The U.S., a global laggard in electric vehicle sales, unveiled rules on Friday aimed at reducing the domestic industry’s reliance on China for key components, a move that could have the unintended consequence of raising prices for some Tesla cars.

European Moves

The U.S. rules came the same month that the European Union released its own set of guidelines for EVs, aiming to boost usage in the world’s second-largest electric vehicle market after China, just announced rules that aim to ban gas-powered cars by 2035, jolting a global industry whose sales rose 65% last year to 10.2 million autos.

Under the U.S. regulations, an EV would be eligible for half the $7,500 subsidy for EV purchases if it meets a threshold set by the government for sourcing and processing critical minerals used in EV batteries. This year, 40% of an EV’s battery « must be extracted or processed » in the U.S., a nation that has a free trade agreement with the U.S., or can be recycled in North America, the Treasury Department said in a statement. That limit rises 10% a year until reaching 80% in 2027.

EVs can qualify for the other half of the tax credit the year if 50% of its battery components are made or put together in North America. That increases to 100% by 2029.

Tesla (TSLA) has already said the $7,500 credit for Model 3 real-wheel drives will drop on April 18, when the rules go into effect.Besides Tesla and GM, other large U.S. manufacturers include Ford (F).

Chinese Brands Proliferate

Carmakers in the U.S. have jumped on the electric bandwagon in droves since 2010 when General Motors (GM) rolled out its first plug-in hybrid Chevy Volt and Nissan (NSANY) introduced the first commercially viable all electric LEAF.

While Tesla is still the world’s biggest manufacturer, seven of the largest brands are in China, whereas in Europe, government price incentives have helped power sales. The Chinese car companies include BYD Co. (BYDDY), and Wuling Motors (WLMTF). European behemoths include VW Group (WVAPY), Stellantis (STLA) and BMW (BMWYY).

China

China, the world’s most populous nation, is far and away the biggest buyer of EVs. China’s 6.5 million EV sales in 2022 which include both Tesla-style battery EVs and plug-in hybrids, represented around 26% of the total number of new passenger cars sold there, almost double its 2021 EV sales, according to Dutch bank ING. China accounted for 59% of global EV sales volume last year.

China’s growing automobile market also means that EVs will make up a larger share of the country’s vehicle fleet. By 2025, 13% of the vehicles on China’s roads will be electric, forecasts ING, up from 5% in 2022. ING says that by 2030, 50% of China’s auto sales will be EVs, meeting that target five years ahead of government schedule.  

Almost 100 brands offer about 300 EV models with price points between $5,000 and $90,000, said Counterpoint Senior Analyst Soumen Mandal. Other notable Chinese EV-makers include NIO Inc. (NIO), Guangzhou Automobile Group (GNZUF), Geely Auto (GELYF) and Xpeng Inc. (XPEV)

Unless China extends its EV subsidies, though, the pace of sales is likely to slow. EVs sales are projected to rise just 8% next year to 28%. 

Other Asian Countries

While China was the world’s dominant EV market in 2022, it was only the second-fastest growing, lagging Japan’s 119% pace, according to Counterpoint. However, IEA data from 2021 shows that only 1% of Japanese new car sales in 2021 were EVs, compared with 8% in South Korea. 

Europe

ING forecasts that in 2023, 26% of new cars sold in Europe will be electric, compared to 28% in China. Europe’s EV market isn’t evenly distributed, with some nations, particularly Germany and Norway, setting the pace.

EV sales were about 79% of all car sales in Norway in 2022, according to ING, though the nation’s small population means the actual number of EVs sold was smaller compared to more densely populated countries such as Germany.

With EVs accounting for 18% of all car sales in 2022, Germany is the largest EV market in Europe. The U.K. had the next highest rates of EV adoption, at 17%, while 14% of French new car sales were EVs. Spain, at 6%, and Italy, at 4%, were among Europe’s laggards on EV adoption.