Inflation Reduction Act launches U.S. EV battery plans

Automakers and suppliers have announced $11 billion in electric vehicle battery investments since the passage of the Inflation Reduction Act in August as they look to localize supply chains to meet sourcing requirements and tap new manufacturing credits.

Our Next Energy, or ONE, said last week it will spend $1.6 billion on a new battery cell plant in suburban Detroit. The Novi, Mich., company plans to start production of lithium iron phosphate cells and battery packs in 2024 at a 660,000-square-foot building about 25 miles west of downtown Detroit.

The passage of the act provided clarity on the development of the U.S. EV battery market ahead of its investment decision, ONE CEO Mujeeb Ijaz told Automotive News.

"The acceleration with which we saw customers making clear, firm decisions took root," he said.

The law, signed Aug. 16 by President Joe Biden, includes provisions aimed at boosting U.S. manufacturing of electric vehicles and batteries, including new sourcing requirements for vehicles to qualify for EV tax credits.

The law also creates a credit for battery cells equivalent to $35 per kilowatt hour of capacity, with battery packs eligible for a credit of up to $10 per kilowatt hour of capacity, according to the Congressional Research Service. It also provides a 10 percent credit for critical minerals production.

"We're happy to see the U.S. government focused on the localization of the supply chain, as well as having cell manufacturing be a very big part of the Inflation Reduction Act's purpose," Ijaz said.

Since the act's passage, automakers and battery companies have detailed investments in battery manufacturing projects. In addition to ONE's plans, they include:

• A $2.4 billion EV battery cell facility by China's Gotion in Big Rapids, Mich.
• Honda Motor Co. and South Korean battery maker LG Energy Solution investing $4.4 billion in a new lithium ion battery plant, at a location to be determined.
• Toyota Motor North America nearly tripling its investment at its first battery factory in North Carolina, from $1.3 billion to $3.8 billion.
• Canadian lithium ion battery startup Electrovaya's planned $75 million investment to open a plant in western New York.

To be sure, these companies' multibillion-dollar investments were not thrown together in just a handful of weeks.

The projects are likely to have been in development or under consideration for months or even years before the act was signed into law.

Still, its passage is helping to accelerate projects and close deals previously in the works, said Jonathan Geurkink, mobility analyst at research and data firm Pitchbook.

"It provides a big push," he said.

The law aims to localize the EV battery supply chain, which is heavily reliant on China. According to consultant Roland Berger, China processes about 71 percent of the world's lithium, as well as about 65 percent of its cobalt and 35 percent of its nickel. That leaves the supply chain for U.S. factories vulnerable to potential geopolitical risk, high shipping costs and a large carbon footprint.

The situation could be starting to change. In September, North Carolina-based Piedmont Lithium said it would spend $582 million to open a lithium hydroxide processing, refining and manufacturing facility in Tennessee, providing a domestic source for the critical EV battery material.

Meanwhile, Mercedes-Benz and Volkswagen signed agreements with the Canadian government to secure access to the country's lithium, cobalt, nickel and graphite, helping to regionalize the supply chains for their U.S. operations. In order to qualify for the IRA's $7,500 EV tax credit, an annually increasing percentage of the critical battery materials must be processed or extracted either within the U.S. or in a country the U.S. has a free-trade agreement with, such as Canada.

The U.S. had been "asleep at the wheel" as China and other countries made big bets on EV battery manufacturing, Geurkink said. But the IRA is helping to change that, he said.

"There are going to be some headwinds and conflicts, and some things will take longer than expected," he said. "But ultimately, this is important."