Bloomberg has spoken with more than a dozen manufacturing executives, battery analysts and government officials, and the U.S. Treasury Department’s interpretation of several words in the regulation is that tens of billions of dollars of new electric vehicle tax incentives will be available. It may subvert expectations about how it will be distributed.
The question in the coming weeks will be whether a significant part of the battery supply chain will eventually be manufactured in North America or remain in Asia, where it is currently concentrated.
“There are certain factories and thousands of jobs associated with them that are out of balance,” said JB Straubel, founder of battery materials maker Redwood Materials and co-founder of Tesla. increase.
By the end of the month, the Treasury and IRS will issue guidance on EV incentives worth tens of billions of dollars over the next decade. One of the most important parts concerns complex rules about where the most valuable battery materials must come from to qualify for the $7,500 EV subsidy under the 2022 Inflation Reduction Act. doing.
A white paper released by the ministry on December 29 outlines the intent of the upcoming guidance. Categorized in a separate section of the text of the IRA itself, we treat the anode and cathode active materials as processed critical minerals rather than as battery components. This change significantly expands the countries from which we can legally source materials.
manchin is grumpy
West Virginia Democratic Senator Joe Manchin called for a vote on many of the law’s stringent domestic sourcing requirements in negotiations on last year’s package, making it easier for automakers to qualify for credit.
“These loans are aimed at growing domestic manufacturing and reducing reliance on Chinese and other foreign supply chains,” Manchin said in an email to Bloomberg. “Such a move would not only go against the spirit of the law, but would seriously undermine America’s energy security and deepen our reliance on foreign supply chains for what we can and should do at home.”
“The guidance we are issuing in March will create more jobs and strengthen supply chains that are critical to energy security,” Treasury spokesman Ashley Chapitol said in a statement. We are focused on building a resilient industrial base with our partners in mind.” Additional changes to the guidance are possible after the guidance is released in draft form.
All EV batteries have two electrodes (cathode and anode) between which move trillions of charged lithium atoms. The cathode is the largest contributor to battery performance, cost, and environmental footprint. According to data from the research group BloombergNEF, the cathode accounts for 60% to 70% of the cost of a battery cell, while the anode accounts for a further 9% to 11%.
Almost all of today’s cathode and anode materials are produced in China, South Korea and Japan. But that started to change. Since climate and tax laws were passed in his August, companies have announced that he will invest more than $10 billion in new plants to manufacture cathodes and anodes in the United States. At least a dozen US startups are developing next-generation materials to make EVs that go farther and are cheaper. Charge faster.
Requiring that cathodes and anodes be sourced in North America benefits these start-ups, but a broader interpretation favors major automakers with global supply chains.
Vivas Kumar, CEO and co-founder of Mountain-based cathode developer Mitra Chem, said: View, California, plans to announce the location of its first commercial-scale factory later this year. If the white paper guidance goes forward, “we will end up being no different than the industry is today. It’s a joke,” he said.
“He’s really left fielder.”
One of the major companies building the US battery supply chain is Redwood, created by Straubel. In December, Redwood broke ground on his $3.5 billion factory near Charleston, South Carolina. In less than two months, he has secured a $2 billion federal loan to expand production in Nevada. The company plans to manufacture enough cathodes and other critical materials for 1 million EVs per year by 2025 and 5 million EVs per year by 2030.
In an interview, Mr. Straubel called the Treasury Department’s proposed reclassification “really off the left” and said it would “clearly change the whole intent of the law.” He said he’s already heard from automakers and other materials makers who are reassessing their investment plans based on the white paper.
The Inflation Reduction Act encourages domestic production of battery technology in a number of ways. This includes a 10% manufacturing credit that applies to anode and cathode production and is not subject to Treasury guidance.
David Schweetert, chief policy officer of the Alliance for Automotive Innovation, a trade group for the auto industry, said the sales tax credit is “one of several incentives to strengthen the EV supply chain outside of China. It’s nothing more than They “will further accelerate U.S. investments and joint partnerships for the extraction, processing and production of battery cells of critical minerals in the United States,” he said.
Impact on consumption tax credit
The biggest prize, however, is the $7,500 credit consumers receive when they purchase a qualifying electric vehicle.
The subsidy has two parts, each reducing the price of a new car by $3,750. The first $3,750 concerns what the law calls “significant minerals.” These include elements such as lithium, cobalt and nickel. Eligibility requires an annual increase in a certain percentage of materials mined and refined in countries with which the United States has free trade agreements, including South Korea. (Discussions are also underway to apply this definition more broadly to the EU and Japan.)
A second $3,750 rests on various manufacturing components that go into the battery pack, including electrodes, solvents, additives, salts, battery cells, and the modules that hold the cells. A gradually increasing percentage of the value of all components minus the value of critical minerals must be manufactured in North America.
For the most part, anything mined and refined falls into Part 1, and anything combined using chemical or industrial processes falls into Part 2.
Cathode and anode materials are clearly classified as components of batteries in the part of the law, but the part of the law dealing with consumer subsidies does not explicitly define this category. The Treasury White Paper creates a new third product category called ‘construction materials’. This is mostly anode and cathode materials. These are treated like vital minerals until they are glued to the metal foil. That is, what is available from other partner countries. Only then do they graduate to the tougher North American “component” category.
“The Treasury appears to have once again ignored the will of Congress by blatantly expanding the definition of important minerals to include ‘constituent materials,'” Manchin said.
Advantage Korea
Thomas Conway, international president of the National Steelworkers’ Union, the largest industrial union in North America, said the Treasury Department “should follow the direction it received from Congress.” In a March 7 letter to Treasury Secretary Janet Yellen, he wrote, “This expansion could undermine the United States’ ability to create thousands of jobs in its battery supply chain.”
Many major automakers and battery cell makers have written to the Ministry of Finance proposing changes similar to the white paper, or advocating through industry trade associations. This guidance provides strong incentives for cell and pack manufacturing in the United States, makes it easier to meet reporting requirements for components, and gives these manufacturers more control over how they meet subsidy requirements. .
Data from Bloomberg NEF show that the provenance of individual battery components becomes largely irrelevant once cathode and anode materials are transferred to the key mineral count. As long as the battery cells and modules are produced in North America, they essentially account for all of the “parts” value of the battery. This is because battery cell manufacturers have already included the final step of turning the cathode and anode materials into electrodes that qualify as part of the cell. production process.
A South Korean battery industry analyst at Macquarie Research reached a similar conclusion after reading the white paper, writing in a report to clients that the guidance meant “less incentives for cathode material suppliers to enter the US.” I write that. They concluded that while China would be largely cut off from the U.S. supply chain, “South Korea’s supply chain advantage” would not be compromised.
