In August 2022, President Joe Biden signed the Inflation Reduction Act, which included an incentive for used EVs. This was in addition to the fact that the incentives for new EVs were made bigger. That is, of course, one way to get people interested in electric cars. But something else about that historic law will almost certainly have a much bigger effect on the production and use of EVs in the U.S. than any financial incentives. Section 45X pays for ten years of production credits for making battery cells, solar photovoltaic cells, and wind energy parts. Also, it could make EV batteries made in the United States so cheap that a lot of cell and battery production in the West will move to North America. Marketing for lithium-ion batteries is full of lies and damn lies One of the unspoken truths about electric cars is that people won’t talk much about how much batteries cost. The phrase “lies, damn lies, and [battery] marketing” is often used by battery experts. It comes from a quote that is said to have been said by American humorist Mark Twain and British Prime Minister Benjamin Disraeli. Most of the last ten years, $100 per kilowatt-hour (for the battery pack, not the slightly lower cost per cell) was seen as the Holy Grail. Bloomberg New Energy Finance thinks that the industry as a whole will spend $132/kWh on batteries in November 2021. At the moment, Tesla thinks that a pack will cost $100 or less per kWh. But pack and cell prices have gone up over the past year because lithium and other battery metals have become more expensive due to supply and demand issues. A top official at the US Department of Energy suggested that cell-level efficiency should reach $60/kWh by 2021. That could mean $80 per kWh at the pack level for vehicles going into production in 2025 or later. This could include Teslas with the company’s 4680 cells (a different format), a much larger number of VW Group models, and the dozen or more Ultium models announced by GM. Car and Driver recently talked to an expert on the production of EV batteries who asked to remain anonymous. This person has worked for and advised many cell manufacturing companies in the U.S., Europe, and Asia, and is still up-to-date on the latest changes in that field. The conversation came to an end when the expert said, “All the stories about the IRA bury the lede.” This is an editing term that means to focus on something other than the main story and only mention the important fact in passing later on. Up to 50% off the price of batteries? Our expert says that Section 45X will immediately cut by one-third to one-half the cost of any EV battery with both cells and a pack made in the United States. Ion Yadigaroglu, an investor in clean technology in the United States, said the following in a recent interview with Bloomberg Green. Simply put, if you build, run, and make a battery pack in the United States, you will get $45 per kilowatt-hour when the pack leaves the factory. [The subsidy adds $10 to the cost of battery packs and $35 per kilowatt-hour to the cost of making battery cells.] That’s more than a third of how much the battery pack costs to make. And based on how things are going now, it might cover the whole cost of making a battery pack within the 10-year time limit of the IRA. According to our battery expert, this means that all automakers with assembly plants in the U.S. will eventually build their own battery factories, either through joint ventures (like GM-LG) or by designing and making their own battery cells (like Tesla’s efforts to mass-produce its 4680 cells). Even though designing and building cells isn’t a maker’s main job anymore, it directly cuts or eliminates a third-party cell maker’s profits. But how could they refuse to take such a large amount of money? Each 131.0 kWh Ford Lightning battery pack that comes off the assembly line costs $5895. Do I get something? A lot of attention has been paid to the incentives to buy in the IRA bill, which have not yet been finalized. They make a difference between passenger cars and light trucks, and for the first time, incentives may be available for used EVs that cost less than a certain amount. Any car that is eligible must be put together in the United States. The battery cells must then be put together in North America, and more and more of the minerals must come from countries on a certain list (which excludes China). To put it lightly, the IRS’s decisions about which vehicles are eligible and what makes a passenger vehicle different from a light-duty truck like an SUV have been a mess. It makes sense that people, car dealers, and automakers would be interested in a way to save $7500 off the price of a new car. But since the average price of a new car in December was over $47,000, it’s likely that a big drop in the price of an electric vehicle battery pack would have a bigger effect. It is not clear how the incentives for making batteries will actually work. The rules are still being worked out. For example, we don’t know if existing cell plants like the LG Chem plant in Michigan and the Tesla Gigafactory in Nevada will be eligible. We don’t know how automakers will use the money they save, which is more important for customers. If most EV models made in the U.S. are only making enough money to break even, battery makers will want to make more money, which will make it easier to build new plants and make more batteries. Meanwhile, automakers might use some of the money saved on batteries to make EVs as profitable as gas-powered cars. The switch to electric vehicles is not only going on, but it is also speeding up. Car companies will do anything they can to sell more electric vehicles, and lowering prices is a tried-and-true way to do this. Even though a lot of research has been done on possible effects, it is still too early to say how these incentives for battery production will change the prices of EVs for consumers. If you only remember one thing, let it be this: a $7,500 consumer rebate on a new EV that meets the requirements is nothing to scoff at. But that is by no means the most important part of the “IRA” that has to do with EVs. In five to ten years, automakers will have a big chance to make EVs that are much cheaper than they are now. That’s the real point.
