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

The legislation is an attempt to incentivize companies to build more capacity for mining and battery manufacturing in the US. The restrictions could eventually help build a secure supply chain for batteries in the US and create more manufacturing and mining jobs. But some experts are uncertain how quickly US companies will be able to respond. The danger, then, is that the tax credits could have only a limited impact on EV sales in the near term, if qualifying batteries and the minerals that go into them are in short supply.

There are two major parts to the new rules. First are the limitations around the critical minerals used in the battery, like lithium, nickel, and cobalt. Starting when the tax credits kick in at the start of 2023, 40% of these minerals in the car’s battery must be mined, processed, or recycled in the US or a free-trade partner. This ramps up over time, hitting 80% in 2026.

There’s also guidance about where the battery is actually made—starting in 2023, half the components need to be manufactured or assembled in North America. This reaches 100% by 2029.

Finally, a vehicle can be excluded from the tax credits if any mining, processing, or manufacturing for a battery is done by a “foreign entity of concern.” This requirement takes effect in 2024 for the battery components and in 2025 for critical minerals.

While it’s not clear exactly which countries will count in this definition, the rules are an obvious attempt to slow China’s dominance in the battery business, says Jonas Nahm, a professor of energy, resources, and environment at Johns Hopkins.

However, he adds, the timelines are “hugely ambitious,” and the bill is “basically setting targets that people may be unable to meet.”

Last week, E&E News reported that climate activists are already worried about whether carmakers will be able to satisfy the new requirements.

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