Tesla Utilizes LFP Batteries to Qualify for Full EV Tax Credit

The Chinese Element of Achieving this Goal

It has been reported that Tesla is expanding their battery manufacturing plant in Nevada by utilizing equipment from China. Sources who wish to remain anonymous informed Automotive News that the car company, which is headquartered in Texas, will be acquiring unused machinery from Contemporary Amperex Technology Limited (CATL), a widely known and respected producer of lithium-iron-phosphate (LFP) batteries.

Lithium iron phosphate batteries (LFP) are highly praised for their durability and ability to provide longer distances, but their most appealing feature is their lower production costs. However, purchasing LFPs directly from CATL will result in disqualification from the federal electric vehicle (EV) tax credit due to the 2024 Inflation Reduction Act (IRA) regulations. This is the exact reason why the recently updated Model 3 Highland model is not eligible for the $7,500 EV tax credit.

According to the report, if it is correct, this recent progress could enable Tesla to manufacture LFP batteries in the United States and manage the origin of their raw materials.

Based on information from unidentified insiders, Tesla’s arrangement for its battery plant in Michigan will differ from Ford’s in that it will involve exclusive ownership and management of the facility’s operations and expenses. The only role CATL employees would play is providing support for machinery installation.

As a reminder, one of the recent changes to IRA regulations for the current year specified that eligible electric vehicles (EVs) must “not include any battery components produced or assembled by a foreign entity of concern (FEOC).” This requirement will become even stricter in 2025, with the updated rule stating that EVs must “not contain any crucial minerals obtained, processed, or reused by an FEOC” in order to meet the qualifications.

Although it is forbidden by none of the regulations, it is still allowed to utilize gear obtained from an FEOC.

The IRA identifies FEOCs as the People’s Republic of China (PRC), the Russian Federation, the Democratic People’s Republic of North Korea, and the Islamic Republic of Iran.

As Tesla begins manufacturing LFPs within the country, it may be able to circumvent limitations and allow for LFP-equipped Teslas to become eligible for the federal tax credit. Currently, the only models of Teslas that qualify for the full credit are the rear-wheel drive, all-wheel drive, and performance versions of the Model Y, as well as the Long Range edition of the Model X.

According to insiders, the proposed facility is not expected to be up and running until 2025. During its initial phase, it is projected to generate a relatively small amount of 10 GWh, with the potential for expansion pending successful project implementation and the establishment of a strong supply chain. This plant is said to account for approximately one-fifth of Tesla’s battery output in North America, encompassing their California-based factory responsible for producing the Megapack.

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