Will the U.S. Inflation Reduction Act’s Clean Vehicle and Manufacturing Subsidies Substantially Alter Light Vehicle Production and Supply Chain Decisions?

Mots-clés:

Résumé:

Question:
Will the U.S. Inflation Reduction Act’s Clean Vehicle and Manufacturing Subsidies Substantially Alter Light Vehicle Production and Supply Chain Decisions?

Design:

• Detailed policy review with updates from the U.S. Treasury’s March 2023 guidance on consumer, commercial, and manufacturing incentives contained in the U.S. legislation (§30D, §25E, §45W, §45X, §48C, and the Advanced Technology Vehicle Manufacturing low-interest loan and Domestic Manufacturing Conversion Grant programs)
• History of U.S. BEV/PHEV/FCEV production (analysis of proprietary databases)
• Review of current supply chain and sourcing patterns for U.S. BEV/PHEV/FCEV production (analysis of proprietary databases)
• Overview of multiple U.S. BEV/PHEV/FCEV production forecasts (at least three automotive analyst sources including S&P Global and two others)
• Review of critical minerals trade flows including U.S., Canadian, Mexican, and FTA partner production (analysis of trade databases and U.S. Geological Services data)
• Review of North American and FTA partner mineral refining and processing capacity—existing and planned (analysis of proprietary databases and primary source documentation)
• Review of North American battery component production capacity (analysis of proprietary databases and primary source documentation)
• Presentation of pre- and post-IRA automaker, battery cell & component investment decisions (analysis of proprietary databases and primary source documentation)

Preliminary Findings:

• The U.S. Inflation Reduction Act has three aims in the clean vehicle space: 1) to increase adoption of BEV, PHEV, and FCEV vehicles, 2) to have more resilient domestic and “friend-shored” supply chains for clean vehicles, and 3) (an offshoot of 2) to grow U.S. jobs in producing clean vehicles, batteries, components, and minerals.
• The consumer credits may not have much impact initially due to the strict content and income requirements. Since leased vehicles qualify for the commercial credit (which does not have content, income, or China prohibitions), there could be greater impact from this incentive initially, but it will phase out over time as this credit is based on the differential between the cost of clean vehicles and comparable internal combustion engine vehicles, which is expected to narrow.
• Perhaps the most impactful pieces of the Inflation Reduction Act are the manufacturing credits—§45X, §48C, and the Advanced Technology Vehicle Manufacturing low-interest loan and Domestic Manufacturing Conversion Grant programs. §45X alone provides an ongoing production credit of up to USD45/kWh for battery production and similar incentives for battery components and critical minerals. The §45X subsidies are controversial with U.S. trade partners and have prompted other countries to both petition the U.S. Administration for relief as well as pursue domestic battery production subsidies of their own to counter the impact.

Significance:
This research will shed light on the impact of the U.S. Inflation Reduction Act’s provisions on the U.S. and global clean vehicle industry’s investment and supply chain decisions. The paper aims to inform policymakers, industry stakeholders, and the public about the implementation of the Inflation Reduction Act and implications for trade relationships in the clean vehicle space.