Coming to a neighborhood near you: mineral mines and chemical plants.
Big investments in electric-vehicle battery manufacturing in the U.S. keep rolling in, most recently from Japan.
on Wednesday said it would plow a further $2.5 billion into a cell-production facility it is building near Liberty, N.C., on top of roughly $1.3 billion committed last December. On Monday Honda announced a joint venture with Korean battery giant LG Energy for a U.S. cell plant, probably in Ohio. Last week The Wall Street Journal reported that
longtime battery supplier, is in discussions to spend $4 billion on a plant in Oklahoma.
All this means car makers can perhaps start to relax about where they will get EV batteries. The tougher question now is where they will get battery materials. Another wave of investment in inputs such as processed lithium and nickel needs to follow—and with a new urgency.
President Biden’s Inflation Reduction Act, which came into force on Aug. 16., expanded the existing $7,500 EV tax credit regime while also tying it aggressively to local sourcing. Starting immediately, EVs need to be assembled in North America to qualify. Starting next year, half the value of their battery components also need to be made in North America to get half the tax credit. The other half of the tax credit is linked to the value of “critical minerals” mined or processed in the U.S. or free-trade partners.
Perhaps most onerous, EVs with any inputs from “foreign entities of concern,” a group including China and Russia, are excluded from subsidies starting in 2024 for battery components and 2025 for critical minerals. Given that China is the global hub for battery-mineral refining—the steps that turn lithium and nickel from their mined forms into useful battery inputs—this will be hard for auto makers to work around.
which has embraced Chinese suppliers in a rush to get flagship EVs out ahead of
could be in a particularly awkward spot. In late July it announced a series of deals to secure batteries and their inputs, including with
Contemporary Amperex Technology Co.
Limited, or CATL. China’s battery giant was reportedly looking at building a plant in Mexico or the U.S., only to pause the plans following the recent tensions over Taiwan. Whether EVs that get batteries from a CATL plant in North America would qualify for subsidies is one of many uncertainties surrounding the new tax credits.
CATL’s rivals in South Korea and Japan, which supply batteries to all the major car makers, are also extremely reliant on Chinese supply chains. Gyeongin Hwang, a researcher at the Korea Institute for Industrial Economics and Trade, says the Korean players get roughly 70% of their inputs from China, and that building up comparable refining capacity at home would be expensive because of environmental regulations. The situation probably isn’t much different for Panasonic.
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How far and how fast EV and battery makers need to scramble depends on how the Treasury Department interprets the Inflation Reduction Act. This process, which will be subject to intense lobbying over the coming months, could weaken some of the strings attached. Abigail Wulf, director of critical minerals strategy for advocacy group Securing America’s Future Energy, sees wiggle room in language like “battery components” that need to be “manufactured or assembled” in North America, for example.
What is clear is that diversifying the EV supply chain away from China is something Washington can agree on. One way or another, pressure is building on auto makers with ambitions in the booming U.S. EV market to localize wherever possible. This won’t be quick or cheap: Mining minerals and processing them into chemicals in particular is a difficult and often dirty business. In democracies, projects will face the kind of local opposition that doesn’t get much of a voice in China. High environmental standards will be key.
The U.S. could end up with two types of competing EVs: some with cheap battery parts and some with tax credits from Washington. Benefiting from both, as many manufacturers have done to date, will become harder with each passing year.
Write to Stephen Wilmot at firstname.lastname@example.org
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