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EV manufacturers express optimism, caution for Inflation Reduction Act

Industry experts discuss how the Inflation Reduction Act could impact electric vehicle manufacturing operations in 2023 and beyond.

November 10, 2022

The Inflation Reduction Act of 2022, signed by President Joseph Biden Aug. 16, is perhaps one of the most significant pieces of legislation to advance the electrification of transportation in the U.S. Taking effect in early 2023, the bill will provide incentives for consumers that purchase electric vehicles (EVs), which could pose considerable implications for the EV market and manufacturers.

“The bill includes new federal investment tax credits for battery-electric and fuel-cell commercial vehicles and equipment and includes credits for charging infrastructure,” says Jonathon Randall, senior vice president of sales and commercial operations for Greensboro, North Carolina-based Mack Trucks.

Related: NWRA urges Congress to oppose Inflation Reduction Act of 2022

To encourage the purchasing of EVs, those who meet set income requirements can receive a tax credit of up to $7,500 per qualifying vehicle.

For commercial trucks, the tax credit is capped at $7,500 for vehicles with a gross vehicle weight rating (GVWR) of less than 14,000 pounds and capped at $40,000 for vehicles with a GVWR of more than 14,000 pounds, according to the Electrification Coalition, a Washington-based organization working to increase the adoption of EVs globally.

As of early November, only 34 vehicles qualify for the tax incentives, none of which are vocational. To receive a tax incentive, vehicles must meet certain requirements. Specifically, critical minerals used in the EV batteries, such as aluminum, chromium and antimony, will have certain milestones that must be met for extraction, processing or recycling in North America.

This also applies to materials sourced in countries with free trade agreements with the U.S. These requirements start at 40 percent in 2023 and increase 10 percent annually, until they reach 80 percent in 2026. Starting in 2025, vehicles will not qualify for the tax credit if the battery’s critical minerals were extracted, processed or recycled by a “foreign entity of concern,” with primary concern placed on components originating from China.

Beginning in 2023, 50 percent of EV battery components must be manufactured or assembled in North America. This requirement will increase by 10 percent each year, reaching 100 percent by 2028. Starting in 2024, vehicles will not qualify if the battery components were manufactured or assembled by a foreign entity of concern.

“We are pleased that the U.S. Congress and President Biden passed and signed into law the Inflation Reduction Act,” Randall says. “Mack has long encouraged federal government support for meaningful heavy-duty vehicle and equipment emissions incentives, and we believe this action will help the transition toward a zero-emission commercial vehicle future.” 

Randall says Mack's goal is to have 35 percent of its sales be for EVs by 2030, noting that incentives such as the EV tax credit in the Inflation Reduction Act will help the company achieve that. 

“We will work with the federal government to continue to advance policies that support the entire zero-emission supply chain, including streamlining permitting and modernizing the electric grid,” Randall says.

While some companies are pleased with the potential benefits, others are “optimistically cautious.” For Battle Motors, based in New Philadelphia, Ohio, the incentives are something the company says it will pursue for its customers but it is uncertain how or when the bill will be implemented.

Currently, the company says EV production is less than 1 percent of its business, manufacturing one vehicle per day at its recently expanded facility in Ohio. However, the company says EVs are expected to be up to 40 percent of Battle Motors’ business in the future.

Despite the requirements in the legislation, Stan Mikalonis, the company’s chief revenue officer, says he does not believe the legislation will impact Battle Motors’ go-to-market strategy for EVs.

China is the largest player in the global EV and EV supply-chain market, representing 76 percent of the battery market today, while the US only represents 8 percent, according to a report from The New York Times.

If companies try to meet the law's requirements, Mikalonis says buying batteries domestically could be more expensive than the incentive itself. This is because it is more expensive to source materials for batteries in the United States than it is overseas.

Additionally, Mikalonis says he’s cautious because it is unclear if the government will tack on any extra requirements for EV manufacturers. He says if the government includes requirements to cease using older model vehicles or ties EV production to a reduction in diesel manufacturing, some companies might not qualify for the incentives.

Other factors that could impact the EV market include the recent midterm elections. Manufacturers such as Battle Motors are not sure how the political environment will change or whether this bill will be affected by a change of power in the House and Senate. 

Despite these challenges and uncertainty, Mikalonis says he is optimistic the legislation will drive new interest in EVs and increase commercial usage.

“There is a lot of money to help with infrastructure, so customers can more easily bring these vehicles into their operations,” he says. “Infrastructure has been one of the biggest challenges to integrating electric vehicles into fleets. Many of the incentives in the Inflation Reduction Act will go toward helping companies bridge that cost gap between electric and internal combustion engines.”