Legislation Analysis

New Legislation Reshapes EV Incentives: A Wake-Up Call for American Automakers

New Legislation Reshapes EV Incentives: A Wake-Up Call for American Automakers

Key takeaways

The One Big Beautiful Bill Act narrowed the $7,500 EV tax credit by adding strict new rules on where battery parts and critical minerals come from. American automakers now need product-level traceability across every tier to keep their EV lines eligible.

  • The One Big Beautiful Bill Act, signed into law on July 4, 2025, narrowed the $7,500 EV tax credit created by the Inflation Reduction Act of 2022.
  • Altana's analysis found that more than 83% of transactions linked to Chinese and Russian suppliers for connected vehicle components occur at Tier 3 or beyond.
  • Although electric vehicles make up only about 10% of new car sales, 55% of U.S. automakers' value chains with exposure to Chinese components are for EVs, according to Altana's analysis.
  • The new rules can make a part ineligible for the credit if its manufacturer is just 25% owned by a company linked to the Chinese military, forcing automakers to account for partial and aggregate ownership across every supplier.
As the automotive industry grapples with the complexity of building platforms for internal combustion and electric vehicles, new challenges confront both businesses. These challenges reach much further than consumer preferences and the demand for technological innovation — each is shaped by politics, policy, and the global supply chain.
The recently passed One Big Beautiful Bill Act (OBBBA) fundamentally altered the market for electric vehicles, by narrowing the generous tax credit that has been a cornerstone of EV adoption in the U.S. The upshot: America’s automakers need product-level traceability to ensure their EV lines remain compliant and eligible for the credit.
The $7,500 credit was created by the Inflation Reduction Act (IRA) of 2022. To qualify for the credit, vehicles could not contain battery components or critical minerals sourced from a Foreign Entity of Concern (FEOC), then defined as a designated foreign terrorist organization, a foreign government, or an entity under U.S. sanctions, among other categories.
connected vehicles linkout
Upstream Exposure Threatens Connected Vehicle Compliance
See the Full Analysis

The new, complex definition of a Foreign Entity of Concern

The OBBBA, signed into law on July 4, 2025, created two new categories of FEOCs: Specified Foreign Entities (SFEs) and Foreign Influenced Entities (FIEs), adding a long list of criteria under which vehicles would be ineligible for the credit.
SFEs include companies owned by the Chinese military or subject to the Uyghur Forced Labor Prevention Act and any entity under the control of China, Russia, North Korea, or Iran. FIEs include companies over which an SFE holds significant influence, based on ownership stake, ability to appoint officers and directors, and other criteria.
The redefinition of FEOC has major implications for automotive supply chains: Where previously a manufacturer of battery parts would be non-compliant if it were directly controlled by a foreign government, now the OEM purchasing batteries needs to factor in degrees of partial and aggregate ownership of the supplier. A part could be ineligible if its manufacturer is 25% owned by a company linked to the Chinese military.
For auto OEMs, which rely on a vast global supply chain, this is a game-changer. Without absolute certainty that every input and component separately complies with the FEOC restrictions, EVs risk losing the crucial $7,500 tax credit.

The Upstream Challenge: Beyond Tier 1, EV value chains susceptible to hostile foreign entities

The new rules highlight a problem that has long plagued the automotive industry: a lack of upstream visibility beyond Tier 1 suppliers. The OBBBA's focus on critical minerals and their extraction and processing demands automakers trace their supply chains all the way to the mine or soil.
An analysis by Altana reveals that the majority of exposure to foreign components occurs in Tier 2, Tier 3, and even further upstream. For connected vehicle components, more 83% of transactions linked to Chinese and Russian suppliers occurred at Tier 3 or beyond.
ev exposure upstream
Compared to conventional, gas-powered automotives, EVs are susceptible to adversarial components upstream, the analysis demonstrates. Despite EVs only making up roughly 10% of new car sales, 55% of U.S. automakers’ value chains with exposure to Chinese components are for EVs.
ev value chains chinese components
Components and raw materials necessary for remote battery management and monitoring, remote diagnostics, external charging controls, large telematics systems, and other vital EV components rely on Chinese refinement and manufacturing.
This dependence on China across multiple tiers of the EV supply chain — from mining critical materials to refining and ultimately assembling batteries and components — threatens eligibility for the EV tax credit.

The AI-powered solution

Altana's AI-driven Product Network offers a powerful solution. By connecting buyers, suppliers, logistics providers, and regulators into a shared network, they can provide the end-to-end visibility that automakers need. This technology can ingest raw ownership data — including Ultimate Beneficial Ownership (UBO) information — and crawl the entire ownership network of a supplier. It can then flag any entity that appears on the various SDN/Entity lists and, crucially, perform the complex ownership calculations required by the new FEOC rules. Critically, this must be done not only for Tier 1 suppliers, but for all suppliers across N-tiers of a product’s value chain. This allows an automaker to quickly determine if a supplier is compliant or non-compliant, providing the clarity needed to make strategic sourcing decisions.

The road ahead

The new rules are part of a fundamental and ongoing realignment of the global automotive supply chain, and automakers have an opportunity to gain competitive advantage by building secure, compliant and resilient product value chains.
By leveraging advanced AI platforms to gain deep visibility into their value chains, American automakers can ensure compliance with the OBBBA, protect their market share, and deliver on the promise of the EV transition.

FAQs

  • The One Big Beautiful Bill Act, signed into law on July 4, 2025, narrowed the $7,500 EV tax credit by adding strict new rules on the sourcing of battery components and critical minerals. It created two new categories of Foreign Entity of Concern, expanding the list of conditions under which a vehicle becomes ineligible for the credit.

  • Under the One Big Beautiful Bill Act, a Foreign Entity of Concern now includes two new categories: Specified Foreign Entities and Foreign Influenced Entities. Specified Foreign Entities include companies owned by the Chinese military, companies subject to the Uyghur Forced Labor Prevention Act, and any entity controlled by China, Russia, North Korea, or Iran. Foreign Influenced Entities include companies over which a Specified Foreign Entity holds significant influence, based on factors such as ownership stake and the ability to appoint officers and directors.

  • Most exposure to foreign components in EV value chains occurs at Tier 2, Tier 3, and further upstream, not at the direct supplier level. Altana's analysis found that more than 83% of transactions linked to Chinese and Russian suppliers for connected vehicle components occur at Tier 3 or beyond. To keep their EVs eligible for the tax credit, automakers must trace their value chains all the way to the mine or soil.

  • Yes. Under the new rules, a part can be ineligible for the tax credit if its manufacturer is 25% owned by a company linked to the Chinese military. This means an automaker buying batteries must account for partial and aggregate ownership of its suppliers, not just direct government control.

  • Altana's AI-driven Product Network connects buyers, suppliers, logistics providers, and regulators into a shared network to give automakers visibility across every tier of a value chain. It ingests ownership data, including Ultimate Beneficial Ownership information, crawls a supplier's entire ownership network, and flags entities on sanctions and entity lists. It then performs the complex ownership calculations the new Foreign Entity of Concern rules require, so automakers can quickly determine whether a supplier is compliant.