Climate Bill’s ‘Buy American’ Provision Could Hurt U.S. EV Automakers

According to Democratic Senator Debbie Stabenow, the Senate’s tax and spending agreement should eliminate crucial tax credit restrictions for electric vehicles (EVs). If eliminated, that could help China, which dominates the EV materials market.

To save money and keep supply chains out of Chinese hands, Democratic Sen. Joe Manchin insisted that EVs’ $7,500 tax credits be tied to whether components are sourced from the U.S. or its allies. To encourage EV purchases, Senator Stabenow and car manufacturers want the full credit offer with no “Buy American” strings attached, which could lead to consumers buying electric cars heavily sourced from China, Bloomberg reported.

As a fervent supporter of U.S. car manufacturing, Stabenow said that the reforms would require “several years” to be implemented. Stabenow said that if enacted as is, no auto company will be able to offer consumers that credit.

Suppose at least 40% of the key minerals used in a car’s battery are extracted and processed in a country with a free trade agreement with the United States or recycled in North America. In that case, half the $7,500 credit per vehicle will apply, as stated in the bill. By 2027, the percentage requirement would be 80%.

The other half of the incentive depends on whether at least half of a battery’s components are manufactured or assembled in North America, which is expected to reach 100% by 2029. According to Mark Mills, energy and tech expert at the Manhattan Institute, nearly all those minerals come from China, Russia, and other countries.

A 2021 IEA report stated that China produced 60% of the world’s cobalt and rare earth materials in 2019. It is even more apparent that China dominates processing, where its share of nickel refining is around 35%, lithium and cobalt 50% to 70%, and rare earth elements nearly 90%.

Automakers Ford and General Motors (GM) and Rivian, an electric vehicle startup, are working to alter parameters aimed at domestically sourcing minerals and materials. They believe the proposal’s measures are too harsh and don’t give them enough time to switch to domestic sourcing.

As a group representing major automakers, the Alliance for Automotive Innovators expressed support for Senator Manchin’s effort to reduce mineral dependence on foreign nations by growing the EV supply chain in America. In addition, this bill (as currently drafted) will likely prevent many consumers from taking advantage of it.

Nevertheless, even if it survives negotiations to pass the bill, a future Congress may repeal it. Moreover, it is unlikely to stimulate multi-billion-dollar investments in U.S. mining and refining for the crucial battery chemicals, said Mills.

Adding yet another complication for Senate Democrats is Stabenow’s attempt to change the bill’s language. In the coming days, her colleagues hope to agree on a $433 billion package that must be backed by all 50 members.

As part of the Biden administration’s broad climate agenda, the Democrats’ bill includes $7.5 billion in “clean vehicle” tax credits to reduce greenhouse gas emissions.