The United States intends to impose restrictions on the contents of batteries coming from China and used in electric cars to obtain tax incentives.

US President Joe Biden and his team issued new instructions on Friday that will set limits on the presence of Chinese materials in batteries eligible for tax incentives for electric vehicles starting next year.

In a positive outcome for automakers, the U.S. Treasury Department plans to grant a temporary exemption for certain small-quantity critical metals to strict new rules limiting the use of materials from China and other countries designated as “Foreign Entities of Concern” (FEOC). .

The legislation, which became law in August 2022, is designed to reduce U.S. dependence on China in the electric vehicle battery supply chain.

Automakers are paying close attention to these new regulations, as they consider where to invest in battery production for the transition to electric vehicles.

FEOC regulations will begin to apply in 2024 to fully assembled batteries and in 2025 to the base metals needed to produce them.

The introduction of these regulations is likely to reduce the number of electric vehicles eligible for tax credits. The legislation immediately disqualified any vehicle not made in North America.

Additional rules on battery and metal sourcing, including price caps and restrictions based on buyer income, were introduced earlier this year, effective 1 January.

General Motors (NYSE:) expressed confidence on Friday that it will continue to offer incentives to consumers to buy many of its electric vehicles after 2024.

Ford Motor (F) announced in October that it was awaiting detailed guidance to determine whether its licensing agreement with Chinese battery company CATL ran afoul of the new rules. Biden administration officials did not offer a clear position on whether the deal complies with regulations.

Ford chose not to comment.

Republican Senator Marco Rubio expressed his criticism of the new instructions, noting that they appear to allow the agreement between Ford and CATL to meet the requirements. Rubio has expressed his opposition, arguing that the administration is putting the priorities of electric vehicle interest groups ahead of U.S. national interests.

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