Repeal of Inflation Reduction Act's EV, manufacturing incentives a ‘scary thought,' industry executives say

The Inflation Reduction Act, now 2 years old, has proven itself a landmark piece of legislation for the auto industry, spurring billions in investments in electric vehicle assembly, battery manufacturing and parts making.

As the Nov. 5 presidential election looms ahead of a new administration taking office in January, the industry is urging lawmakers to preserve the Inflation Reduction Act's EV manufacturing and sales incentives, arguing that they're crucial to making the U.S. competitive on the global stage.

The auto industry is again bracing for potentially huge changes in policy and regulation between Democratic and Republican administrations, said John Bozzella, CEO of the Alliance for Automotive Innovation.

Republican presidential candidate Donald Trump told Reuters on Aug. 19 that if elected he will consider ending a $7,500 tax credit for EV purchases.

At the CAR Management Briefing Seminars this month, Chris Nevers, Rivian's senior director of public policy, said that going backward now would amount to "basically yanking the rug out from underneath all those suppliers and manufacturers that invested either domestically or in some of our trading partners.

"That's really scary," he added.

Companies have allocated $223 billion to EV-specific facilities and initiatives in the U.S. in recent years, according to an Aug. 13 report by Atlas Public Policy. About two-thirds of that came following passage of the bipartisan infrastructure law in November 2021, a trend accelerated by the Inflation Reduction Act of August 2022.

Those two laws, as well as the 2022 CHIPS and Science Act, represent a massive shift in U.S. industrial policy. They have spurred automakers, suppliers, battery makers and microchip manufacturers to develop a more robust regional supply chain for EVs and components — and to become less dependent on vehicles, parts and materials imported from China.

The future of those laws and their incentives is on the minds of industry executives, especially since the presidential race is seen by many political analysts as a toss-up.

Vice President Kamala Harris is expected to continue many of President Joe Biden's policies should she be elected, though her campaign has yet to detail specific industrial and environmental policy proposals on the topic.

Meanwhile, Trump often criticizes government policies geared toward boosting EV sales. According to a June report by Politico, congressional Republicans have discussed repealing the Inflation Reduction Act's clean energy and EV subsidies to offset possible corporate tax cuts should Trump win. But other Republican lawmakers have expressed concern about such a move.

Repealing or altering the Inflation Reduction Act would have significant ramifications for the North American auto industry.

The Natural Resources Defense Council, an environmental advocacy group, warned that $89 billion in investments companies have announced but not yet allocated to specific facilities could evaporate if the legislation is repealed.

"Companies walk away from investments all the time," said Jordan Brinn, a clean vehicles advocate at the Natural Resources Defense Council, on an Aug. 13 call.

Battery manufacturing accounts for about $133 billion of the allocated investment announcements in the U.S., with another $70 billion slated for EV manufacturing and $21 billion pledged for EV parts and critical minerals, according to Atlas.

Ford, General Motors and Rivian have thus far committed the most resources toward EV assembly and battery manufacturing in the U.S., Atlas said. But foreign automakers and battery manufacturers including Toyota, LG, Hyundai, Volkswagen and SK On are among those that plan to invest at least $10 billion each in the U.S.

Under the Inflation Reduction Act and the bipartisan infrastructure law, the federal government has dispersed more than $23 billion in loans and grants geared toward boosting EV assembly and battery manufacturing. The laws include manufacturing tax credits, and EV models only qualify for a $7,500 tax credit if they contain enough domestically sourced components.

EV battery capacity growth is surging in the region. Annual lithium ion battery cell production capacity in North America will reach about 1,400 gigawatt-hours in 2030, enough to supply 14 million light-duty EVs annually, according to the U.S. Department of Energy. That's more than 10 times the capacity planned in January 2021.

"We've seen growth over the course of the past decade, but really quite notable growth since the passage of the Inflation Reduction Act and all that came with it," said Sarah Colbourn, acting head of sustainability at data provider Benchmark Mineral Intelligence.

The legislation makes the U.S. more competitive with China, which is "at least 10 years ahead" on electrification, Panasonic Energy North America CEO Allan Swan said.

"Without that, you can't get back 10 years," he said in a keynote address at the CAR Management Briefing Seminars.

Talk of the Inflation Reduction Act's future comes as EV sales growth in the U.S. falls short of earlier expectations. Automakers are rethinking the pace of their electrification strategies, in some cases delaying investments or scaling back targets.

A repeal of the act's EV credits for consumers could exacerbate that trend, analysts said.

"I'd bet we'd have a pretty significant decline in EV penetration in the U.S.," said John Murphy, an analyst at Bank of America.

As the industry awaits the results of the November election, automakers and suppliers bemoan a lack of policy and regulatory consistency in Washington. Swings in automotive policy used to be less substantial when the president's party affiliation changed.

"I don't think that's true anymore," Bozzella said.

Companies such as Toyota are developing EV strategies that they hope will be effective regardless of any changes in approach in Washington.

"Our environmental strategies are not informed by short-term political considerations," said Dante Boutell, vice president of powertrain control at Toyota Motor North America.

Whether the Inflation Reduction Act remains law, is repealed or is significantly altered is uncertain and will depend not only on who wins the presidency but also on the results of congressional races.

That political calculus could be more complex than simply knowing which party controls the White House and Congress. In August, 18 congressional Republicans signed a letter to House Speaker Mike Johnson noting concerns about repealing the Inflation Reduction Act's green energy tax credits, citing major investments announced since the law's passage.

Whether similar bipartisan sentiment exists on EV manufacturing incentives is unclear. But it is at least a sign that some of the law's provisions could be here to stay, even if the balance of power shifts in Washington next year.

"Most state and federal officials know the smart move is to bet on the future, not the past," Brinn said.

Editor's note: The name of the the Natural Resources Defense Council has been corrected. An earlier version of this story misstated the organization's name.