EV tax credit policies have been temporarily loosened to allow the use of Chinese graphite raising new questions about domestic sourcing, recycling, and long-term mineral security.

WASHINGTON, May 3 (Reuters) - The U.S. Treasury Department on Friday granted automakers additional flexibility on battery mineral requirements for electric vehicle tax credits, including some crucial trace minerals sourced from China, such as graphite.

The department stated that it would give automakers until 2027 to remove certain hard-to-trace minerals, such as graphite contained in anode materials and critical minerals contained in electrolyte salts, binders, and additives.

New rules took effect on Jan. 1 , restricting Chinese content in batteries eligible for EV tax credits of up to $7,500, which sharply cut the number of eligible vehicles. Automakers have since made adjustments to supply chains and have had their eligibility restored for many cars.

The Treasury has temporarily exempted graphite and other critical minerals from new strict rules barring materials from China and other countries deemed Foreign Entities of Concern (FEOCs), including North Korea, Russia, and Iran.

John Bozzella, who heads the Alliance for Automotive Innovation, a group representing major automakers, said the new Treasury rules “appear to recognize the realities of the global supply chain by providing some temporary flexibility in terms of where the critical minerals in EV batteries can be sourced.”

Senate Energy Committee Chair Joe Manchin harshly criticized the decision on Friday, saying the administration has made clear that it “will break the law in pursuit of its goal to flood the market with electric vehicles as quickly as possible.” He said the Treasury has “provided a long-term pathway for these (FEOC) countries to remain in our supply chains.”

The new rules, required under an August 2022 law, are designed to wean the U.S. EV battery chain away from China.

Abigail Hunter, executive director of SAFE’s Center for Critical Minerals Strategy, stated that the Treasury’s decision to create a two-year exemption for graphite sourcing should be temporary.

“We need a clear exit strategy, lest we continue our dependencies on adversaries and further undermine the competitiveness of U.S. and allied critical minerals projects,” Hunter said.

China currently accounts for 70% of the global output of graphite, which is used to make electric battery anodes, the negatively charged portion of the battery.

The FEOC rules took effect on January 1 for battery components and will do so in 2025 for critical minerals used in their production.

The Treasury stated in December that the materials being exempted each accounted for less than 2% of the value of battery-critical minerals.

Manufacturers may temporarily exclude certain impracticable-to-trace battery materials from FEOC compliance until 2027 as long as they demonstrate how they plan to comply by then, Treasury said.

Imagine an EV that complies with all IRA eligibility requirements but is disqualified from the program due to a trace amount of a critical mineral from an FEOC. Bozzella said. “That makes no sense.”

The 2022 law allowed qualifying EV buyers to use tax credits as a point-of-sale rebate starting this year.

So far in 2024, more than 100,000 credits have been used at the point of sale, representing over $700 million in upfront savings, the Treasury stated.

Reporting by David Shepardson and David Lawder; Editing by Jamie Freed and Jonathan Oatis

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