Battery Manufacturing Tax Credit Jumps to 25%, Mandating 100% Domestic Sourcing by 2029

The “Critical Minerals and Manufacturing Support Act” is taking a baseball bat to the existing tax credit for battery production, specifically Section 45X, and rebuilding it with a massive “Made in North America” sticker. The core change is a huge financial boost for companies making key battery parts: the tax credit for producing electrode active materials is skyrocketing from 10 percent to 25 percent. This is a big deal for the bottom line of domestic manufacturers, especially since the definition of what costs qualify for the credit is being expanded to explicitly include the cost of raw materials extracted from natural sources or recovered through recycling.

The New Rules of Sourcing: No Free Lunch

While the money is getting better, the strings attached are turning into chains. To get this beefed-up tax credit, manufacturers must prove that the critical minerals and components in their batteries come from specific places—namely, the U.S. or countries with a free trade agreement with the U.S. This isn’t a suggestion; it’s an escalating mandate that kicks off with components sold after December 31, 2025.

For critical minerals, the requirement starts at 70 percent of value sourced domestically or from friendly nations in 2026, and then jumps to 80 percent after 2026. For the battery components themselves—think anodes, cathodes, and casings—the phase-in is even more aggressive. Starting at 70 percent of the component value being produced or assembled in North America in 2026, it then ramps up yearly: 80 percent in 2027, 90 percent in 2028, and finally, a full 100 percent for any components sold after the end of 2028. If you’re a battery manufacturer, this means you have a hard deadline to completely retool your supply chain within the next three years.

The Foreign Entity Exclusion

There’s also a hard stop on where materials can come from. The credit is completely disallowed if any critical minerals were extracted, processed, or recycled, or if any materials or subcomponents were manufactured or assembled by a “foreign entity of concern.” This is a national security provision that forces manufacturers to completely vet their supply chain for any involvement from entities the U.S. government has flagged. For companies currently relying on cheaper, overseas processing facilities, this provision forces an immediate, and potentially expensive, pivot to domestic or allied processors, which could translate into higher short-term costs for the final product—like the electric vehicles that use these batteries.

Defining What Counts

To make sure manufacturers know exactly what they’re getting credit for, the bill updates the definitions of what qualifies as an electrode material. They’re now explicitly including “electrode active precursor materials,” which are the high-ppurity chemicals used to make cathode and anode materials, along with “binders” and “solid state electrolytes.” They even specifically call out silicon used in battery anodes as an applicable critical material. This clarity is good for investment, as it tells companies exactly where they can spend money and get that sweet 25 percent tax credit back, encouraging investment in the full spectrum of the domestic battery ecosystem, from the mine to the final assembly plant.