The Biden administration’s “Inflation Reduction Act” has been grabbing headlines for its measures to promote e-mobility and renewable energy, but one of the most significant provisions has been largely overlooked. Section 45X of the Act authorizes 10 years’ worth of funding for production credits for manufacturing batteries—and this could have a massive impact on EV prices.
At today’s prices, the credits could reimburse a manufacturer for up to a third of the cost of building a battery—even more if battery costs continue their downward trajectory. This could make US-made batteries so cheap that manufacturing will migrate to North America, potentially leading to a dramatic drop in EV prices.
Tesla expects to earn up to $1 billion in battery tax credits this year, while Ford expects to rake in over $7 billion from 2023 to 2026. GM expects to grab around $300 million this year, and all automakers assembling vehicles in the US are expected to build their own battery factories stateside.
The Congressional Budget Office has projected that the tax credits will amount to some $30.6 billion over 10 years, but Benchmark Mineral Intelligence has estimated the eventual total at $136 billion. This could send a major influx of cash into the EV industry, and the resulting reduction in battery costs could make EVs much more affordable for the average driver.
However, the rules are still being finalized and many details aren’t yet clear. It’s also uncertain how automakers will apply the savings—they might use it to reduce prices, or they might take advantage of the higher margins.
The Biden administration’s Inflation Reduction Act could have a huge impact on the EV industry, and it’s important to keep an eye on this provision as the rules and regulations are finalized. It could mean significantly cheaper EVs and a major shift in the manufacturing of batteries.