The US Inflation Reduction Act (IRA) has ushered in a new era for electric vehicles (EVs) by offering tax credits of up to $7,500 for vehicles using locally-sourced critical battery minerals and components. However, the law also includes restrictions on sourcing battery components and critical minerals from Foreign Entities of Concern (FEOC) such as China, Russia, Iran, and North Korea starting in 2024 and 2025.
The recent release of final rules by the US Treasury and IRS on May 3 highlighted the challenges of tracing certain battery minerals, including graphite and other critical minerals used in electrolyte salts, binders, and additives. As a result, the restrictions on these materials have been delayed until 2027.
The decision to temporarily exempt certain materials like graphite is seen as a practical move due to China’s dominant role in the supply chain. While efforts are being made to establish local supply chains to reduce dependence on China, it will take time for these projects to come to fruition, according to industry experts.
Despite the temporary exemption, there is a push to build an ex-China supply chain for EV materials as geopolitical tensions persist. The delay in implementing restrictions is seen as a period for non-Chinese suppliers to prepare for the shift in the global supply chain dynamics.
Overall, the new rules under the IRA signal a significant shift in the EV industry towards sourcing materials locally and reducing reliance on FEOCs. While uncertainties remain regarding the impact on the graphite market, the trend of pushing China out of the global supply chain is expected to continue.
