March 2023
The US is making massive federal investments to build up a domestic supply chain for batteries and EVs. Last year’s Inflation Reduction Act lays out US$370bn in climate spending over a decade. US states and localities have also promised EV-related companies nearly US$14bn in subsidies as of October 2022.
The IRA includes US$37.4bn in clean manufacturing incentives and US$14.2bn in tax credits for new and used EVs. The subsidies could cut the cost of making electric vehicles by as much as US$9,000. That will unleash a wave of private capital as companies are going to go where they get the best offer. We expect US battery production capacity to soar to 403GWh by 2025, up from 70GWh in 2021. The impetus of this spending surge is shoring up economic growth, shifting to clean energy systems—and reducing dependence on China. The US IRA and USMCA phases in its regional content requirements for tax credit eligibility to incentivise domestic manufacturing and break China’s grip on the supply chain. Mexico and Canada will benefit from their inclusion in these measures. The IRA‘s US$7,500 EV tax credit will only apply if domestic sourcing thresholds are met and excludes vehicles containing battery components or minerals from a “foreign entity of concern”—namely China. Similarly, the US$369bn Chips Act, designed to build a leading-edge US semiconductor industry, will restrict companies from expanding chip capacity in China for 10 years if they receive federal money.