Graphite Exemption In EV Tax Credit Rule Sparks Debate Over China’s Role

The Biden administration’s inclusion of a two-year grace period for graphite in its final rule on electric vehicle tax credits has ignited a debate over China’s role in the U.S. supply chain. The rule, released Friday, aims to block companies from claiming the credit for vehicles built with batteries or materials from “foreign entities of concern,” mainly Chinese companies.

However, the administration designated both synthetic and natural graphite, crucial components of lithium-ion batteries, as “impracticable-to-trace” until 2027. This exemption allows automakers to continue relying on graphite from China in the short term.

Critics argue the graphite concession is antithetical to the Inflation Reduction Act’s intent and puts the North American supply chain at risk. Sen. Joe Manchin (D-WV), a key architect of the law’s EV provisions, accused the administration of creating loopholes that benefit China.

Proponents of the rule, including automakers, say the temporary flexibility is necessary as domestic mineral and material supply chains are built up. The rule requires manufacturers relying on the grace period to show how they’ll comply by 2027 in securing compliant graphite, including documentation of efforts to secure new supplies and ink offtake agreements.