Legislation over the last year has fundamentally changed the auto industry in ways unlikely to be undone in subsequent administrations.
- The Inflation Reduction Act (IRA) signed into law in August included tax credits on electric vehicles (EVs) as well as new regulations for manufacturers.
- The law incentivized U.S. EV manufacturing and encouraged buyers to go with an EV rather than a traditional gas-powered car.
- Since the law was signed, billions of dollars worth of investments in EV battery and EV manufacturing have been announced in the U.S.
- Likely incoming Speaker of the House, Minority Leader Kevin McCarthy, has threatened to repeal the IRA if the Republicans take control of the chamber beginning in January.
Why it’s news
In the last three months, more than $13 billion worth of investment in both EV production and EV battery production have been announced from various manufacturers.
Honda and Toyota, for example, have planned $7 billion in investments for an EV battery plant. BMW plans to invest $1.7 billion as it expands its current South Carolina factory. The company’s EV battery manufacturer has plans to build a new factory not far from that location.
Some of these investments are due to companies choosing to localize their supply chains, but the IRA is an added incentive to move production to the U.S.
Consumers receive tax credits for purchasing EVs, but manufacturers are also set to receive tax credits when manufacturing happens in the States.
Tax credits have the potential to cover up to 30% of the manufacturing costs of EV batteries. Companies receive $35 per kilowatt hour when manufacturing battery cells. The companies gain another $10 per kWh when also making battery packs. Battery cells typically cost about $140 per kWh.
Automanufacutrer Ford Motor shared just how much that tax credit will help offset costs. The company expects it will receive more than $7 billion in tax credits by 2026, Bloomberg reports.
Despite political pushback when the law was first introduced, several states—Ohio and North and South Carolina—are now reaping the benefits of the tax credits as companies announce intentions to establish facilities within the states.
These perks make it unlikely that political opponents will attempt to dismantle the framework allowing for the tax benefits.