New and impending domestic content requirements for federally funded EV chargers
A significant element of the federal government’s effort to promote a transition to cleaner energy and reduce greenhouse gas emissions is the National Electric Vehicle Infrastructure (NEVI) formula program. The NEVI program allocates $5 billion for the creation of a nationwide network of electric vehicle (EV) chargers. At the same time, the federal government has also imposed domestic content and manufacturing requirements, aimed at developing a domestic EV charger manufacturing industry, as a condition on eligibility for NEVI funding.
This alert discusses US domestic manufacturing requirements applicable to EV chargers funded under the NEVI program, focusing on the more stringent requirements that will go into effect on July 1, 2024. As discussed below, an EV charger eligible for NEVI funding as of July 1, 2024 must be assembled in the US, and the cost of components manufactured in the US must exceed 55 percent of the cost of all of the charger’s components.
Identifying and appropriately classifying charger components and subcomponents, and calculating component costs, will be essential for manufacturers and contractors that wish to participate in projects receiving funding under the NEVI program. Failure to meet the domestic manufacturing requirements will render the resulting EV chargers ineligible for use in projects receiving NEVI funding.
I. Domestic content requirements for federally funded EV chargers
The Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, authorized the NEVI program, which will provide $5 billion in funding to establish a convenient, affordable, reliable, and equitable network of EV chargers throughout the US. Under the program, the Federal Highway Administration (FHWA) is tasked with distributing funding to states for the strategic deployment of EV chargers.
In February 2023, the FHWA, in coordination with the US Department of Energy, issued a final rule establishing minimum standards and requirements that apply to projects and chargers funded under the NEVI program, as discussed in a prior alert.
The same month, FHWA issued a new waiver (the Waiver) of “Buy America” and “Build America, Buy America” (BABA) requirements for domestic manufacturing of steel, iron, manufactured products, and construction materials in EV chargers and EV charging projects that use federal-aid highway funds (primarily under the NEVI program). The Waiver addresses the application of FHWA’s pre-existing Buy America requirements, as well as the application of BABA to construction materials to the extent the materials are not covered under Buy America. The following discussion will refer to Buy America and BABA collectively as “BABA.”
The Waiver removes EV chargers from a pre-existing general waiver for manufactured products and establishes a new two-phase waiver of BABA requirements. The first phase, in effect from March 23, 2023 through June 30, 2024, requires that the final assembly of EV chargers occur in the US and that the installation of the chargers t begin by October 1, 2024. This initial phase does not require charger components to be manufactured in the US, with the significant exception of charger housings predominantly made of iron or steel.
The second phase of the Waiver begins on July 1, 2024. As of that date, (i) the cost of charger components manufactured in the US must exceed 55 percent of the cost of all of the charger’s components, and (ii) final assembly of EV chargers must occur in the US. The requirement that charger housings predominantly made of steel or iron must be manufactured in the US applies to both phases of the Waiver.
The FHWA describes the Waiver as temporary, stating that it will review the Waiver within five years to determine if it should be terminated. The Agency further reserves the right to amend or terminate the Waiver earlier if it determines a continued waiver is not in the public interest. It is thus possible that FHWA could, for example, increase the percentage of components (measured by cost) that must be manufactured in the US.
II. Cost-of-components analysis
The starting point for a cost-of-components analysis is identifying the components, as well as their associated costs, in the subject EV charger. While the second phase of the Waiver requires the cost of US-manufactured components to exceed 55 percent of the total cost of charger components, it does not list components that should be included in the determination of that cost percentage.
The FHWA declined to delineate which components are covered by the Waiver and its requirements, finding that, because EV charger technology is evolving, “it is not useful to define with particularity every component used in an EV charger.” Instead, the Waiver broadly defines a component as “any article, material, or supply that is directly incorporated into the end product (i.e, EV charger).”
Complicating the cost-of-components analysis is an indefinite and fact-dependent distinction between components and subcomponents. Items or materials that are properly classified as subcomponents should be excluded from the cost-of-components calculation because that calculation is confined to the cost of EV charger components. Thus, FHWA stipulated that “the cost of subcomponents should not be separately calculated and used to determine whether a charger is covered” by the Waiver. The Waiver rule does not define the term “subcomponents” or provide a list of items that would typically be deemed to be subcomponents. As a result, EV charger manufacturers will be required to make judgments as to whether a particular part or item is a component or subcomponent.
In some instances, application of the component-versus-subcomponent distinction could be important in determining if a charger meets the cost of domestically manufactured components requirement of the Waiver. The Waiver adopts the “cost of components” definitions applied under a different regulatory regime – the Buy American statute (41 U.S.C. §§ 8301-8305) and subparts 25.1 and 25.2 in the Federal Acquisition Regulations (FAR), which apply to federal government procurements.
According to FHWA, under the Buy American definitions incorporated to the Waiver, it may be permissible to classify components that are sub-assembled in the US from foreign parts as US-manufactured components, so long as the subassembly of the component is conducted in the US. The costs of foreign parts that are deemed to be “components,” however, would be counted as costs of components that are not manufactured in the US.
III. Next steps for EV charger manufacturers, contractors, and projects
Phase two of the Waiver and its cost-of-components requirements are scheduled to take effect in approximately one year. Therefore, it may be prudent for interested entities to assess now whether the chargers they plan to manufacture, or use, will meet the upcoming domestic content requirements.
Such an assessment might include (i) reviewing parts and materials to make an informed determination of whether they should be classified as components or subcomponents or to confirm exiting classifications are reasonable under the terms of the Waiver, and (ii) calculating the costs of US manufactured components and all components in accordance with the FHWA guidance to determine whether the cost of a charger’s components manufactured in the US exceeds 55 percent of the total cost of its components. If an EV charger does not currently meet the 55-percent requirement, its manufacturer may seek to adjust its supply sources or manufacturing process and location(s) in the coming year in order to meet the Waiver eligibility requirements effective July 1, 2024.
Similarly, companies that manufacture or assemble domestic components using foreign subcomponents may wish to confirm that those processes would qualify as the manufacture of a new domestic component within the meaning of the Waiver, the Buy American regulations it references, and applicable precedents. These and other relevant analyses may be fact intensive and take some time. A large portion of the US government’s funding for a national EV charger network will flow through the NEVI program and be subject to the requirements of the FHWA Waiver, including the more challenging requirements of its second phase. Therefore, it will be important for affected companies to proactively evaluate and address the imminent new requirements ahead of their July 1, 2024 effective date.
DLA Piper is closely monitoring developments relating to the NEVI program, as well as Buy America, BABA, Buy American, and other US domestic content requirements. If you have questions or are interested in learning more, please contact the authors.
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