An introduction to the Inflation Reduction Act and how it impacts the EV and Battery Industries
The story so far
On Tuesday, August 16, 2022, President Joe Biden signed the Inflation Reduction Act, America’s most historic legislative effort in clean energy and climate.
Over the next decade, the bill will invest more than $360 billion in clean energy and climate provisions. These provisions include tax breaks to accelerate the nation’s transition to renewable energy and cash incentives for the purchase of electric vehicles (EVs). With the enactment of the Inflation Reduction Act, the U.S. is now on a path to reduce its emissions by approximately 40% from 2005 levels by 2030.
The inclusion and passage of these clean energy incentives have positively surprised most people in the renewable, electric vehicle, and battery industries. Less than a month ago, they seemed dead in the water as Senator Joe Manchin, a key swing vote in the Senate, said he would only back a much narrower spending bill that included prescription drugs and health care.
Senator Manchin came back to the table willing to include clean energy provisions, even the $7,500 federal tax credit for purchasing an electric vehicle. However, this go-around, the credit comes with very important stipulations that automakers must meet in sourcing and producing their EV batteries in order to pass that $7,500 in federal tax credit savings on to their customers.
Manchin has repeated for months that he would not extend the electric vehicle tax credit as it has been and—as he has put it—"continue incentivizing battery production abroad.” Committed to this premise, Senator Manchin and the Senate Democrats included new requirements for proving the provenance and production of electric vehicle batteries and their materials in the U.S. and nations that have a free trade agreement with the U.S.
The requirements include the following details. In essence, and in similarity with the European Battery Regulation, it makes the automaker responsible for the entire value chain of its batteries. It also creates an opportunity in which the details of the sourcing and production of an electric vehicle battery will now be communicated to the buyer and the end customer, giving the customer and automaker a financial incentive to purchase clean vehicles that are increasingly sourced from allied countries and produced in North
America.
Key take homes from the Inflation Reduction Act
Given the new EV tax credit requirements, automakers will now be required to show proof of the provenance and production journey of the materials in their EV battery to qualify a vehicle with the federal government for a clean vehicle tax credit.
Our technology can be helpful to the industry in this transition as it tracks the physical material from the mine to production to a customer’s vehicle and can equip original equipment manufacturers (OEMs) with the information they need to demonstrate fulfillment of the EV tax credit requirements.
