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Inflation Reduction Act Spurs Changes In US Electric Vehicle Production

The Inflation Reduction Act is having an impact on vehicle manufacturing in the United States. It is barely 2 months old and already there are news reports galore of new battery factories being built in America, new lithium mining agreements, and new factories being built in the US. Economists call them “price signals,” which is a fancy way of saying individuals and corporations all want the biggest bang they can get for the buck. Now that the US government is offering buyers of electric vehicles tax rebates if those EVs are built in America, some of those major corporations are already making adjusting their plans to take advantage of the new economic reality.

Audi Mulls US Factory For Electric Cars

inflation reduction act and Audi

Audi is taking a hard look at whether or not it should open a production plant in the States. In an interview with Automotive News (paywall), Oliver Hoffman, Audi’s head of technical development, said the Inflation Reduction Act “will have a huge impact on our strategy here.” Audi’s only North American factory is currently located in San Jose Chiapa, Mexico, where it builds the Q5 crossover. With a move to electric propulsion in the works, though, it may benefit Audi to start a production line north of the border.

“To be honest, we are looking right and left. What can be the opportunity for us to get together with a strong [Volkswagen Group] in the background,” he said. “And now we are on the way, especially as the rules changed and as you know there is big spending of the government for EVs, with special circumstances, and we are looking forward to how we can meet these requirements.”

Unlike Audi, Volkswagen currently manufactures the ID.4 battery-electric SUV at its newly expanded factory in  Chattanooga, Tennessee. That makes it the only Volkswagen Group vehicle currently eligible for the incentives provided by the Inflation Reduction Act.

Volkswagen Group recently signed an agreement with the Canadian government to source minerals mined in that country for future battery production, which may signal a further commitment to North American production of electric vehicles. While the future of Audi production, specifically, remains unknown, Hoffman suggested that a final decision on expanding EV production to the U.S. could come in early 2023.

Electrive speculates that Audi could share space with the Volkswagen EV factory in Tennessee. On the other hand, Volkswagen is reported to be considering a second US factory that may or may not be in Chattanooga. Presumably, the two members of Volkswagen Group could build similar models side by side in any new factory.

The problem is that currently only one Audi EV is built on the ubiquitous MEB platform — the Q4 e-Tron. The rest of Audi’s electric car models are based on the PPE chassis co-developed with Porsche. “We have a very strong history in the USA, but this is a great opportunity to grow further in the country with our premium electric models.”

Could Volkswagen Group flip the script and decide to base more future models on the PPE platform or other shared chassis so VW and Audi could build more EVs in America in a new factory? That is pure speculation. The only thing we can say for sure is that the IRA has scrambled the playing field and any number of unexpected realignments could result.

The Inflation Reduction Act & The Tesla Semi

inflation reduction act Tesla Semi

Bloomberg News has a new feature called Hyperdrive that focuses on news about electric vehicles. In today’s email, author Dana Hull offers some speculation about a possible connection between Tesla’s sudden announcement that it will start deliveries of its long awaited Semi on December 1. The first trucks are going to PepsiCo, which will put them to work at a Frito-Lay facility in Modesto, California, and a beverage plant in Sacramento.

“Why is the Tesla Semi finally going into production 5 years after it was first announced? Musk hasn’t addressed this, but the climate legislation President Joe Biden signed into law in August sure looks like the reason,” Hull writes.

Before the Inflation Reduction Act was passed and signed into law, Musk said the Semi was more or less on hold because Tesla didn’t have enough batteries. The Semi uses roughly five times the number of cells a car would, but won’t sell for five times what a car does, so it didn’t make sense to produce trucks until the company had worked through battery production constraints, Musk said in January of last year.

Those cell constraints don’t seem to have lifted. Musk referred to battery output as “the fundamental rate limiter” for transitioning to sustainable energy during Tesla’s most recent earnings call. Also during that call it didn’t sound like Tesla was close to ramping up output of the larger 4680 battery cells that Musk has suggested the Semi will use. He referred to those cells as important for Tesla’s plans for 2023, but not this year.

A week after that earnings call, Senator Joe Manchin and Majority Leader Chuck Schumer announced they’d agreed on legislation that would enact major parts of Biden’s climate agenda. While the up to $7,500 clean car tax credit that new car buyers will be eligible for grabbed a lot of headlines, costlier commercial vehicles qualify for a much bigger incentive — as much as $40,000 per truck.

“Lo and behold,” Hull writes, “days after the Senate passed the bill, Musk announced the Semi would start shipping this year.” As of today, few technical details about the Tesla Semi have been revealed, other than a tweet by Elon that it will have a 500 mile range and be “super fun to drive.” Exactly how many Semis is Tesla delivering to PepsiCo? Musk and PepsiCo haven’t said.

Musk wasn’t begging for the big incentives. On the contrary, he spoke out against Biden’s earlier Build Back Better proposal, saying he believed “the role of government should be that of like a referee, but not a player on the field” and calling for Washington to “get out of the way and not impede progress.”

But rather than get in the way, the Inflation Reduction Act appears to have spurred Tesla to progress its stalled product. The tax credit “will turbocharge adoption of electric medium-duty and heavy-duty trucks,” according to RMI. “The IRA tax credit makes owning an electric truck cheaper than owning a diesel one in most use cases, with urban and regional electric trucks becoming cost-superior to diesel ones as soon as 2023.”

We know the first Tesla Semis are expected to be delivered in about 6 weeks. While technically production has begun, we have no idea how many trucks Tesla will build this year or next. The odds are the production ramp will be quite slow at first. As to when it picks up speed, we will have to wait and see.

 
 
 
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Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. 3000 years ago, Socrates said, "The secret to change is to focus all of your energy not on fighting the old but on building the new." Perhaps it's time we listened?

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