WASHINGTON, May 3 (Reuters) - The U.S. Treasury

Department released on Friday final rules granting automakers

flexibility on battery mineral requirements for electric vehicle

tax credits on some crucial trace minerals from China, such as

graphite.

New rules took effect on Jan. 1 restricting Chinese content

in batteries eligible for EV tax credits of up to $7,500, which

sharply cut the number of eligible vehicles. Automakers have

since made changes to supply chains and won restored eligibility

for many vehicles.

Treasury has temporarily exempted some trace critical

minerals from new strict rules barring materials from China and

other countries deemed a "Foreign Entity of Concern" (FEOC),

including North Korea, Russia and Iran.

John Bozzella, who heads the Alliance for Automotive

Innovation, a group representing major automakers, said the new

Treasury rules "appear to recognize the realities of the global

supply chain by providing some temporary flexibility in terms of

where the critical minerals in EV batteries can be sourced."

The new rules, required under an August 2022 law, are

designed to wean the U.S. EV battery chain away from China.

Abigail Hunter, executive director of SAFE's Center for

Critical Minerals Strategy, said Treasury's decision to create a

two-year exemption for graphite sourcing should be temporary.

"We need a clear exit strategy, lest we continue our

dependencies on adversaries and further undermine the

competitiveness of U.S. and allied critical minerals projects,"

Hunter said.

China currently accounts for 70% of global output of

graphite, which is used to make electric battery anodes, the

negatively charged portion of the battery.

The FEOC rules came into effect on Jan. 1 for battery

components and will do so in 2025 for critical minerals used to

produce them.

Treasury said in December that the materials being exempted

each accounted for less than 2% of the value of battery critical

minerals.

Manufacturers may temporarily exclude certain

impracticable-to-trace battery materials from FEOC compliance

until 2027 as long as they demonstrate how they plan to comply

by then, Treasury said.

"Imagine an EV that complied with all IRA eligibility

requirements but is kicked out of the program because of a trace

amount of a critical mineral from a FEOC?" Bozzella said. "That

makes no sense."

The 2022 law allowed qualifying EV buyers to use tax credits

as a point of sale rebate from the start of this year.

So far in 2024, more than 100,000 credits have been used at

the point of sale, representing more than $700 million in

upfront savings, Treasury said.