US EV Tax Credit Boosting Domestic Battery Production Beyond Estimates

Some experts believe the value of Biden's tax credits could end up being four times higher than Congress expected.

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By: EVANNEX

Feb 14, 2023 at 8:15am ET

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Posted on EVANNEX on February 11, 2023, by Peter McGuthrie

Recently passed legislation in the U.S. has created updated requirements on electric vehicle tax credits, but one hugely underlooked factor of the act includes its incentives for battery manufacturing. Huge federal investments into domestic battery manufacturing are expected to drive production costs down in the coming years, making EVs more affordable and appealing to consumers.

Above: An EV charging space (Image: Michael Fousert / Unsplash).

The Biden Administration’s EV tax credits are doing better than some analysts expected, as one part of the White House’s larger plan to boost domestic EV manufacturing, according to a recent report from Axios. The report looks at what President Biden and congressional democrats pushed for in the Inflation Reduction Act, which included upgraded incentive guidelines prioritizing U.S. automakers, and several new investment opportunities for EV battery manufacturers in the country.

While the $7,500 federal EV tax credit has given many buyers a chance to purchase U.S. EVs at a bargain, the IRA’s guidelines for domestic battery manufacturing may stand to push the industry forward equally well.

This year alone, Tesla is expecting to earn as much as $1 billion in tax credits for batteries, and CEO Elon Musk has previously said these credits could become “very significant,” and even “gigantic,” in the years to come. One of the top incentives from the IRA includes $35 per kWh for each U.S.-made battery cell — effectively cutting production costs in half.

For instance, a manufacturer producing 70kWh batteries for one million vehicles would yield $2.45 billion per year from the credit. As another example, Tesla’s Gigafactory Nevada expects to produce as many as 100 GWh of battery cells per year in the near future, before increasing that to 500 GWh down the road. At the yearly rate of 500 GWh, the new credits would represent roughly $17.5 billion annually.

EV batteries are expected to skyrocket in the U.S. as the country attempts to reduce its supply chain reliance on China. In 2022, companies announced over $73 billion in plans for U.S. battery factories, according to data from Atlas Public Policy.

"We have already seen hundreds of billions of dollars in new private sector investments across clean energy industries, including batteries, electric vehicles and solar panels," White House assistant press secretary Michael Kikukawa told Axios.

"No one should be surprised that the historic Inflation Reduction Act will lead to an explosion in new EV plants that will showcase how American workers are the finest in the world," Kikukawa added.

Ford CEO Jim Farley estimated a "large step-up in annual credits," with the automaker expecting as much as $7 billion in tax breaks between 2023 and 2026.