The United States has more announced battery manufacturing capacity than at any point in its history. How much of it is economically usable is a compliance question, and the compliance architecture that answers it is, by statutory design, opaque to anyone outside the manufacturer and the IRS.
For many domestic cell and pack producers, the 45X production credit is the margin. Without it, the cost gap between U.S. production and imported cells makes the capacity uncompetitive for most commercial offtakers. The credit is the mechanism that converts physical capacity into economically real capacity. Eligibility for that credit passes through three distinct gates. They test different things, and a facility can clear one and fail another.
Before describing what each gate requires, a prior point needs to be stated clearly: which manufacturers have claimed 45X credits, at what rates, for which components, using which substantiation method, or with what outcome cannot be determined from outside the system. That information is return information under Section 6103. It is confidential. No public registry exists. None is planned. The term "prohibited foreign entity" (PFE), which governs the most consequential gate, refers to a statutory classification under Section 7701(a)(51) that determines whether upstream suppliers taint a manufacturer's credit eligibility. This is the operating condition for every analytical claim that follows.
Gate 1 — Produced and sold in the United States
The baseline 45X requirement is production and sale of an eligible component within the United States. This is a manufacturing-location and transaction test, and it is the most straightforward of the three gates if you have actually built and commissioned a factory. The factory's existence is generally observable. Its eligibility under this gate is generally inferable.
The simplicity is relative. "Produced" carries definitional weight: the line between production and assembly determines whether a facility that integrates imported subcomponents into a finished cell or pack is producing an eligible component or assembling one. "Sold" has its own edge, because intercompany transfers within a vertically integrated manufacturer are not arm's-length sales, and the credit attaches to production and sale. These are tractable questions with existing guidance, but they are not trivially resolved for every facility configuration.
Gate 2 — FEOC entity status
A foreign entity of concern is defined by ownership, control, and jurisdictional criteria tied to covered nations. The determination attaches to the entity itself, based on those criteria, independent of where any particular material was sourced.
What a manufacturer must do at this gate depends on which credit regime applies. For 45X, the FEOC determination is not a direct eligibility bar on the manufacturer itself. It is an input: the manufacturer must determine whether its upstream suppliers qualify as PFEs (a category that includes FEOCs), because that classification feeds the material-cost calculation at Gate 3. For 48E investment credits on battery energy storage technologies, FEOC status is a direct eligibility restriction on the entity placing the technology in service. The two credit regimes reference overlapping but non-identical FEOC definitions. Treating them as interchangeable is a common error in published analysis, and it produces wrong answers about eligibility.
Gate 3 — PFE material-assistance status
This is where most of the unresolved compliance risk concentrates.
Section 7701(a)(52) defines "material assistance from a prohibited foreign entity" by reference to a material-assistance cost ratio (MACR). The calculation is at the component level: total direct material costs minus PFE-sourced direct material costs, divided by total direct material costs. For qualifying battery components sold in 2026, the ratio must equal or exceed 60%. The threshold tightens annually under the statutory schedule in Section 7701(a)(52).
The denominator is direct materials only. Labor is excluded. This makes the decisive variable where the constituent materials originate and whether any entity in the upstream chain that mined, produced, or manufactured them qualifies as a prohibited foreign entity under Section 7701(a)(51). Factory location and ownership structure can both be clean. The credit still fails to attach if cathode active material, anode graphite, electrolyte salts, or separator films trace to PFE-sourced suppliers at a cost ratio above the threshold. The factory exists. The cell ships. The credit does not attach.
What Notice 2026-15 requires and what it leaves private
IRS Notice 2026-15, published in Internal Revenue Bulletin 2026-11 on March 9, 2026, provides interim guidance for MACR determination under 45X, 45Y, and 48E. The notice requires the taxpayer to identify constituent materials incorporated into or consumed in production of the eligible component, determine direct material costs for each, and determine which costs are attributable to PFE-sourced materials.
Three safe-harbor paths are available:
- Identification Safe Harbor. Permits use of 2023–2025 safe-harbor tables for listed components.
- Cost Percentage Safe Harbor. Determines cost ratios only when the Identification Safe Harbor is also in use.
- Certification Safe Harbor. Allows reliance on supplier certifications for PFE-sourced status and cost data, provided the certifications are signed under penalties of perjury, retained for at least six years, and made available to the Secretary on request.
Outside the safe harbors, the taxpayer determines PFE-sourced status by applying the Section 7701(a)(51) definition to the direct supplier, or to the originating entity if the direct supplier is a reseller. All substantiation is taxpayer-maintained under Section 6001 record-keeping requirements. Safe-harbor statements are attached to Form 7207 and filed with the annual return. Supplier certifications are retained by both parties. None of this enters any public record.
The guidance is explicit that it is interim. Treasury and IRS intend to issue proposed regulations on PFE definitions and material assistance. The statutory deadline under Section 7701(a)(51) for guidance on foreign-influenced-entity provisions, including anti-evasion rules for impermissible technology-licensing arrangements, is December 31, 2026. Federal Register searches through June 27, 2026 return no proposed or final rule. The "effective control" definition is the load-bearing unknown. The statute's interim language covers unrestricted contractual rights to:
- determine production quantity or timing
- determine output buyers
- restrict access to critical production data
- exclusively maintain necessary production equipment
Whether certain ownership percentages, joint-venture structures, and technology-licensing arrangements cross the PFE threshold will be determined by the forthcoming guidance. Manufacturers are currently substantiating MACR calculations against a definition the statute itself acknowledges is incomplete.
The registry that does not exist
Section 6103 makes returns and return information confidential. "Return information" includes taxpayer identity, credits claimed, and data collected by the Secretary with respect to a return. Form 7207 is return information. The IRS Energy Credits Online portal handles pre-filing registration for elective payment or transfer elections. It is an account-based system, not a public claims database.
This is a permanent structural feature of the compliance architecture. Section 6103 ensures it persists regardless of how the program matures. 45X credit claims surface only when a company voluntarily discloses them in SEC filings, earnings calls, or investor presentations.
Many manufacturers do not disclose. Korean battery makers, whose U.S. facilities represent a substantial share of operational domestic capacity, structurally do not disclose quarterly 45X claims in English-language IR materials. For those that do disclose, the figures are company-reported and unverifiable against any public IRS record. MACR calculations, supplier certifications, safe-harbor elections, and PFE-sourced cost determinations remain entirely opaque to outside parties. This will remain true unless Congress amends Section 6103 or creates a separate disclosure mandate. Neither is pending as of June 27, 2026.
The 30D sunset and the capacity it leaves exposed
26 U.S.C. 30D, as amended by Public Law 119-21, provides no clean-vehicle credit for any vehicle acquired after September 30, 2025. A May 22, 2026 Federal Register notice confirmed the termination. No legislative extension, modification, or IRS transition guidance has been issued through June 27, 2026.
The downstream sequence: the demand-side credit that supported consumer EV purchase economics is gone. EV-oriented battery capacity built or announced during the credit's existence must find offtake without it. Some of that capacity may redirect toward energy storage, where 45X production credits and 48E investment credits remain available. That redirection carries its own compliance burden. ESS-pathway eligibility runs through a related but non-identical compliance structure: 48E carries its own FEOC restrictions and PFE material-assistance thresholds, with the FEOC definitions differing from those governing 30D-era vehicle credits. The compliance evidence base for any redirected capacity is exactly as thin as described above.
The gap between nameplate and credit-eligible capacity
Physical capacity, announced capacity, and credit-eligible capacity are three different numbers. The compliance architecture separating them has three gates. The evidence for who has passed them is, by statutory design, private.
Any estimate of domestic battery supply that does not distinguish between nameplate capacity and credit-eligible capacity is treating this architecture as if it does not exist. The manufacturer knows its MACR. The IRS will know when the return is filed. Everyone else is working from voluntary disclosure, against a PFE definition that Treasury has not finalized, with no registry to check against. The MACR threshold is 60% for 2026 and tightens in subsequent years under the statutory schedule. Capacity that passes Gate 3 today may fail it next year without upstream supply chain changes that are themselves invisible to outside observers. That is the operating condition, and no mechanism in the current architecture moves it toward greater transparency.
- PFE effective-control guidance: The statutory deadline for Treasury guidance on foreign-influenced-entity provisions, including anti-evasion rules for technology-licensing arrangements, is December 31, 2026, and no proposed rule has appeared in the Federal Register through June 27.
- Samsung SDI's LFP cathode sourcing: Samsung SDI's KRW 1.6 trillion L&F cathode-material supply agreement is a disclosed PFE-response signal, but the company has not published MACR assumptions, PFE-sourced cost data, or 45X claim details for StarPlus Energy output.
- LGES profitability without credits: LG Energy Solution reported a Q4 2025 operating loss of KRW 122 billion even after including KRW 332.8 billion of North American production incentive, raising the question of whether 45X is floor or ceiling for Korean-maker U.S. operations.
- Ford's BlueOval SK conversion: DOE's closed $9.63 billion ATVM loan describes EV battery plants, while Ford's subsequent disclosure describes Kentucky conversion toward BESS and a JV ownership split with SK On, creating a stated-versus-financed divergence worth tracking through 2027 shipment targets.