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PFE Is the New FEOC Chinese involvement is better tolerated The new PFE framework builds upon and broadens the earlier FEOC restrictions by introducing a two-tiered system: 1. Specified Foreign Entities (SFEs), and 2. Foreign-Influenced Entities (FIEs) The ownership threshold has led to Chinese p/CAM companies diluting shares in overseas JV projects or providing PFE-related put options as protection to their joint venture partners. This broader scope allows regulators to assess not only equity ties but also debt, licensing, and operational influence. Under these new definitions, battery projects operated by Chinese-origin companies, such as AESC (on US regulator’s watchlist), are expected to be classified as SFEs and disqualified from accessing the 45X production tax credit. A key distinction between the FEOC and PFE regimes lies in their tolerance of PFE participation in the supply chain. Under the old FEOC rule, any involvement by a FEOC would automatically disqualify a project from receiving the EV tax credit. In contrast, the new PFE framework introduces a more flexible approach: materials or components sourced from a PFE can coexist with compliant sources, as long as the PFE does not exert operational control over the project. To quantify acceptable levels of PFE involvement, the Material Assistance Cost Ratio (MACR) sets a project-specific cost threshold for PFE-derived content.
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