The battle is all about rarefied graphite, an essential material for EV batteries. The federal government sent carmakers scrambling in 2022 when it released rules that would disqualify any EVs containing Chinese graphite from federal tax credits starting in 2025. China produces around 97% of the refined graphite used in EV production, leading some observers to question if it was even possible for any carmakers to source non-Chinese graphite.
The tax credit policy is a key driver for the $61 billion EV industry, which analysts expect will continue to grow between 20% and 30% this year even as demand cools. It’s been popular with consumers, who benefit from lower prices, and for automakers and car dealers, who have gained from lower sticker prices through the policy without having to trim down their margins. But Chinese-sourced battery materials have emerged as a flashpoint for a small group of American graphite miners and for West Virginia Senator Joe Manchin, who singlehandedly pushed through restrictions on Chinese materials when the tax credit was originally passed as part of the Inflation Reduction Act in 2022. Ongoing political battles to tweak the EV tax credit policy pit the Biden administration’s environmental agenda against its industrial policy, and contrast calls to onshore battery technology away from China with the meager investment and slow progress of domestic firms.
“I would want to know how any automaker, based on the supply chain they’re working with today, meets these standards in 2025,” Jay Turner, a Wellesley College environmental studies professor and the author of Charged: A History of Batteries and Lessons for a Clean Energy Future, told The Wall Street Journal in December.
The auto industry slammed the initial rule proposal for targeting Chinese materials that it’s next to impossible to source from anywhere else. John Bozzella, the CEO of the Alliance for Automotive Innovation, an auto industry trade group, said the EV transition “requires nothing short of a complete transformation of the U.S. industrial base. It’s a monumental task that won’t happen overnight.’’
Chinese export controls on graphite unveiled last October in response to the U.S. cutting off shipment of advanced semiconductors to China only squeezed carmakers further. The deal the Biden administration announced last Friday gives carmakers two additional years, until 2027, to retain eligibility for the $7,500 federal EV tax credit while using Chinese graphite in their batteries. As EV sales growth has slowed, the tax incentives are a key piece of EV sellers’ sales pitch to new buyers as a way to make the cars more affordably priced.
China hawks and domestic mining officials voiced their displeasure at the final rule. West Virginia Democratic Sen. Joe Manchin, who personally pushed for last-minute changes to the original tax credit bill targeting Chinese materials, wrote in a letter that the rule was “outrageous and illegal,” saying he would “lead a Congressional Review Act resolution of disapproval and will support any entity that has been negatively impacted by the illegal implementation of the law to restore the goal of domestic opportunity and security.” Manchin has been a vocal advocate of the U.S. distancing itself from Chinese industrial inputs and becoming self-sufficient in the auto industry.
“Congress created these tax incentives to secure our supply chains and generate American jobs while supporting EV adoption. They did not intend for loopholes to be created that essentially amount to a blank check from the American taxpayer to China,” added Rich Nolan, president and CEO of the National Mining Association.
Domestic companies have floated recycling graphite and mining new sites in the South in order to meet demand, but they’re currently barely making a dent in the market. Unless the government extends the timeline again, though, automakers will have to find a new source by 2027. And it could be even sooner: Donald Trump will limit the $7,500 tax credit and place stricter limits on sourcing foreign materials if he’s reelected, according to a former Energy Department official.
American graphite producers have been lobbying trade representatives to re-impose Trump-era tariffs on Chinese graphite, which they say will help spur domestic investment in onshoring the EV battery supply chain.
“The North American graphite industry is in a vulnerable position and its future hinges on the ability to counter China’s anti-competitive actions,” industry spokesperson Erik Olson wrote to U.S. trade representative Katherine Tai.
