyen said in her state of the union stress to the European parliament on September 13. Head of the executive arm said Europe is open for competition, not for a race to the bottom.

The European Commission will decide whether to impose tariffs more than the current 10% standard rate for cars within 13 months once the investigatioin started. The possible tariff will affect not just Chinese automakers but also foreign brands that produce vehicles there such as Tesla, Renault and BMW. The move may result in tariffs close to the 27.5% level already imposed by the U.S. on Chinese EVs, Bloomberg cited people familiar with the matter following  von der Leyen’s announcement about the EV probe plan.

China felt very dissatisfied with EU’s investigation as it is based on subjective assumption, lacks adequate evidence, and doesn’t adhere to World Trade Organization rules, a spokesperson of the Ministry of Commerce commented right after EU’s opening investigation. In the high-level dialogue with EU representatives late September, China has called the subsidy probe “naked protectionist behavior” under the cover of “fair trade”, and cautioned such attempt will severely disrupt and distort the global automotive industrial and supply chain, of which EU has a part, and impose negative impact on China and EU’s economic and trade relationship, the spokesperson said. The person said Beijing will keep a close eye on EU’s following investigative procedures and firmly protect rights and interests of Chinese firms.

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