New tax cuts to boost EV sales could stall due to lack of US battery power

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The legislation is an attempt to incentivize companies to build more capacity for mining and battery production in the US. The limitations can ultimately help build a secure supply chain for batteries in the US and create more manufacturing and mining jobs. But some experts don’t know how quickly US companies will be able to respond. The danger then is that the short-term tax credits can only have a limited impact on electric vehicle sales if there is a shortage of eligible batteries and the minerals that go into them.

The new rules have two important parts. First, there are the limitations around the critical minerals used in the battery, such as lithium, nickel and cobalt. By the time the tax credits take effect in early 2023, 40% of these minerals in the car battery must be mined, processed or recycled in the US or a free trade partner. This is increasing over time and will reach 80% by 2026.

There are also guidelines on where the battery is actually made: by 2023, half of the components must be manufactured or assembled in North America. This will reach 100% by 2029.

Finally, a vehicle can be excluded from the tax credits if the extraction, processing or manufacture of a battery is done by a ‘foreign entity of concern’. This requirement will come into effect in 2024 for battery components and in 2025 for critical minerals.

While it’s not exactly clear which countries will count in this definition, the rules are an obvious attempt to slow down China’s dominance in the battery sector, he says. Jonas Nahma professor of energy, resources, and the environment at Johns Hopkins.

However, he adds that the timelines are “hugely ambitious” and that the bill “basically sets goals that people may not be able to meet.”

Last week, E&E News reported that climate activists are already concerned about whether car manufacturers can meet the new requirements.