Summary
- U.S. could produce cheaper EV batteries than China by 2030 with current policies
- Tax credits from the Inflation Reduction Act (IRA) are key to cost reductions
- U.S. battery production cost could fall to $76.8 per kwh in 2029
- Challenges include delayed projects, longer construction time, and higher production costs in the U.S.
- IRA tax credits have already boosted operating income for companies like LG Energy Solution and Panasonic
Article
The U.S. could potentially produce cheaper electric vehicle (EV) batteries than China by 2030, as per a report by Benchmark Mineral Intelligence. This is contingent on the continuation of Biden administration policies that support current battery manufacturing efforts. The cost reductions are reliant on tax credits from the Inflation Reduction Act (IRA), which offers a manufacturing tax credit of up to $35 per kwh for U.S.-produced cells until 2029. Analysts predict that with these tax credits, the average cost of U.S. battery production at the cell level could decrease from $118 per kwh to $76.8 per kwh by 2029, making U.S. battery factories the “lowest-cost operations globally” and potentially enabling more exports from U.S. plants.
The future implementation of this scenario hinges on whether the incoming administration continues to allocate funds for battery-manufacturing tax credits. There is concern that the tax credits could be at risk, as Trump had reportedly considered nixing EV incentives in exchange for donations from Big Oil during his campaign. Additionally, there are challenges to achieving cheaper EV batteries in the U.S., with potential cancellations of projects if EV demand does not rise as expected. While 23 new battery factories have been proposed since the IRA was passed in 2022, over a third of these projects have not yet started construction. Furthermore, the average construction time for new battery factories in North America is longer than in China, and other factors such as unionized workforces and limited access to refined battery materials make U.S. battery production more expensive.
Despite these challenges, the IRA is enhancing the financial viability of manufacturing batteries in the U.S. Companies like LG Energy Solution and Panasonic have reported positive impacts from the tax credits, with LG Energy Solution turning its operating income from a loss to a profit, and Panasonic increasing its earnings margin significantly. Cheaper batteries ultimately lead to cheaper cars, potentially having a more significant long-term impact on EV adoption compared to tax credits for vehicle purchases. However, a study by the Stanford Institute for Economic Policy Research (SIEPR) suggests that while IRA tax credits have helped lower emissions and boost U.S. manufacturing, they may primarily benefit individuals who would have bought an EV regardless.
Overall, the potential for the U.S. to produce cheaper EV batteries than China by 2030 depends on the continuous support of Biden administration policies and tax credits from the IRA. While the tax credits have led to a surge in battery investments and could significantly reduce U.S. battery production costs, challenges such as project cancellations and longer construction times in North America still exist. Despite these obstacles, the financial benefits of the IRA for companies like LG Energy Solution and Panasonic illustrate the positive impact of the tax credits on battery manufacturing in the U.S. Cheaper batteries could ultimately drive down the costs of EVs and have a more substantial impact on adoption rates, although there are concerns about the effectiveness of tax credits in incentivizing EV purchases for individuals who would have bought an EV regardless.
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