Can US EV batteries hit the Inflation Reduction Act’s target?

Some EV battery thresholds achievable—if US allies are way, way too generous

See full article...

 

[Avalon]

I haven't read the paper yet so I'm not sure if the article effectively represents it but certainly the IRA is motivating companies to change their strategy towards NA production so I don't see why it couldn't for mineral supply and processing (by 2027). For instance, if it requires NA sourcing to get $7500/car, manufacturers will be willing to pay thousands more for the elements, if required (which is a strong motivation to quickly ramp up NA production). As for defining what 'processing' means, that's the IRS' job and it's why it's taking them a long time. Surely they understand the purpose of this language and will not make it meaningless (but the WTO might).

 

[afidel]

I think the entire idea is was to spur a domestic market. It's not like there's no lithium or cobalt in the US, it just wasn't economically feasible to extract it with the additional cost of US regulations in place, the credits should offset that and make it practical to extract and process in the US again. The USGS has identified 85 sites with known extractable quantities of Cobalt in the US:
https://www.usgs.gov/data/cobalt-deposits-united-statesAlaska, California, Idaho, Maine, Michigan, Minnesota, Missouri, Montana, North Carolina, New Mexico, Oregon, Pennsylvania, Puerto Rico and Tennessee.

 

[cyberfunk]

There seems to be an implicit assumption here that the incentive structure in the IRA law is broken just because it's currently not easily achieved. In fact, I see this another way. I see this as the dangling of an attractive carrot out of reach if we continue to do business as usual. This will force people to adapt and change if they want the credit... all for "free" from the government's point of view, until they actually achieve the desired aims. Surely this is a better way than the old cost plus contracts for companies that can't seem to deliver .. (Looking at you Boeing and NASA).

Given that the aim is to encourage domestic production (because it's kind of hard to excuse spending American tax dollars encouraging foreign production at this stage of the EV game).. this seems fine?

 

[RX-Nota]

There seems to be an implicit assumption here that the incentive structure in the IRA law is broken just because it's currently not easily achieved. In fact, I see this another way. I see this as the dangling of an attractive carrot out of reach if we continue to do business as usual. This will force people to adapt and change if they want the credit... all for "free" from the government's point of view, until they actually achieve the desired aims. Surely this is a better way than the old cost plus contracts for companies that can't seem to deliver .. (Looking at you Boeing and NASA).

Given that the aim is to encourage domestic production (because it's kind of hard to excuse spending American tax dollars encouraging foreign production at this stage of the EV game).. this seems fine?

The problem is that it creates mission creep and confused incentives. The goals of faster climate incentives and protectionist 'Buy American' incentives are opposed to eachother as long as there is a shortage of easily accessible minerals as this paper and other similar ones point to. This paper is actually quite generous even since it assumes that no large trade disputes will rise up in the face of such a large subsidy package, but realistically we will be seeing raised costs and limited supply as a consequence of this deterioration of free trade.

 

[Magickchicken]

Last fall, I joined a startup with the goal of refining rare earth ore to the purified, usable metals. They already had a plan, in fact their tech had already been in use overseas and we are reproducing/refining the work in the US to appease investors, rather than just dropping 300M on a plant next week.

Even with retreading old ground, it's unbearably slow. Start at lab scale, show it works. Increase lab scale, show it works. Now we're working on pilot scale - we will produce 1.5 tons a year running this setup one shift. After running this for a bit, we'll scale up again to "beta" production, and then one more scaleup after to "full" production. After that, we'll have our final design and just scale laterally as business demands.

Each of these scaleups requires new funding, a new site, new permits, new engineering, new equipment, and new raw material sourcing. The equipment alone is best case scenario 6-month lead-time for each iteration, plus finding a manufacturer, negotiating prices, them negotiating with THEIR suppliers, sourcing their steel and alloys, possibly building new equipment to build OUR equipment, etc. Plus permitting takes a year or two, turns out you can't just store hundreds of thousands of gallons of hazardous liquids next to a playground.

Basically, long story short, even with having done this BEFORE, it's going to take us five years to get to reasonable production scale.

Ain't no way the market will just magically "meet this demand" in five years with a cold start.

 

[jezra]

goodbye Wars for Oil
hello Wars for Lithium

 

[bharq]

The "Thanks, France" quote is especially relevant as we in Europe see the IRA as a quite direct attack on our industry, especially our car industry...

 

[Pentarctagon]

On the other hand, if they had it be by weight then I'm sure there'd be all sorts of games played around that - sourcing all the cheaper/heavier parts from the US while continuing the get the more expensive parts from elsewhere, adding filler weight, etc.

 

[NetMage]

Given that the aim is to encourage domestic production (because it's kind of hard to excuse spending American tax dollars encouraging foreign production at this stage of the EV game).. this seems fine?

But is that the aim - or is it incentivizing the transition to BEV vehicles to delay the worsening of climate change? If the addition of domestic production delays the BEV transition by ten years, have we accomplished the right goal?

 

[Zorro]

Organized crime provides a solution.

Import on the East Coast from non-allowed sources.
Deliver to dump and write off as recycled trash.
Transport to manufacturing facility as "Recycled Material"

It is like money laundering with strategic metals.

 

[ShortOrder]

Last fall, I joined a startup with the goal of refining rare earth ore to the purified, usable metals. They already had a plan, in fact their tech had already been in use overseas and we are reproducing/refining the work in the US to appease investors, rather than just dropping 300M on a plant next week.

Even with retreading old ground, it's unbearably slow. Start at lab scale, show it works. Increase lab scale, show it works. Now we're working on pilot scale - we will produce 1.5 tons a year running this setup one shift. After running this for a bit, we'll scale up again to "beta" production, and then one more scaleup after to "full" production. After that, we'll have our final design and just scale laterally as business demands.

Each of these scaleups requires new funding, a new site, new permits, new engineering, new equipment, and new raw material sourcing. The equipment alone is best case scenario 6-month lead-time for each iteration, plus finding a manufacturer, negotiating prices, them negotiating with THEIR suppliers, sourcing their steel and alloys, possibly building new equipment to build OUR equipment, etc. Plus permitting takes a year or two, turns out you can't just store hundreds of thousands of gallons of hazardous liquids next to a playground.

Basically, long story short, even with having done this BEFORE, it's going to take us five years to get to reasonable production scale.

Ain't no way the market will just magically "meet this demand" in five years with a cold start.

"Ain't no way the market will just magically "meet this demand" in five years with a cold start."
"Basically, long story short, even with having done this BEFORE, it's going to take us five years to get to reasonable production scale."

So what you're saying is that your company can do it in 5 years because you've had a "running" start. Do you think you're the only one?

 

[theOGpetergregory]

But is that the aim - or is it incentivizing the transition to BEV vehicles to delay the worsening of climate change? If the addition of domestic production delays the BEV transition by ten years, have we accomplished the right goal?

Depends, did it reduce inflation?

/S (kinda)

 

[cyberfunk]

The problem is that it creates mission creep and confused incentives. The goals of faster climate incentives and protectionist 'Buy American' incentives are opposed to eachother as long as there is a shortage of easily accessible minerals as this paper and other similar ones point to. This paper is actually quite generous even since it assumes that no large trade disputes will rise up in the face of such a large subsidy package, but realistically we will be seeing raised costs and limited supply as a consequence of this deterioration of free trade.

If nothing else, it's a clever bit of realpolitik : Satisfy the environment sect of your party with eco-friendly policies, and satisfy the pro union / pro american sect with USA friendly policies.

This is in fact probably the real origin of the deal the way it's written.

 

[cyberfunk]

But is that the aim - or is it incentivizing the transition to BEV vehicles to delay the worsening of climate change? If the addition of domestic production delays the BEV transition by ten years, have we accomplished the right goal?

The real goal is most likely the same goal as most politicians: To claim to have accomplished something without having to pay for it . The credits effectively got cut, cutting real government spending, and Biden gets to claim a PR victory on pro-USA and pro-green issues.. because most people won't look this deeply into it.

 

[bsplosion]

She noted that there could be a situation in the future where it’s incredibly easy for a producer to hit the 80 percent mark thanks to price spikes in some of the minerals, and if some of them ended up being particularly pricey on the market, they would eat up the percentage points very quickly.

Yeah, I bet we're going to see some weird externalities from the 80% by market value condition. It seems like an easy way to hit the target would just be to bid up strategic materials which are already close to that threshold, or to make the battery more expensive by incorporating higher-bid materials that are actually available domestically.

Are there any domestic materials which are currently not incorporated into batteries due to cost but otherwise would be competitive for performance? My bet is those are soon going to enter US batteries to meet this incentive.

 

[BabelHuber]

The effect of the IRA in Europe is that companies like VW and some automotive suppliers have put investments on hold - to see if the EU will keep up with the US subsidies. Which they will, there's no way around it.

So we are in a situation where the USA and the EU are competing for the highest subsidies. This will be expensive for all tax payers in both regions

Perhaps it would have been better for both the USA and the EU to come up with a unified plan. This surely would have been cheaper for both and could have the same effect in the long run.

 

[cyberfunk]

Depends, did it reduce inflation?

/S (kinda)

Yea, i mean, the IRA absolutely is not an inflation reduction act at all. Spending on the current issue aside, it's a massive government spending package that likely increases inflation. But that's a whole other political debate.

 

[cyberfunk]

The effect of the IRA in Europe is that companies like VW and some automotive suppliers have put investments on hold - to see if the EU will keep up with the US subsidies. Which they will, there's no way around it.

So we are in a situation where the USA and the EU are competing for the highest subsidies. This will be expensive for all tax payers in both regions

Perhaps it would have been better for both the USA and the EU to come up with a unified plan. This surely would have been cheaper for both and could have the same effect in the long run.

You forgot about the Koreans.. Hyundai and Kia are putting out some good stuff these days.

Now if only the Japanese would get their act together on EVs....

 

[cyberfunk]

The "Thanks, France" quote is especially relevant as we in Europe see the IRA as a quite direct attack on our industry, especially our car industry...

I'm not aware of a lot of French cars getting sold in the USA ? I don't mean to be mean, but the general american perception of french cars (vs Korean / German / Japanese, and even USA made) is.. uh, not positive.

 

[Magickchicken]

So what you're saying is that your company can do it in 5 years because you've had a "running" start. Do you think you're the only one?

I think that the huge surge in demand for all the resources (capital, administrative, equipment, people, and raw materials) the IRA is hoping to create in mineral sourcing is going to create huge delays to pile onto an already-strained industry. It takes a long time to build enough equipment to mine and refine at the million-ton-per-year level.

Remember, if we were already doing it, the government wouldn't have needed to incentivize it.

 

[bburdge]

Last fall, I joined a startup with the goal of refining rare earth ore to the purified, usable metals. They already had a plan, in fact their tech had already been in use overseas and we are reproducing/refining the work in the US to appease investors, rather than just dropping 300M on a plant next week.

Even with retreading old ground, it's unbearably slow. Start at lab scale, show it works. Increase lab scale, show it works. Now we're working on pilot scale - we will produce 1.5 tons a year running this setup one shift. After running this for a bit, we'll scale up again to "beta" production, and then one more scaleup after to "full" production. After that, we'll have our final design and just scale laterally as business demands.

Each of these scaleups requires new funding, a new site, new permits, new engineering, new equipment, and new raw material sourcing. The equipment alone is best case scenario 6-month lead-time for each iteration, plus finding a manufacturer, negotiating prices, them negotiating with THEIR suppliers, sourcing their steel and alloys, possibly building new equipment to build OUR equipment, etc. Plus permitting takes a year or two, turns out you can't just store hundreds of thousands of gallons of hazardous liquids next to a playground.

Basically, long story short, even with having done this BEFORE, it's going to take us five years to get to reasonable production scale.

Ain't no way the market will just magically "meet this demand" in five years with a cold start.

So, each stage requires a lot of funding - question then is what motivates continued funding through the process?

By setting the requirements high, it puts a serious motivation for companies to put the money into making it happen, because clearly the companies that are able to get up and running earliest will be able to charge a premium over imports from unqualified sources.

So no, the market won't solve it magically, and it may not solve it fully by the deadlines. But by putting a high bar to reach out there, it provides a strong motivation.

My suspicion is that if the requirements were more relaxed, and easily obtainable, then there would be little to no motivation to make serious investment, and the goal of pushing stronger production in places with better environmental and labor standards would fail to be achieved.

 

[Zhenocnra]

The effect of the IRA in Europe is that companies like VW and some automotive suppliers have put investments on hold - to see if the EU will keep up with the US subsidies. Which they will, there's no way around it.

So we are in a situation where the USA and the EU are competing for the highest subsidies. This will be expensive for all tax payers in both regions

Perhaps it would have been better for both the USA and the EU to come up with a unified plan. This surely would have been cheaper for both and could have the same effect in the long run.

Is this sarcasm? I hope it is.

The EU and the US government working together? The US Congress alone barely passed the IRA after tons of back and forth trying to compromise with the swing votes including a dumbass in a suit from WV (one of the smallest states in the US by population and area).

 

[jwbaker]

The way the EPA's enabling legislation is written requires them to promulgate regulations only after determining that they are commercially achievable. That seems like a good model. These things shouldn't be written in stone by legislators.

 

[RX-Nota]

If nothing else, it's a clever bit of realpolitik : Satisfy the environment sect of your party with eco-friendly policies, and satisfy the pro union / pro american sect with USA friendly policies.

This is in fact probably the real origin of the deal the way it's written.

If by realpolitik you mean only optics then you are probably close to the truth. The problem at the core however is that it is destined to fail or at least struggle mightily in it's stated goals because of the way it promises mutually opposed things to different sides. That gets you a boost in support and pretty headlines but makes implementation hell. The US's traditional trade allies feel betrayed and will respond in kind soon enough with their own domestic packages that restrict supply to the US.

 

[Jeff S]

Yea, i mean, the IRA absolutely is not an inflation reduction act at all. Spending on the current issue aside, it's a massive government spending package that likely increases inflation. But that's a whole other political debate.

It likely will cause some short-medium term inflation offset by longer term inflatin reduction.

The cure to inflation is increasing production. It seems to me this act does incentivize increasing production, no?

Back to the main point of the article, they say it's impossible to hit the target AND sell as many EVs has they think there will be demand for.

I read that as: There will be a shortage of EVs and high demand for EVs, because car makers will only build as many cars/batteries as they can source materials for to get the tax credits.

But, if that means that essentially 100% of NA domestic production is being consumed, at high enough prices to provide incentive for mining companies to invest, they will likely invest in increasing production to capture more of that sweet, sweet, EV cash.

 

[jeadly]

Did they run the numbers with smaller/lower range/more efficient EVs? If someone can make a car with half the battery, they'd get twice the subsidy for the same amount of processed materials. I keep hearing that the market is clamoring for "more affordable" EVs; surely this is your chance.

 

[Bloater51]

I'm not aware of a lot of French cars getting sold in the USA ? I don't mean to be mean, but the general american perception of french cars (vs Korean / German / Japanese, and even USA made) is.. uh, not positive.

You do realise that the EU is going to outlaw new ICE cars by 2035?

 

[Qyygle]

So, each stage requires a lot of funding - question then is what motivates continued funding through the process?

By setting the requirements high, it puts a serious motivation for companies to put the money into making it happen, because clearly the companies that are able to get up and running earliest will be able to charge a premium over imports from unqualified sources.

So no, the market won't solve it magically, and it may not solve it fully by the deadlines. But by putting a high bar to reach out there, it provides a strong motivation.

My suspicion is that if the requirements were more relaxed, and easily obtainable, then there would be little to no motivation to make serious investment, and the goal of pushing stronger production in places with better environmental and labor standards would fail to be achieved.

Well, you can also look at the opposite end of this too. Is the tax credit incentive for the US market worth disrupting your supply chain for, vs. whatever the EU, China will put up with for their needs?

If even setting up production of just raw materials alone will take the length of time till the credits expire, aren't you betting on the chances the next administration will continue the policy? That's not exactly great grounds for starting a years long, hugely costly capital investment.
What Other policies might impact the market? The US in particular isn't exactly leading the way in transitioning to EVs, I dare say there's a large chunk of the population determined to keep their combustion engines. Car companies already sell entirely different lineups of vehicles based on the market.

Setting a high bar doesn't necessarily mean people will look at it and be inspired. It's also possible they decide you're not worth their time and take their business elsewhere.

 

[Frank C.]

The effect of the IRA in Europe is that companies like VW and some automotive suppliers have put investments on hold - to see if the EU will keep up with the US subsidies. Which they will, there's no way around it.

So we are in a situation where the USA and the EU are competing for the highest subsidies. This will be expensive for all tax payers in both regions

Perhaps it would have been better for both the USA and the EU to come up with a unified plan. This surely would have been cheaper for both and could have the same effect in the long run.

I know 'American Made' is big with some people. But perhaps even a 'Ally Produced' moniker may be better received than a 'Made in China', which means the EU, Japan, South Korea, etc.

 

[CircleBreaker]

I'd love to know who the United States considers its "close trade partners". It certainly isn't us in New Zealand.

Edit: Ok, I did some quick research and it looks like "close trade partners" isn't even defined properly, but a basic interpretation would produce this list:
• The three countries the US actually gives a shit about: Canada, Mexico, Israel.
• Latin American countries, who the US can twist their arms into agreeing to anything: El Salvador, Guatemala, Honduras, Nicaragua, Panama, Costa Rica, Chile, Colombia, Dominican Republic, Peru.
• A few Arab dictatorships: Bahrain, Jordan, Morocco, Oman.
• Australia, who spent decades licking America's boots only to eventually be offered an unequal trade treaty.
• Noted entrepôt Singapore.
• And Korea.

https://www.aicgs.org/2023/02/the-ira-and-the-meaning-of-free-trade/https://ustr.gov/trade-agreements/free-trade-agreements

 

[AdamM]

If by realpolitik you mean only optics then you are probably close to the truth. The problem at the core however is that it is destined to fail or at least struggle mightily in it's stated goals because of the way it promises mutually opposed things to different sides. That gets you a boost in support and pretty headlines but makes implementation hell. The US's traditional trade allies feel betrayed and will respond in kind soon enough with their own domestic packages that restrict supply to the US.

Not a lot of voters are voting for politicians based on what they did to make other countries happy, so I can’t blame politicians for not making it a priority. I’m going to guess this isn’t just a trait of American politics.

The EU after all doesn’t make decisions on how to regulate the tech industry based on American feelings about it.

 

[DukeOfGeeks]

The "Thanks, France" quote is especially relevant as we in Europe see the IRA as a quite direct attack on our industry, especially our car industry...

So our preference for American cars built by American companies using American resources upsets European industry? Well that sucks. Who knew?

 

[DukeOfGeeks]

I know 'American Made' is big with some people. But perhaps even a 'Ally Produced' moniker may be better received than a 'Made in China', which means the EU, Japan, South Korea, etc.

Agreed

 

[Bloater51]

Not a lot of voters are voting for politicians based on what they did to make other countries happy, so I can’t blame politicians for not making it a priority. I’m going to guess this isn’t just a trait of American politics.

The EU after all doesn’t make decisions on how to regulate the tech industry based on American feelings about it.

That really isn't true. Most countries are acutely aware of how others will react to their decisions especially as regards trade. The US is accustomed to being able to rely on brute force to get its way, others cannot.

 

[Dark Jaguar]

Hard perhaps, but necessary.

 

[niwax]

There seems to be an implicit assumption here that the incentive structure in the IRA law is broken just because it's currently not easily achieved. In fact, I see this another way. I see this as the dangling of an attractive carrot out of reach if we continue to do business as usual. This will force people to adapt and change if they want the credit... all for "free" from the government's point of view, until they actually achieve the desired aims. Surely this is a better way than the old cost plus contracts for companies that can't seem to deliver .. (Looking at you Boeing and NASA).

Given that the aim is to encourage domestic production (because it's kind of hard to excuse spending American tax dollars encouraging foreign production at this stage of the EV game).. this seems fine?

There is a difference between hard but tempting and a disguised incentive killer. Not only do mines and refineries take years to build up, until this year China was granted exclusive rights to making LFP batteries, so there is literally zero existing infrastructure behind the biggest volume design. For scale, Tesla just broke ground on a Lithium refinery that is supposed to process 50 GWh worth per year. That means, optimistically, they'll be able to cover the lightest and cheapest ingredient in their production volume as it was three years ago by 2025. And it's not like they're the slow and pessimistic ones here.

Not to mention the oddity of allowing foreign materials, buying Nickel from Australia does absolutely nothing for US manufacturing other than make the numbers look achievable enough for the bill to pass. Same for the 2-3 million sales estimate, magically expecting a market in the positive phase of an S-curve to suddenly cut growth in half. The most attractive way to deal with this bill would be to colocate processing with mining in places like Chile that fall under agreements, surely that can't be intended.

Instead, you could for example ramp the requirement by 10% per year, averaged over the fleet to allow whole pack designs to transition without a disadvantage to the buyer. Or as a percentage of the market leader. Or on a sliding scale, 50% gets half the incentive.

 

[pe1]

The study seems to assume 100% of EVs sold in the US need to qualify for the credit, and if they don't then the IRA is a failure. I don't think that's true. The credit has two goals. First, encourage people to buy EVs. Second, encourage companies to develop domestic sources for critical raw materials. For the first, it's good enough if maybe 50% of EVs qualify for the full credit. That will do a lot to encourage demand. And don't forget there's also another credit based on where it's manufactured, which also encourages demand. For the second, you want the goal to be hard to reach. If the requirements were lower and it was easy for 100% of EVs to qualify, companies would just do the minimum needed to qualify and nothing more. This way there's an incentive for lots of companies to develop lots of new sources.

 

[Tofystedeth]

The problem is that it creates mission creep and confused incentives. The goals of faster climate incentives and protectionist 'Buy American' incentives are opposed to eachother as long as there is a shortage of easily accessible minerals as this paper and other similar ones point to. This paper is actually quite generous even since it assumes that no large trade disputes will rise up in the face of such a large subsidy package, but realistically we will be seeing raised costs and limited supply as a consequence of this deterioration of free trade.

Are they strictly opposed goals? If the supply is so limited and everyone is needing to decarbonize their transportation, us not using all of France's lithium just means France et al will use their lithium to build their own electric cars, still displacing ICE vehicles. Whereas if we increase our domestic supply, we all get to build EVs.