The bill stipulates that consumers receive $7,500 in tax credits on any new “clean” vehicles, a banner that includes hydrogen-powered cars, and $4,000 off of any used vehicle. These new incentives pair with President Biden’s $7.5 billion plan for the development of EV charging infrastructure across the country, in the 2021 “Infrastructure Investment and Jobs Act.”
One major stipulation of the Inflation Reduction Act is that the tax credits, which are set to go into effect in 2023, are only to be applied to vehicles “for which final assembly occurred in North America,” according to a Treasury Department fact brief.
This move is designed to establish the U.S. as a central manufacturing hub for EVs over the next decade. To do so, the bill proposes a series of credits for manufacturers targeting nearly every sector of the EV supply chain from the raw minerals needed to make batteries to last-mile production facilities.
According to an S&P Global Market Intelligence report, the tax credit for manufacturers equates to roughly 10 percent of production costs for essential materials such as aluminum, lithium, and graphite. Moreover, companies that produce their own lithium-ion battery cells for EVs will receive a $35 per kWh tax credit for each cell produced.
In just a week after the Inflation Reduction Act was signed into law, a series of major manufacturers including Toyota, LG, Piedmont, Honda, Panasonic, Hyundai, Volkswagen and Mercedes-Benz announced plans to invest in production infrastructure in North America. In total EV manufacturers have committed over $14 billion to create manufacturing facilities.
Panasonic, the company that supplies the car batteries for Tesla, will begin construction this month on a $4 billion battery manufacturing plant in Kansas. The new plant, which is set to begin production by March 2025, is projected to boast an initial production capacity of 30-gigawatt hours per year, a number equivalent to 60 percent of its current production numbers.
However, although the plan promises immediate infrastructure benefits, the real impact of the Inflation Reduction Act won’t be fully felt until production ramps up in North America. Nathan Iyer, a senior associate at the Rocky Mountain Institute, said in an interview with S&P Global Commodity Insights, “The real additionality is not going to be coming in the next one month, two months or three months, but in the next two to three years as new sites are scoped out and expanded.”
According to S&P Global Commodity Insights analyst Alice Yu, sales of EVs in global markets including China, Europe, and the U.S. have increased 92.5 percent year-over-year in 2022. The EV market across the globe is expanding rapidly, making it important for the U.S. to have a plan in place for securing production.