The Energy Department has new guidelines that will determine which electric vehicles qualify for what federal tax credits in years to come.
What cars get which tax credits, of course, can move auto stocks—exactly why investors should follow along as the details get hashed out.
The new update, regarding who is a “foreign entity of concern,” has some expected bad news for
Tesla,
some unexpected good news for Tesla, and some good news for
Ford Motor.
Foreign entities of concern, or FEOCs, are a part of the infrastructure law designed to limit their participation in domestic battery supply chains, explains the Energy Department.
FEOCs operate in or have ties to China, Russia, North Korea, and Iran.
For the EV industry, China is where most EV batteries and battery materials are manufactured.
Practically speaking, vehicles bought in 2024 won’t get all of the $7,500 tax credit if they have battery components or battery materials from China because Chinese battery makers and battery material companies are FEOCs.
However, there is leeway about materials processed by Chinese companies outside of China. Those products can be allowed if the business entity operating outside of China is set up correctly, even if the parent company is ultimately Chinese.
“After going through the proposed rules, we conclude that the US government is more concerned about its EV sector becoming too reliant on batteries that are made in China,” wrote
Citi
analyst Jack Shang in a Friday report.
If the batteries aren’t made in China, and there is enough separation from foreign control, then the U.S. will welcome “investment from all parties, including the Chinese, with open arms,” Shang added.
For Ford, that’s a positive. The auto maker has a licensing deal with the largest battery maker in the world, China’s
Contemporary Amperex Technology Co. Ltd,
which is better known as CATL.
CATL qualifies as an FEOC, but hang believes batteries being built by Ford in Michigan using CATL tech will qualify for federal subsidies.
Ford didn’t respond to a request for comment.
The impact on Tesla is more complicated. CATL supplies batteries on standard range versions of the Model 3 and Model Y. Tesla’s website now reflects the government update. Some vehicles will qualify for only a $3,750 tax credit if purchased in 2024.
In theory, though, batteries produced by CATL outside of China could still be used and qualify for tax credits. That’s a potential positive, even for Tesla as it modifies its supply chain in coming years.
Tesla didn’t respond to a request for comment.
Investors should also remember there are always many other things going on with tax credits.
States also offer different credits. And the $7,500 federal tax credit, or whatever portion an EV qualifies for, will come off at the dealership in 2024. That’s a big plus because buyers won’t have to wait to file a tax return to get the cash back.
And the leasing loophole remains.
Essentially, commercial car buyers, such as leasing companies, get the tax credit no matter what. So car buyers can get $7,500 off any EV at any price made by any auto maker if they lease it. They just have to make sure the price of the car they lease is $7,500 less than the original sticker price.
Tesla stock was down 1.6% on Monday. The new rules might be a part of the decline, but the broader market was weaker, too. The
Nasdaq Composite
was off 1.1%.
Ford stock was up 1.1%—again maybe because of the Energy Department guidelines.
General Motors
shares were up 2.9% after an upgrade.
Write to Al Root at allen.root@dowjones.com
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