In May 2024, the Department of the Treasury released final guidance implementing the 30D New Clean Vehicle Tax Credit. Concurrently, the Department of Energy released its final interpretation of the term “Foreign Entity of Concern,” or FEOC, which establishes the framework for automakers to reorient their supply chains away from adversarial nations—one of the key eligibility requirements tied to the 30D credit. Taken together, these actions seek to balance the U.S. goals of deploying electric vehicles (EVs) while developing a robust, domestic supply chain disentangled from FEOCs.

Fast Facts on the 30D Tax Credit

• Established in 2008 and amended by the Inflation Reduction Act of 2022, the 30D credit is available through 2032.
• Provides up to $7,500 for the purchase of qualifying new clean vehicles, including battery electric and plug-in hybrid vehicles. The credit is composed of two halves and qualifying vehicles receive $3,750 for meeting each of the increasingly-stringent critical mineral and battery component sourcing requirements.
• Can be claimed at the point of sale through a dealer credit transfer, enabling buyers the option to take advantage of the credit value upfront rather than waiting until they file their taxes.
• 30D-eligible vehicles must:
  • Have a battery capacity greater than 7 kilowatt hours,
  • Weigh less than 14,000 pounds,
  • Undergo final assembly in North America,
  • Cost less than $55,000 for cars, or $80,000 for SUVs, pickups, and vans,
  • Meet FEOC requirements.
• Buyer eligibility is subject to income thresholds:
  • $300,000 for joint filers,
  • $215,000 for heads of household,
  • $150,000 for single filers.

Critical Minerals Requirement

A new clean vehicle is eligible for a $3,750 credit if a certain percentage, by value, of the critical minerals in its battery has been a) extracted or processed in the United States or a country with which the U.S. has a Free Trade Agreement (FTA), or b) recycled in North America. The percentage requirement began in 2023 and has become increasingly stringent over time. Automaker compliance with the critical minerals requirement can be determined in one of two ways:

1. The 50% Value Added Test states that if more than 50% of the value added to a relevant critical mineral through extraction, processing, or recycling occurred in the relevant area (U.S. and FTA countries), then the mineral counts towards the overall critical mineral value of the requirement. The rule is a transition rule, and its use is optional until its expiration in 2027.
2. The Traced Qualifying Value Test, a more stringent permanent test, calculates qualifying content as the sum of the value added to each critical mineral in the relevant area from extraction, processing, or recycling. Manufacturers can average qualifying critical mineral content over a period of time for all vehicles of the same model line, plant, or class, rather than individually tracking the minerals to each vehicle.

Battery Component Requirement

A new clean vehicle is eligible for a $3,750 credit if a certain percentage, by value, of the battery components are manufactured or assembled in North America, with increased stringency over time. The percentage is calculated as the proportion of incremental value of battery components that were either manufactured or assembled in North America. Incremental value refers to the value of a component subtracted by the value of any of its subcomponents, if any, and is roughly equivalent to a measure of value added by each component.

“Foreign Entity of Concern” Requirement

New clean vehicles are disqualified from any portion of the 30D credit if they contain a) battery components manufactured by a FEOC, beginning in 2024, or b) critical minerals extracted, processed, or recycled by a FEOC, starting in 2025. These requirements apply to all battery components and critical minerals contained in the battery except those identified as “impracticable-to-trace ” due to their origination from multiple sources and commingling during the refining process. Identified materials include critical minerals contained in electrolyte salts, electrode binders, and electrolyte additives, as well as synthetic and natural graphite used in anode materials. The impracticable-to-trace exemption expires in 2027; in order to qualify for 30D in the interim, vehicle manufacturers must submit reports identifying steps taken to reach FEOC compliance after the exemption period ends.

“Foreign Entity of Concern” Definition

An entity is determined to be a FEOC if it meets the definition of a foreign entity and is either subject to the jurisdiction of the government of a covered nation (China, Iran, North Korea, and Russia) or is owned by, controlled by, or subject to the direction of a covered nation’s government.

A foreign entity is defined as either:

• A government of a foreign country, including:
  • National or subnational governments,
  • Agencies or instrumentalities of such governments,
  • Dominant or ruling political parties, or
  • Current or former senior political figures and their immediate family members.
• A natural person who is not a lawful permanent resident of the United States, citizen of the United States, or any other protected individual,
• A partnership, association, corporation, or organization, organized under the laws of or having its principal place of business in a foreign country, or
• An entity organized under the laws of the United States that is owned by, controlled by, or subject to the direction of a foreign entity.

An entity is subject to the jurisdiction of a covered nation government if:

• It is incorporated or domiciled in, or has its principal place of business in a covered nation, or
• It extracts, processes, or recycles critical minerals or manufactures, assembles, or processes battery components in a covered nation.

An entity is owned by, controlled by, or subject to the direction of a covered nation government if:

• 25% or more of the entity's board seats, voting rights, or equity interest–evaluated independently–are cumulatively held (directly or indirectly) by the other entity, or
• It has entered into a licensing arrangement or contract with another entity that enables that entity to exercise effective control over the extraction, processing, recycling, manufacturing, or assembly (collectively referred to as production) of the critical minerals, battery components, or battery materials.
  • Effective control includes the ability to determine the quantity or timing of production; to determine which entities may purchase or use the output of production; to restrict access to the site of production to the contractor's own personnel; or the exclusive right to maintain, repair, or operate equipment that is critical to production.

Conclusion

The 30D New Clean Vehicle Tax Credit is a key component of the U.S. industrial and decarbonization strategies. Together with the other pro-manufacturing tax credits in the Inflation Reduction Act, incentives are in place to deploy clean energy technologies while weakening foreign influence over their supply chains. While both goals are central to U.S. federal policy, incentives must be balanced to achieve both goals. Final rules like the ones covered in this post provide the regulatory certainty needed throughout the supply chain to help derisk private investment in domestic production.

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