US, Japan EV Battery Deal May Help More Vehicles Qualify for $7,500 Tax Credit
A new free trade agreement between the US and Japan regarding key minerals used in electric vehicle batteries may qualify more EVs in the US for the $7,500 federal tax credit and hasten the shift away from gas-powered vehicles.
In order to qualify for the full $7,500, the Clean Vehicle Credit (CVC) stipulates that 40% of the minerals inside an EV's battery must(Opens in a new window) come from one of the following three sources. That percentage increases each year, up to 80% by 2027.
Extracted and processed in the US
Extracted and processed from a US free trade partner
Recycled in North America
The new deal puts Japan in bucket number two: a US free trade-partner. Both countries have agreed to not enact export restrictions on the most important minerals inside the batteries, Reuters reports(Opens in a new window). This includes lithium, nickel, cobalt, graphite, and manganese.
These battery-sourcing requirements are arguably the most restrictive on the long list of terms laid out in the Inflation Reduction Act, as China currently produces the vast majority of battery minerals. But if an automaker uses too high of a percentage of Chinese materials, then their vehicles will not qualify, potentially hurting customer purchases.
In the US, the minerals extraction and recycling industries are too small to meet demand, though they are set to grow in the coming years thanks to $2.8 billion of federal funding.
In the meantime, minerals-focused trade deals are one way to provide US automakers with the materials they need from trusted allies. "As the demand for electric vehicle batteries is expected to grow significantly, securing important minerals essential for their production is an urgent issue," says Japanese Trade
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