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US-made rules for EV batteries change in fine print of new law


According to Bloomberg discussions with dozens of manufacturing executives, the interpretation of a few words in the US Treasury Department regulation could raise expectations about how tens of billions of dollars in incentives will be distributed. new electric vehicle tax. battery analysts and government officials.

At stake in the coming weeks is the extent to which a significant part of the battery supply chain will be manufactured in North America or maintained where it is currently concentrated, in Asia.

“There are specific factories – and there are thousands of jobs tied to those factories – that are hanging in the air,” said JB Straubel, founder of battery maker Redwood Materials and co-founder. . Tesla.

At the end of the month, the Treasury Department and the IRS are expected to release guidance on incentives worth tens of billions of dollars for electric vehicles over the next decade. One of the most important involves the complicated rules about where the most valuable battery material must be sourced to qualify for the $7,500 electric vehicle subsidy under the Inflation Reduction Act of 2022.

The white paper released by the department on December 29 described the department’s intentions for the upcoming guidance. It would treat the active materials of the anode and cathode as processed critical minerals rather than battery components, as they are classified in a different section of the IRA’s own text. That change would widen the countries where the ingredients can be made available under the law.

Man is not satisfied

US Senator Joe Manchin, a West Virginia Democrat who demanded much of the law’s strict domestic sourcing requirements to win his vote in package negotiations last year, told Bloomberg that his work on the law has been repeatedly sabotaged by the Treasury Department. make it easier for automakers to qualify for credit.

“These credits are designed to grow domestic production and reduce our dependence on China and other foreign supply chains,” Manchin said in an email to Bloomberg. “A move like this not only goes against the purpose of the law, but also significantly harms America’s energy security and deepens our dependence on foreign supply chains for those what we can and should do at home.”

“The guidance we released in March focuses on building a strong and resilient industrial base in the United States that will create a strong and resilient base,” Treasury spokeswoman Ashley Schapitl said in a statement. create more jobs and strengthen supply chains important to energy security as-minded partners.” Additional changes to the guide may be made after it is released in draft form.

Each EV battery has two electrodes — the cathode and the anode — between which trillions of charged lithium atoms move. The cathode is the biggest factor affecting a battery’s performance, cost, and environmental impact. According to data from the BloombergNEF research group, the cathode is responsible for 60% to 70% of the cost of a battery cell, while the anode accounts for the other 9% to 11%.

Today’s cathode and anode materials are produced almost entirely in China, Korea and Japan. But that has begun to change. Since the tax and climate legislation was passed in August, companies have announced investments of more than $10 billion in new plants to produce cathode and anode in the US. faster charging.

Requiring cathode and anode sources to be sourced in North America would benefit those startups, while a broader interpretation would benefit major automakers with supply chains. global response.

“The recommended language will still allow you to do the highest value pieces,” said Vivas Kumar, managing director and co-founder of Mitra Chem, a cathode development company based in Mountain. in the battery supply chain outside the United States. View, California, plans to announce its first commercial-scale factory site later this year. If the white paper guidance were to proceed, he said, “We would be no different from the industry today – it would be a farce.”

‘Really out of left field’

One of the leading companies building the US battery supply chain is Redwood, founded by Straubel. In December, Redwood began construction of a $3.5 billion factory near Charleston, South Carolina. Less than two months later, it won a $2 billion federal loan to expand production in Nevada. It plans to produce enough cathode and other critical materials for 1 million electric vehicles a year by 2025 and enough for 5 million vehicles a year by 2030.

In an interview, Straubel called the Treasury’s proposed reclassification “really out of the industry” and said it would “clearly change the entire purpose of the law.” He said he’s heard from automakers and other material manufacturers who are reevaluating investment plans based on the white paper. “It’s not a hypothetical thing,” he said.

The Inflation Reduction Act encourages domestic production of battery technology in a variety of ways, including a 10% manufacturing credit that applies to anode and cathode manufacturing and is unaffected by Treasury guidance .

David Schwietert, policy director at the Alliance for Automotive Innovation, an auto industry trade group, said the consumption tax credit “is just one of several incentives that will boost the external electric vehicle supply chain.” China. Those will, he said, “further leverage U.S. investment and general partnerships to mine, process, and produce batteries of key minerals in the United States.”

How does this affect the consumption tax credit?

The biggest prize, however, is a $7,500 credit that consumers will receive for purchasing a qualifying product. tram.

There are two parts to that subsidy, each accounting for $3,750 of the price of one new car. The first $3,750 involves what the law calls “important minerals.” These include elements such as lithium, cobalt, and nickel. To qualify, a certain percentage of the material, which increases each year, must be mined and refined in countries with which the United States has established free trade agreements, including South Korea. . (There are also negotiations underway to apply this definition more broadly, to the EU and Japan.)

The second $3,750 depends on the various manufactured parts that go into the battery pack, including electrodes, solvents, additives, salts, battery cells, and cell-containing modules. The percentage value of all ingredients in ascending order, minus the value of important minerals, must be produced in North America.

For the most part, everything that is mined and refined is in Part 1, and everything that is combined by chemical or industrial process is in Part 2.

Although cathode and anode materials are clearly classified as battery components in part of the law, this category is not clearly defined in the section of the law that deals with consumer subsidies. The Treasury Department’s white paper will create a new third type of product, called “constituent material”, which is mainly just anode and cathode materials. These will be treated as important minerals — that is, can be obtained from other partner countries — until they are attached to metal foils. Only then did they move to the more stringent “ingredients” category in North America.

“It appears that the Treasury Department is once again ignoring the will of Congress by trying to blatantly expand the definition of an important mineral to include ‘constituent materials’,’ Manchin said. .

Korean advantage

Thomas Conway, international president of United Steelworkers, the largest industry union in North America, said the Treasury Department “should follow the direction it receives from Congress.” In a letter to Treasury Secretary Janet Yellen on March 7, he wrote, “This expansion could hurt the ability of the United States to create thousands of jobs in the battery supply chain.”

Many major auto and battery manufacturers have written to the Treasury to propose changes that are similar to white papers or advocated through industry trade groups. This guidance will strongly encourage cell manufacturing and packaging in the United States, make it easier to meet reporting requirements for components, and give such manufacturers greater control. greater control over how claims are met.

Turn cathode and anode materials into important minerals calculation according to data from BloombergNEF would make the provenance of individual battery components irrelevant. As long as the battery cells and modules are made in North America, that will essentially include all of the “component” value of the battery, because the battery cell manufacturers have included the final steps. to turn cathode and anode materials into qualified electrodes as part of the cell-making process.

South Korean battery industry analysts at Macquarie Research reached the same conclusion after reading the white paper, writing in a note to clients that the guidance meant “less incentive for manufacturers supply cathode materials extended to the US”. They concluded that while China would mostly be excluded from the US supply chain, that would still retain “Korea’s supply chain advantage”.



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