Manchin Goes Scorched Earth On IRA EV Tax Credits

Manchin IRA Tax Credits

The Biden administration’s signature clean energy law, the Inflation Reduction Act (IRA), got its clock cleaned last week at a Senate Energy Committee hearing. Sen. Joe Manchin (D-WV) and Republicans like Josh Hawley (R-MO) said Treasury has taken a hammer to what Democrats passed and numerous states have benefited from.

What’s happening is China’s supply chain is on the receiving end of what amounts to a double subsidy – tax credits and other benefits at home, and more tax credits in the United States. This was a well known issue for electric vehicle subsidies, and for this reason the IRA amended the Section 30D EV credit that had been in place since 2009. The amendments prohibited EVs assembled outside of North America as well as North American-assembled EVs containing batteries made by “foreign entities of concern” from receiving the $7,500 tax refund afforded by Section 30D.. At least that was Congress’ intent.

CPA trade counsel Charles Benoit wrote back in February that Treasury has become the IRA hatchet man. “To limit the reach of the Section 30D restrictions, Treasury surprised virtually everyone when they declared that the separate Section 45W Commercial Clean Vehicle credit – intended for commercial buyers, not individual consumers – would (also) be made available to anyone who leased an EV.  Consumer Reports has found that leasing is generally the most expensive way to operate a vehicle. Senator Manchin, never imagining that the Section 45W Commercial credit would be twisted in this manner, had not copied the same domestic content restrictions from the 30D consumer credit to the 45W commercial credit. Thus, Treasury’s interpreting of all consumer leases as falling within 45W commercial uses absolves the leased car of all of 30D’s domestic content restrictions.” Senator Manchin has introduced legislation to fix this executive malfeasance.

In March 2023, Commerce issued a notice of proposed rulemaking on the guardrail provisions included in the CHIPS and Science Act (CHIPS) and as part of that proposed rule, Commerce issued a definition for both “foreign entity of concern” and “owned by, controlled by, or subject to the jurisdiction or direction of” a foreign entity of concern”. These terms apply to the law governing the IRA. Commerce said that any company, even if it is a subsidiary based in the U.S., where a Chinese person or holding company owns a 25% “voting interest” is a foreign entity of concern. Since that law passed in August 2022, Treasury has allowed for foreign entities of concern to partake in the tax credits, particularly the Section 30D credit which goes to consumers who purchase battery powered cars, aka EVs.

For the Senate Energy Committee, it seems this is more than about car credits for leased vehicles and the percentage of American sourced content in the supply chain. The allowance of foreign entities of concern to partake at all in the IRA benefits sets the table for China to continue to dominate that supply chain; one of the main reasons behind creating this legislation. The United States does not have a single EV battery maker in the top 10 worldwide. Moreover, most of the IRA solar investments are coming from Chinese companies – Longi, Trina, Canadian Solar (not Canadian made) and JA Solar.

Manchin went scorched earth in his opening remarks, saying the Biden “administration is implementing a law that Congress did not pass.”

Here is an excerpt from his magnum opus opening remarks.

“The Inflation Reduction Act had three purposes: reduce our debt, secure energy and produce a cleaner American economy compared to everybody else, and bring back manufacturing of the building blocks that run our country and made us the superpower of the world. Alternative fueled vehicle technologies like EVs, can play an important role in lowering emissions, while providing an opportunity for the United States to maintain our status as an automotive powerhouse, which we have always been. We could reshore our manufacturing base, which we’ve let go, and we could create good-paying jobs, which we all need. My problem is with the administration’s crusade to convert everyone over to EV regardless of where the battery came from or what the law actually says. The United States is the birthplace of Henry Ford and the Model T. Vehicle manufacturing is a building block of our nation. There has never been a time when we couldn’t produce the engines, transmissions, axles, and every other essential component of a car. Not anymore. We are not implementing the Inflation Reduction Act that passed the Senate.”


– Sen. Joe Manchin, Senate Energy Committee hearing, “Examining Federal Electric Vehicle Incentives Including the Federal Government’s Role in Fostering Reliable and Resilient Electric Vehicle Supply Chains,” Jan. 11, 2024.

Manchin went after the content rule for sourced minerals used in making EV batteries.

“The administration has cut the IRA critical mineral sourcing percentage requirements in half, which is a blatant violation of the numbers that Congress wrote directly into the law,” he said. “We should be expending all of our efforts in trying to make sure that we hit these numbers (of mined commodities) versus receding back to these numbers and depending on foreign supply chains.”

He said the administration is “pretending that battery component manufacturing” is the same as critical mineral processing. “Extraction and processing is different from basically manufacturing, and it’s stated in the bill. Manufacturing has to be done in North America to get a tax credit. Instead, they are proposing fake critical mineral free trade agreements,” Manchin said in his opener.

China was not to be a participant.

“We wrote into the IRA to remove China completely from the battery supply chain. If we don’t do it quicker than later, it’s going to be something we will be dependent on for a long time,” Manchin said, adding that under the weakened foreign entity of concern rules, vehicles that contain battery minerals and batteries from China sources and Chinese multinationals qualify for credits for years longer than the law allows. The law said that no extraction and processing of critical minerals by Chinese entities or other foreign entities of concern can go into these batteries, Manchin said.

But the Biden administration, led by Treasury and Commerce, have written into their proposed rules that foreign entities of concern get the green light until 2026 or later.

Manchin warned of lawsuits, especially now that companies like Ford (which he did not mention) have committed millions to working with Chinese partners on this issue. “The Biden administration didn’t write the bill, and quite frankly, it seems like some of the people implementing the law haven’t really read it or understand what our intentions were,” Manchin said, alluding to the start of his opening remarks on building a supply chain for this new, post fossil fuels automotive industry. “If the administration doesn’t correct course and implement the IRA programs the way that we wrote them, their unlawful rules are bound to get struck down in court, which will create tremendous uncertainty for both automakers, and consumers, and all the investments that are coming to all of our states. And I will support anyone that goes to court to correct the illegal liberalization of this law with an amicus brief to set the record straight on the bill Congress actually wrote. I’m willing to go and do whatever it takes to make sure that we get back on track to the letter of the law.”

Ranking Member John Barrasso (R-WY) backed Manchin, telling the two Executive Branch witnesses —  Adewale Adeyemo, Deputy Secretary at Treasury, and David Turk, Deputy Secretary at the Department of Energy – that the IRA was “plays right into the hands of the Chinese.” 

Barrasso said IRA-related tax incentives are going to foreign companies all over the world, but he was particularly focused on China here. He noted that BYD is now the world’s leading EV maker, surpassing Tesla, arguably the pioneer of electric vehicles. BYDs numbers are misleading, however, as most of their vehicles are sold in China and China is the No. 1 auto market. However, BYD beat Tesla sales in the last quarter of 2023 in the EU. “BYD’s goal is to be the biggest electric car manufacturer in Europe by the year 2030,” Barrasso added, alluding to the likelihood of BYD being No. 1 in this hemisphere as well. BYD also makes battery powered buses in California and is the No. 1 producer of those buses in the United States.

 “The administration said it welcomes Chinese companies as big players in renewable energy markets. This is a terrible mistake,” Sen. Barrasso said. “The IRA will push us away from the fuels and technologies where America has the lead and push us towards the minerals and technologies that are currently controlled by China.” Barrasso also hopped on Treasury’s decision to allow for tax credits for commercial leased vehicles, like BYD buses, though he did not mention them by name.

The Q&A session gave Adeyemo and Turk a chance to explain themselves about the tax credits, especially the ones Manchin and Barrasso were up in arms about. For both Adeyemo and Turk, the rule is only temporary and supposedly provides a pump for the demand side, in hopes the domestic supply side will grow over time to meet that demand. 

Adeyemo told Sen. Ron Wyden (D-OR) that no Chinese car company was taking advantage of the 30D tax credit. China does not make EVs in the United States, but it is trying to establish a beachhead for batteries led by CATL and Gotion Hi-Tech.

“With the foreign entity of concern rule, we went from over 40 cars being eligible for tax credits to only 13,” Adeyemo said. This is mostly due to China EV battery manufacturers. “By making sure that any car that receives 30D credit is built here in North America, it means it is going to be built within our economy, and we’re building a supply chain here. And in addition to 30D and other IRA credits, this means that not only are the cars built here, but the batteries will also be built here in America using American innovation and ingenuity.”

Manchin chimed in. “Some U.S. automakers and battery producers have said there’s just no way that we can make these EV batteries without China and that makes no sense to me at all since most of these technologies were started here in America and then taken to China. Do you agree with some automakers that it’s OK for U.S. tax credits to benefit China?”

Turk responded by saying he thinks that the U.S. can build an EV supply chain without China, even though the U.S. has no big time battery makers to speak of. Even Tesla has partnered with CATL to power its Model 3 and Y with new China technology.

Turk talked about minerals like graphite used in making these vehicles; nearly 100 percent of it is processed in China. Because of the IRA, the Department of Energy’s projection is that 16 percent of the graphite used in domestic passenger vehicles will come from the U.S. by 2027. “That goes from basically 0 percent to 16 percent,” he said.

But Manchin wasn’t impressed. “Those numbers were supposed to be higher. You guys keep lowering them.”

Turk said that a company called Graphite One in Alaska got $37.5 million in funding from Defense Production Act money to dig and process minerals in Alaska, but that the project was not ready to enter the market yet.

Such is the story with the bulk of America’s clean energy economy – the U.S., like Europe, has talked up a post-fossil fuels economy for over a decade now, and China took its cues from Brussels and Washington, building up a world class supply chain for solar, wind and EVs, while the U.S. was happy with imports. That mood has shifted. But some think it is too late and that the IRA is “double funding” Asian multinationals, led by China, that own this market, and seek to be key players in the years ahead, surpassing American names, including Tesla. 

Barrasso asked for clarification on leased vehicles.

“Companies can lease a $100,000 electric car that contains lots of minerals from China and still benefit from a $7,500 tax credit? Is that the case,” he asked.

Adeyemo said it was not, over time. But it was true today. “Today, the leased vehicle credit is the same as the 30D credit you and I would get if we went out and bought a Tesla. But, the way the bill was designed was to make the purchase credit more valuable for now in order to stimulate domestic production. That is why we are seeing the manufacturing supply chain for EVs move here instead of being imported,” he said. 

“You are reinterpreting (the IRA) now to allow the tax credits to flow to Chinese entities,” Sen. Josh Hawley (R-MO) said to Turk. “U.S. tax dollars are literally subsidizing Chinese battery makers.  Why would we want to do that?” 

Turk said the government was not doing that.

“How are you not?” Hawley asked.

“The fact that with the 30D tax credit only 13 models qualified. Now, we hope more diversification happens and more models qualifying for that tax credit is good…and we want to have these jobs in the U.S.,” he said, but was cut off by the Senator for not answering the question right away given his time limits. 

“The Inflation Reduction Act said clearly that China — if you were a foreign entity of concern, you don’t get the taxpayer subsidy, you don’t get the 30D subsidy, you don’t get the tax break. And yet this rule from last year allows Chinese companies to get that tax break. It loosens up the restrictions, so now we are subsidizing our rivals,” he said.

Turk just said that the IRA was leading to new jobs in Hawley’s district in Missouri and that the IRA helps companies plan for the future in terms of investment here.  “China is working incredibly aggressively to dominate this sector of the economy,” Turk said.

To which Hawley finished, his time expired: “Yes, and your administration is helping them now by giving them these tax subsidies.”


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