The Inflationary Restrictions Act (IRA) could be key in encouraging the production of battery cells, which are central to the deployment of electric vehicles (EVs) in the United States, said Wood Mackenzie.
First, the U.S. has big EV ambitions, aiming for 50% of all light passenger car sales by 2030, including battery EVs (BEVs), plug-in hybrid EVs and fuel cell EVs. Already growing rapidly, 1 million of his BEVs will be sold in 2022, up 70% year-on-year. However, it is from a very low base. With the largest share of all EVs, BEVs account for only 8% of total vehicle sales, with ICE vehicles dominating the market today, accounting for just 1% of inventory.
Wood Mackenzie predicts that EV sales in the US will reach 5.8 million by 2030, accounting for one-third of all passenger car sales. It will be until 2034 that he surpasses his ICE car in annual sales.
Second, greater incentives for IRA consumers should drive sales. This would save him $7,500 on the cost of buying a BEV (two different subsidies would make the vehicle worth up to $55,000). A grant worth $3,750 ensures that battery packs are composed of up to a minimum of critical minerals that are extracted or processed in the United States, sourced from Free Trade Agreement (FTA) partners, or recycled from materials in North America. must be This value is determined on a sliding scale rising to 80% in 2027.
The remaining $3,750 requires some battery components to be manufactured or assembled in North America. The minimum standard he will raise to 100% in 2028. However, if a “covered country”, including China or Russia, is involved in the procurement of critical materials, battery components, or manufacturing, the battery will not be eligible for the subsidy.
Woodmac believes U.S. automakers can achieve the critical mineral threshold by 2030 by focusing on high-value minerals in commercial batteries such as lithium, nickel and graphite. Domestic supplies of these minerals are minimal, but in theory the automaker could meet much of the demand from his FTA partners. But this is a global market, and the US will be competing with Asian and European automakers for the same supply.
Battery components are a bigger challenge for US automakers. China dominates the supply chain for cathodes, anodes, current collectors, solvents, additives and electrolyte salts, with over 80% market share for certain components. Achieving the threshold looks unrealistic for most BEV models in the next few years. Only a small percentage of his BEVs may be eligible for the full $7,500 incentive.
Third, the IRA offers substantial incentives to OEMs to establish domestic supply chains. U.S. battery manufacturers can take advantage of the Advanced Manufacturing Production Credit (AMPC), a tax credit worth $45 per kWh, to reduce the typical battery cost of $145/kWh by about a third. The battery itself is 20% to 25% of the purchase cost of an EV. AMPC will lead to rapid construction of huge factories as OEMs switch to domestic production to avoid the cost of shipping battery cells to the United States.
Fourth, consumer and manufacturing incentives in the IRA show that the US is doubling down on nickel-based battery chemistries that are already mainstream. In China, LFP batteries (lithium iron phosphate) dominate. They rely heavily on China-dominated key components and may be marginalized in the United States.
IRAs have unintended consequences. As it stands, the incentives heavily favor automakers and his OEMs with established positions and partnerships in the US, including Tesla-Panasonic, Ford-SK-On and GM-LG Energy Solutions. Conversely, foreign automakers and battery makers are at a disadvantage. The Biden administration has already signaled its readiness to tweak the IRA to resolve FTA partner difficulties.
Finally, the industry will adapt. Hyundai has already announced plans for several EV and cell factories in the US, even though production won’t start until his late decade. We are not shying away from the enormous opportunities in the United States.
The IRA has given automakers and OEMs the blue touch paper as they race to minimize battery costs and provide EV buyers with the most competitive products. Of the 5.8 million EVs projected to be sold in the US in 2030, perhaps 4%, or only 300,000, will be eligible for all incentives based on current supply chain bottlenecks, especially anodes. am.
The motivation for the industry to adapt to IRAs is clear. The risks of numbers, sales and percentage eligible for incentives are very upside.
To contact the author, please send an email to bojan.lepic@rigzone.com.
