Treasury Issues New Clean Vehicle Critical Mineral and Battery Component Requirements

On March 31, 2023, Treasury released an unpublished proposed rule providing processes for manufacturers to calculate whether new clean vehicles meet IRA section 13401 critical mineral and North American battery component requirements. By purchasing vehicles meeting these requirements, new clean vehicle buyers are eligible for tax credits of up to $7,500 under Internal Revenue Code section 30D. Buyers are eligible for a credit of $3,750 for a vehicle meeting critical mineral requirements and an additional $3,750 for vehicles meeting battery component requirements. The critical mineral and battery component requirements of the proposed rule apply to vehicles placed in service – referring to the date the customer takes possession of the vehicle – on April 18, 2023, the day after Federal Register publication of the proposed regulation on April 17, 2023.

The proposed rule provides a three-step process for manufacturers to determine whether a vehicle complies with the IRA’s critical minerals requirement and is thus eligible for the $3,750 tax credit under section 30D. In general, the framework is consistent with the 30D White Paper that Treasury released on December 29, 2022. The IRA provides required eligibility thresholds that increase by year for critical minerals extracted or processed in the U.S. or countries with free-trade agreements with the U.S., or critical minerals recycled in North America. To calculate the percentage of qualifying critical minerals in the vehicle battery, manufacturers must use the framework to determine procurement chains, identify qualifying critical minerals, and finally calculate qualifying critical mineral content.

The proposed framework for determining compliance with the IRA’s North American battery component manufacture or assembly requirement – which allows a buyer to receive an additional $3,750 tax credit – is also consistent with that described in the 30D White Paper. The four-step process requires manufacturers to: identify components manufactured or assembled in North America, determine the incremental value of each battery component and North American battery components, determine the total incremental value of battery components, and calculate qualifying battery component content.

The proposed rule also defines several terms relevant to the 30D tax credit: “final assembly” is the plant of manufacture reported in the VIN or the final assembly point listed on the label affixed to the vehicle; “North America” includes the U.S., Canada, and Mexico; “manufacturer’s suggested retail price” includes both the price of the vehicle and optional equipment printed on the label affixed to the vehicle at sale; the classification of vans, sport utility vehicles, and pickup trucks is consistent with EPA fuel economy classifications so that consumer-facing vehicle labels and fueleconomy.gov provide accessible information to prospective buyers; and “placed in service” is the date the taxpayer takes vehicle possession.

Federal Register publication of the proposed rule on April 17, 2023 opened a 60-day public comment period with comments due by June 16, 2023.