The Biden administration on Friday released long-awaited rules for determining which new electric vehicles and the batteries that power them qualify for consumer subsidies and the conditions automakers and suppliers have to meet in avoiding doing business with "foreign entities of concern," including China.

"Clarity for automakers. Finally," said John Bozzella, president and CEO of the Alliance for Automotive Innovation, a Washington, D.C. trade group that represents most major auto companies doing business in the U.S. Bozzella said while working with companies located in China was off-limits, Chinese-led firms with certain ownership or governance structures "might be permitted in certain circumstances."

The administration, through the Treasury Department and the Department of Energy, also put out proposed rules to define what it means for a company or joint venture to be “owned by, controlled by, or subject to the direction" of a "foreign entity of concern," or FEOC. Those include whether a prohibited government or agency controlled more than 25% of the company's ownership or shares and the degree to which those prohibited entities exercised control over production, the use of critical materials and licensing.

American automakers, including the Detroit Three, have been concerned about just how strict Treasury would set the rules for use of materials, given that, while the U.S. is trying to build its own supply base and increase domestic battery production, China has large sway over supply chains for lithium, nickel, graphite and other crucial minerals used in the making of EV batteries.

Some automakers have been sharply criticized for entering agreements with Chinese companies, including Ford, which intends to license technology from China-based Contemporary Amperex Technology Co. (CATL), the largest lithium-ion battery maker in the world, for a plant near Marshall. Some conservatives have suggested CATL — and, ultimately, the Chinese Communist Party — could take over the plant and put its own workers there, a claim Ford categorically has rejected.

Last month, U.S. Sen. Joe Manchin, D-W.Va., who was instrumental in putting the initial restrictions on crucial minerals and battery components coming from FEOCs in place, had urged Treasury Secretary Janet Yellen "to impose the strictest possible standards." On Friday, as it appeared the administration had given more consideration to some of the automakers' concerns, U.S. Sen. Debbie Stabenow, D-Michigan, who had opposed some of the initial restrictions on the tax credit, credited Treasury with doing "a good job being tough where we need to be while making sure our auto companies can build the best vehicles in the world in America."

"We need this law to work," she said.

Rules could leave room for some Chinese involvement

In approving up to $7,500 in a tax credit that can be passed along to electric vehicle (EV) buyers, Congress two years ago enacted tough restrictions on where those vehicles and their batteries could be assembled, excluding, beginning next year, any with batteries or battery components made or assembled in FEOCs and, in 2025, those with any crucial minerals extracted, processed or recycled by FEOCs.

The list of countries considered FEOCs includes China, Russia, North Korea and Iran and can be expanded based on U.S. national security and diplomatic concerns. But as the Biden administration made clear Friday, a FEOC could also be any entity controlled by an agency or dominant political party in one of those countries, or current or former senior political figures.

The Energy Department, which proposed the formal definition for FEOCs, indicated, however, that even if a FEOC exercised some control over a company, that didn't automatically make that company a FEOC. For example, it said, if a FEOC had 25% control over a company, which then had 40% control over another company doing business with an American automaker, that wouldn't necessarily make that second company a FEOC, as long as the original FEOC didn't otherwise exert clear authority over that second company.

More: Detroit automakers say Biden administration rule change could cost them billions

In their proposal Friday, Treasury officials also detailed a long list of definitions for battery components and crucial minerals and when they are deemed in compliance to qualify for the tax credit, though they took some steps that appeared to recognize concerns raised by automakers as they try to transition to making more EVs and fashion the supply chains to support them.

For instance, the Biden administration proposed excluding for compliance purposes, at least for the next two years, what it called "non-traceable battery materials," components or materials that add little to the value of battery itself and which, because of the complexity of current supply chains, are virtually untraceable back to the source.

Bozzella, who had used the example of a fastener on a battery assembly dipped in a material from a FEOC potentially costing a consumer half the tax credit as early as next month, called the move "significant and well-advised. Otherwise the EV tax credit may have only existed on paper."

The Treasury proposal also called for allowing battery cells — which are connected in series to help create the entire battery — to be considered as in compliance through 2024, even if they include crucial minerals from a FEOC. On Jan. 1, 2025, those cells would have to meet non-FEOC standards to be in compliance.

And while automakers and top-tier suppliers will be required to physically track the components and crucial minerals down to they actual battery they are used in for a vehicle to qualify for the credit, the Treasury proposal, acknowledging that some minerals are "commingled" before a battery is made, for two years will allow manufacturers to "allocate" those minerals more generally to an overall number of batteries being produced at a given time. Only the percentage of batteries that could have been made with non-FEOC minerals would be considered compliant.

Also, recycled materials would be considered compliant as long as they were recycled by a non-FEOC, even if they originally were extracted or refined by a FEOC.

Contact Todd Spangler: tspangler@freepress.com. Follow him on Twitter@tsspangler.

This article originally appeared on Detroit Free Press: US automakers get rules for doing EV business with China