What the new Treasury rules mean for EV supply chains

On the Catalyst with Shayle Kann podcast this week:

The battery manufacturing announcements have been coming one after another: a VW cathode facility in Canada, a Tesla factory in Mexico, a Ford battery plant in Michigan.

These companies hope to take advantage of the Inflation Reduction Act’s lucrative EV tax credits, including:

• Up to $3,750 for strategic minerals mined in the U.S. or its many free-trade partner countries.

• Up to $3,750 for battery components produced only in the U.S., Mexico or Canada.

But there’s a catch. A whole bunch of intermediate battery products don’t fit neatly into either bucket. For example, lithium gets processed into precursor cathode active material before it becomes cathode active material, the powder that actually makes it to the factory floor of a battery manufacturer. Battery electrolytes go through multiple processing steps too.

Until last week, suppliers of these products were left wondering: Where should we manufacture to qualify? And which credit should we pursue?

Congress had left these details up to the Treasury Department, and on Friday, regulators finally released guidance for these intermediate products, also known as ​“constituent materials.” The new rules pleased some and angered others.

So what do the changes mean for EV supply chains? 

In this episode, Shayle talks to Sam Jaffe, our resident EV-supply-chain whisperer. He’s the vice president of battery storage solutions at E Source. He’s come on the show before to talk about the holy grail of batteries and the basics of the IRA’s EV tax credits. 

This time, Sam explains the new Treasury guidance. He and Shayle cover topics including:

• Incentivizing domestic manufacturing while also giving auto companies the flexibility to qualify for credits.

• Why Joe Manchin and European trade countries are upset about the new rules.

• Japan’s last-minute free-trade agreement before the rules came out.

• How hard it will be for EV manufacturers to get qualifying constituent materials anytime soon, especially as they launch new mass-market EV models.

• What we still don’t know about how the Treasury will implement the IRA, including which countries or companies will qualify as ​“foreign entities of concern.”

Recommended resources:

• U.S. Treasury: Anticipated direction of forthcoming proposed guidance on critical mineral and battery component value calculations for the new clean vehicle credit

• The New York Times: New rules will make many electric cars ineligible for tax credits

• Politico: Bitter friends: Inside the summit aiming to heal EU-U.S. trade rift

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