American Auto Industry Lining Up for EV Battery Tax Credits

The Inflation Reduction Act passed by US Congress in late 2022 offered up meaningful tax credits to entice manufacturers to make battery cells stamped with a “Made in USA” sticker. 

Based on recent events, consider them enticed.

Background: The most lucrative of the tax credits offers $35 per kilowatt-hour for American-made battery cells. That equates to a credit of nearly $3,000 for the largest Tesla Model 3 battery and almost $5,000 for the extended range Ford F150 Lightning. In total, that means billions in potential credits for auto manufacturers.

Missing the mark: When Congress was debating the bill last year, the Congressional Budget Office estimated the cost of the battery credits would be roughly $30 billion over ten years. But like everything else last year, those costs inflated.

Due to surging private investment in manufacturing capacity, some are estimating that the true cost of the policy subsides may come out to $136 billion or more than four times the initial estimate. That’s weather forecaster-like accuracy.

Zoom out: A domestic battery manufacturing industry is key to the Biden Administration’s plans to reduce transportation emissions and not miss out on the battery boom to competitors like China. So far, that plan seems to be working – but at a pretty hefty cost.