IRA Clause Boosting Local Battery Production in US

A small clause included in the 2022 Inflation Reduction Act (IRA) is boosting local electric vehicle battery production. The Advanced Manufacturing Production Credit clause rewards local manufacturing of battery cells and modules with 10 years of tax credits. These tax credits also extend to electric vehicle batteries recycled in the United States, regardless of their original country of origin.

Although America is home to major EV makers such as Tesla and Ford, the development of key EV components, including batteries, often occurs overseas. This reliance on foreign suppliers threatens America’s EV industry’s longevity and could tie American companies to conflict minerals.

The Biden administration has invested billions of dollars into developing electric vehicle infrastructure and spurring EV adoption since President Joseph Biden took office. Through the IRA’s Advanced Manufacturing Production Credit clause, the government is also hoping to encourage domestic production and recycling of the most important electric vehicle component: the battery.

America’s electric vehicle sector recently experienced a surge in sales amid oversupply and reduced prices. If demand for EVs in the country continues to rise, manufacturers will have to increase EV battery production to meet market demand. According to Ascend Elements CEO Mike O’Kronley, the IRA clause changes how battery material manufacturers such as Ascend can deliver enough EV batteries to sustain demand.

Ascend Elements currently plans on investing two grants from the U.S. Department of Energy worth $480 million to build a battery manufacturing plant in Kentucky. Further grants such as these could help local companies take more control over the supply chain, a feat that could significantly reduce the risk of shortages while making electric cars more affordable.

Local EV makers currently rely on China for a significant portion of EV battery metals, including cobalt and lithium, giving Beijing an uncomfortable degree of leverage over the industry. China is the largest player in the EV sector across almost the entire supply chain thanks to its immense critical mineral deposits and well-tested battery recycling infrastructure.

By 2021, China’s battery recycling capacity was three times larger than America’s, underscoring just how far the U.S. needs to go in terms of building up local production and recycling capacity.

Since finding new mines, acquiring the necessary permits, and beginning production can take up to a decade, recycling old EV batteries is the fastest way to start building up local production. Fortunately, O’Kronley said, EV makers can recycle electric vehicle batteries “infinity times” to help reduce the need for increased mining infrastructure.

As more companies such as Workhorse Group Inc. (NASDAQ: WKHS) deepen their reach within the market segments that they have focused upon, there is likely to be a massive market for locally produced batteries. Consequently, battery producers are unlikely to have concerns about demand for their products.

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