U.S. Departments of Energy and the Treasury issue final EV credit rules under the IRA

DOE Final FEOC interpretive rule

The Department of Energy (DOE) rule, issued on May 3, 2024, finalizes DOE’s proposed interpretive ruling issued on December 4, 2023.  The final rule remains largely unchanged from the December 4, 2023 proposed rule. As with the proposed DOE rule, an FEOC subsidiary or related entity incorporated outside of a covered nation, which does not have its principle place of business in a covered nation, would only be deemed an FEOC itself if the covered nation is deemed to control the subsidiary via:

1. the government of the covered nation, directly or indirectly (including via current or former senior political figures or their family members), holding 25% or more of the entity’s board seats, voting rights, or equity interest, with each metric evaluated independently; or
2. the FEOC having effective control of the subsidiary via a license or other contract (whereby the FEOC is treated as if it were the producer).

One notable change in the final rule is that DOE has clarified that, with respect to the People’s Republic of China (“PRC”), the definition of “senior foreign political figure” (considered a proxy for the PRC government) now includes current and former members of the National People’s Congress.  The December 4, 2023 proposed rule specifically mentioned the National Party Conference. The reference to the National Party Conference was removed from the final rule and replaced by the National People’s Congress instead. Additionally, the final rule adds the following to the definition of “senior foreign political figure” in the context of the PRC:  “Individuals serving or having served in current or former senior roles within the PRC government, at the central and local levels”; “Individuals currently or formerly in senior roles within the Chinese Communist Party (CCP) and bodies and commissions under the Central Committee;” and current or former members of the Provincial Party Congresses.

Department of the Treasury, Clean Vehicle Credits under Sections 30D and 25E, Final rule

The Department of the Treasury (Treasury) rule finalizes the 30D related rules proposed by Treasury in April and December 2023. (Final regulations are also provided under 25E, the used clean vehicle credit, which largely follow the 30D rules but are not separately detailed here.) Moreover, the final rule retains the bulk of the proposed 30D rule but does make a few significant changes, including with regard to tracing critical minerals and battery components.  The rule also makes changes to OEM due diligence requirements, and to vehicle classifications for MSRP limits. Unchanged are the battery components requirements from the Treasury’s April 2023 proposed rule.  Significant changes from the proposed rules include:

Due Diligence

The final rule makes clear that OEMs can rely on due diligence from suppliers, as well as its own due diligence, in satisfying the requirement to conduct such diligence with respect to all battery components, critical minerals, and constituent materials (for FEOC and battery minerals and components thresholds).

Minerals Requirements (Relevant to FEOC and FTA/N.A. minerals processing value thresholds)

Battery materials:  The final regulations add a definition of “battery materials” included in the ‘processing’ stage rather than the manufacturing stage to clarify the line between battery components and constituent materials. These include separator base film (if not manufactured or assembled), separator coating, conductive additives, copper foils prior to graphite deposition, and electrolyte solvents.

Impracticable-to-trace battery materials – No tracing requirement through end of 2026:  The final rule adds a definition of “impracticable-to-trace battery materials” and identifies impracticable-to-trace battery materials as applicable critical minerals in the following circumstances: graphite contained in anode materials and applicable critical minerals contained in electrolyte salts, electrode binders, and electrolyte additives.

Traced Qualifying Value Test – mandatory starting 2027: The final rule adopts the Traced Qualifying Value Test, which requires an OEM to fully trace any value added in each procurement chain that it applies toward the Critical Minerals Requirement. The final regulations allow OEMs to use the 50% Value added Test as an optional transition rule through the end of 2026.

Minerals:  Allocation-based determination that a battery cell is FEOC-compliant: The proposed rule provided that the determination that a battery cell is FEOC compliant could be made through an allocation of the available mass of applicable critical minerals and associated constituent materials to specific battery cells manufactured or assembled in a battery cell production facility. Under the proposed rule, OEMs were not required to physically track of the mass of applicable critical minerals (and associated constituent materials) to specific battery cells, at least through 2027. The final rule makes the allocation-based determination permanent.

Vehicle MSRP Limits-Vehicle Class

Vehicle Classifications:  The proposed rule provided that the vehicle classification of a new clean vehicle is to be determined consistent with the EPA’s fuel economy labeling rules and definitions provided in 40 CFR 600.315-08. The final regulations adopt by reference less specific pin cites in the EPA fuel economy labeling regulations to better reflect EPA’s general classification authority.

Next steps

While the final rules allow for some flexibility in the short term, stakeholders in the EV supply chain should begin taking steps to ensure their products comply with more restrictive rules beginning in 2027.  Hogan Lovells is prepared to help clients understand the new rules and take steps to comply with new requirements. 

Authored by Erida Tosini-Corea, Kelly Ann Shaw, James Wickett, and Ches Garrison.