New tax credits to boost EV sales could stall out on lack of US battery supply

The law is an effort to encourage companies to build more battery mining and manufacturing capacity in the US. Final constraints can help build secure supply chain for batteries in the United States and make more production and mining job. But some experts aren’t sure how quickly American companies will be able to respond. The danger, therefore, is that the tax credits may have only a limited impact on electric vehicle sales in the near term, if qualified batteries and the minerals going into them are in short supply.

There are two main parts to the new rules. The first are restrictions around key minerals used in batteries, such as lithium, nickel and cobalt. Starting with the tax credits going into effect in early 2023, 40% of this mineral in car batteries must be mined, processed, or recycled in the United States or a free-trade partner. This number gradually increases over time, reaching 80% by 2026.

There’s also guidance on where to actually manufacture batteries — starting in 2023, half of the components need to be manufactured or assembled in North America. This number will reach 100% by 2029.

Finally, a vehicle can be excluded from the tax credits if any mining, processing or battery production is carried out by a “relevant foreign entity”. This requirement goes into effect in 2024 for battery components and in 2025 for critical minerals.

While it’s unclear exactly which countries would count toward this definition, the rules are clearly an attempt to slow China’s dominance in the battery business. Jonas Nahma professor of energy, resources, and the environment at Johns Hopkins.

However, he added, the timelines are “extremely ambitious” and the bill “basically sets goals that people may not be able to meet”.

Last week, E&E News reported that climate activists were worried about whether automakers would be able to meet the new requirements.

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