Australia’s preferential role in America’s huge renewable spending boom and subsidies has been cemented by the US Treasury and Internal Revenue Service’s (IRS) latest set of rules governing green things like battery materials, manufacturing and use.
The long-awaited guidance, called a Notice of Proposed Rule Making (or NPRM) released by the Treasury Department (and the IRS) on Friday, details the EV stimulus set by the Inflation Reduction Act (IRA), the landmark climate law that earmarked $US369 billion for clean energy.
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore are included in the NPRM.
The IRA entitles buyers to up to $US7,500 in tax credits for electric vehicles subject to strict criteria, including the origin of battery minerals and battery components. Meeting one of those two criteria halves the subsidy to $US3,750.
The proposal expands the scope of eligibility as it relates to “critical minerals” going into EV batteries, making it easier for some to source from overseas.
Under the IRA law, at least 40 percent of the critical minerals in EV batteries must be extracted or processed in the United States or in US free trade treaty countries such as Australia, Mexico, Chile and Canada for vehicles to receive the tax credit. By 2027, the share will increase to 80%.
The new guidance says that “renegotiated critical minerals deals” – like one the US reached with Japan this week and one being discussed with the EU – will be considered equivalent to free trade agreements in terms of eligibility for the subsidy would.
That helps explain why Albemarle thinks it cheaper to takeover Liontown than to invest in new mines and refinery, even though it has plans to build a $US1.3 billion new refinery in the US in coming years.
Albemarle’s local partner, Mineral Resources though is buying 50% stakes in two of Albemarle’s Chinese lithium plants, which while OK for supplying the Chinese and other markets, will be locked out of involvement in the US.
The determination will be met with relief in Brussels and Tokyo, which have no free trade agreements with the US approved by Congress.
Nor does Argentina or Brazil, two countries with ambitions for getting in on the EV boom – especially Argentina where a number of Australian companies, led by Rio Tinto, Allkem and Lake Resources.
Unless the Argentinian government can strike a deal, battery materials from the country face a difficult future accessing the US directly and will have to go indirectly through Canada or Mexico. Allkem has lithium assets in Argentina, Australia and Canada, so it may be able to juggle.
Piedmont Lithium and Sayona have prospects and emerging mines in the US and Canada, while Syrah is looking to refine its graphite into products at a US plant. Lynas is building a US plant to separate heavy rare earths.
The proposed rules also define active cathode and anode materials, chemicals used to manufacture two main components of a battery, “critical minerals” and not battery components.
The US Climate Act dictates that an increasing percentage of EV battery components must be manufactured and assembled in North America to be eligible for subsidies.
Such a move was supported by major manufacturers such as Volkswagen and Panasonic because it would allow the materials to be sourced from countries outside North America. Classifying the cathode and anode materials as battery components, which have more stringent requirements, would have disqualified such countries.
The IRA law requires that by 2024, no components eligible for credit be manufactured in “foreign entities of concern” such as China, Russia, Iran and North Korea, and that by 2025 battery components must be free of critical minerals from those countries. Importantly, the guidelines refrained from specifying their position on the origin of battery components which may allow a grey area for sourcing.
It had been expected that the law’s tightened requirements would reduce the number of eligible vehicles over the next few years, despite new guidance from the Treasury Department.
According to an analysis by the International Energy Agency, the US has virtually no mining or processing capacity for minerals like lithium, nickel and cobalt. The country also produces less than 5% of the world’s cathodes and anodes. That is slowly growing but will take time and will have to overcome the usual noisy opposition in parts of the US
A senior Biden administration official told the Financial Times the new rules would “reduce the number of electric vehicles currently eligible for full credit in the short term to incentivize moving supply chains and manufacturing to the United States.”
But the official added, “We believe these requirements will significantly increase the number of vehicles manufactured and sold in the United States over the next decade as new investment and American manufacturing comes online.”
The Alliance for Automotive Innovation, the trade group that represents the largest car and battery makers, said it expected few models would qualify for the full tax credit and that many questions remained about procurement requirements.
GM, Ford and Stellantis said this week that some or most their EV models would probably not qualify for the full $US7,500 credit after these rules start being applied. That’s because their sourcing of battery materials does not fully comply with the regulations to start April 18.
Ford said in March it expects its electric-vehicle business unit to lose $US3 billion this year, but will remain on track for a pre-tax margin of 8% by late 2026.
Tesla said last week its Model 3 rear-wheel drive credit will be reduced as a result of the guidance.
All US EV consumer tax credits require vehicles to be assembled in North America and have income and retail price caps (The retail price cap is $US55,000 before the subsidy). This and other rules could very well reduce demand for BEVs because of their complexity
Electric vehicles leased by consumers can qualify for up to $US7,500 in commercial clean vehicle tax credits without any of the same restrictions. But those credits go to the company that owns the vehicle rather than the consumer leasing it.
“We now know the playing field for EV tax credits for the next year or so. March 2023 was as good as it gets,” said John Bozzella, chief executive of the Alliance for Automotive Innovation, according to the FT report.
The US Treasury statement said “at least $US45 billion in private-sector investment has been announced across the U.S. clean vehicle and battery supply chain,” since the IRA was passed midway through 2022 while the FT report put it higher – at $US56 billion.
These have included new car making factories, charging networks, battery manufacturing plans from GM, Ford, Stellantis, Honda, Hyundai, Toyota, Panasonic, LG Chemical, Daimler (Mercedes).
CATL wants to join a Ford battery plant expansion – supplying technology and not taking direct equity but that has run afoul of US politicians of all types.
Billions of dollars in projects have been reported for the projects in Canada (VW) and Mexico (Tesla).
More than $56 billion in electric vehicle and battery projects have been announced in the US since the passage of the Inflation Reduction Act, according to an FT analysis. Despite these commitments, the US supply chain is still in its infancy.
A loser from this could be BYD, China and the world’s biggest maker of New Energy vehicles (Battery powered and plug ins). It will have to think very seriously about its battery making future (it’s the second biggest battery maker after CATL) and wonder about its future car making plant locations.
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Meanwhile, the US is getting the EV bug.
Industry figures show that US EV sales jumped 48% from in the March quarter to just over 258,000.
Data group Motorintelligence said this accounted for 7.2% of new vehicle sales over the 3 months, the highest yet and up from 5.8% in all of 2022.
Tesla led the way with an estimated 161,000 deliveries, followed by GM with 20,670 and Ford with only 10,866. That was low because it had to stop making its EV SUV version Mustang at its factory in Mexico to allow an expansion to handle greater output.
That’s why GM pushed Ford to third in the quarter.
Still, Ford’s EV sales rose 41% above last year’s first quarter, the company said this week.
Volkswagen was in fourth place in US. EV sales with 9,758 deliveries of the ID.4 hatchback.
