There is a great deal of attention being paid to the electric car tax credits that are part of the Inflation Reduction Act legislation and no wonder. They are so confusing that few people understand them. People who are confused often put off buying decisions, so in a way the new rules could actually decrease the number of EVs sold in the United States.
Electric Car Manufacturing Incentives
But take heart, electric car advocates. There are parts of the IRA that will help lower prices for all EVs — provided critical components that go into them are sourced from within the United States. According to Axios, the IRA provides a tax credit of $35 per kWh for each US-produced lithium-ion battery cell. Assuming an average cost today of $100 per kWh, that provision alone just sliced 35% off the cost of making a battery cell in America.
Axios points out that Ford could get a $3 billion tax break from the two battery factories it is building in Kentucky, which will be able to produce 86 GWh of batteries annually. GM will reap similar benefits for the four factories it is building with LG Energy Solution, which includes a new location in Indiana.
In addition, there is an additional tax credit on battery modules of $10 per kWh. Bloomberg New Energy Finance calculates that credit will reduce the cost of manufacturing battery packs by a third. The result of those two tax incentives will be lower costs for manufacturers of electric cars and presumably those costs will be passed along to consumers all across America no matter what tax bracket they are in.
Sharp-eyed CleanTechnica readers will notice immediately that the manufacturing credits bypass the limits on the cost of vehicles that apply to the purchase of an electric car or truck and may incentivize automakers to prioritize bigger vehicles with larger batteries instead of smaller, more efficient vehicles. They will also notice the hope of lower EV prices depends entirely on the good will of the car companies. There is nothing in the law that requires them to pass the savings along to their customers. We are trusting them to do the right thing. We’ll see how that works in practice.
Critical materials and minerals produced in the US also get a 10% tax credit under the new law. Not only will that benefit mining companies that produce nickel, lithium, copper, and other minerals in the US, it will give a boost to battery recycling companies like Redwood Materials and Li-Cycle that are extracting critical materials from used batteries so they can be used to make new products. The IRA also provides $2 billion in grants to retool existing auto plants to make electric cars and trucks, and up to $20 billion more in low interest loans to build new factories.
Axios says what the new law does is shift the incentives for EV adoption from consumers to manufacturers. Lawmakers are not “just putting on new rules and saying, ‘good luck.’ They’re putting tens of billions of dollars on the table to help [automakers] get there,” says Joe Britton, executive director of the Zero Emission Transportation Association.
For 50 years, America has been in thrall to the idea of globalization. Corporations were encouraged to seek the lowest cost labor they could find anywhere in the world. As a result, America let much of its manufacturing capacity move to other countries. That worked pretty well until the Covid pandemic locked up the shipping routes, making it impossible to get the goods and products manufactured in those other counties back across the seas to America.
Now the operative metric is “onshoring” — making things in America again and putting Americans back to work. There are many reasons for doing so, not the least of which is preventing America from being held hostage by foreign powers, the way Europe is because of its utter dependence on methane from Russia.
The Washington Post today has a story about how Saudi Arabia is pouring billions into its effort to become a global hub for electric car battery materials and manufacturing. Many Americans today weren’t alive when Saudi Arabia turned off its oil spigots in the 1970s, causing massive economic harm. Surely they would never use their position as a critical supplier of batteries to punish their enemies again…would they?
Some may have qualms about becoming dependent on a country that cuts up its opponents with bone saws or sends young women to prison for 34 years for daring to use Twitter. And surely we can ignore the fact that the attack on America on September 11, 2001 was carried out by Saudi terrorists who were funded by Saudi Arabian money. That could never happen again…could it?
Globalization was great for corporations, but not so great for people or nations. See Naomi Klein’s No Logo for more on this topic. By making profits the one and only metric by which economic activity is judged, other considerations like providing employment for Americans or protecting America’s vital national interests were ignored.
Trade with other nations is not necessarily a bad thing, but it has to take a back seat to other considerations. In many respects, globalization has left America weak and subject to the whims of foreign powers who seek to do the nation harm. It’s difficult to put a price on national interests, but it’s not hard to see the failure to take them into consideration can have enormous costs to society.
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