Tax breaks for EV battery plants could disappear in budget battle

Axios

2 days ago

Whipsawing tax policies in Washington threaten to put billions of dollars in manufacturing investments at risk across the U.S. battery belt from Michigan to Georgia.
Why it matters: New battery plants are less viable without lucrative tax credits that a Democrat-controlled Congress approved in 2022, but which the new Republican majority aims to undo.
Losing those battery subsidies would compound manufacturers' other woes, from tariffs on key components to uncertain consumer demand.
Catch up quick: The manufacturing subsidies, established under the Inflation Reduction Act, were designed to help seed a domestic battery supply chain and cut reliance on Chinese imports.
While some U.S. investments were already in the works, the tax credits turbocharged those efforts, with an additional $67 billion in battery facilities announced over the last three years, according to the Alliance for Automotive Innovation's EV investment dashboard.
The credits are worth billions of dollars annually, slashing the costs of battery production by nearly one-third, which could help make EVs more affordable.
Driving the news: Ford Motor's executive chair, Bill Ford, warned of what might happen if the House budget bill's restrictions making it harder to access those tax breaks were to become law.
A $3 billion Ford battery plant in Marshall, Michigan, now 60% complete, would be "imperiled," risking 1,700 jobs, he said at a policy conference last week in Michigan, per Reuters.
"We made a certain investment based upon a policy that was in place. It's not fair to change policies after all the expenditure has been made, " Ford said.
Zoom in: The House budget bill passed last month effectively killed those credits by tightening the eligibility requirements such that they're unworkable, industry experts tell Axios.
It would bar tax credits for batteries produced with components from China or minerals processed in China, which controls 90% of global refining.
It would also prohibit credits for batteries made in the U.S. under a Chinese licensing agreement — a direct hit on Ford, which plans to license tech from China's leading battery manufacturer, Contemporary Amperex Technology Co., Limited (CATL).
What they're saying:"Tightening the eligibility requirements in essence eliminates the majority of projects eligible," says Gracelin Baskaran, a mining economist who is director of the Critical Minerals Security Program at the Center for Strategic and International Studies.
The bill's language is ambiguous and overly broad, according to analysts at The Tax Law Center at NYU Law, but the practical effect is likely a chill on U.S. investments — the opposite of what lawmakers say they're trying to achieve.
Yes, but: Other provisions, including tax write-offs for R&D and capital equipment, could benefit manufacturers.
Some companies could also be fairly insulated from the latest policy moves.
General Motors, for example, has been investing heavily in North American mining and processing companies in recent years to protect its supply chains from risk.
South Korea's LG Energy Solution, which has three U.S. battery plants and five joint ventures in North America, could also benefit, a spokesperson says.
What to watch: The big worry for some manufacturers is that they wind up saddled with stranded assets — costly factories that are underutilized or never completed.
"It's inevitable that some number of them will decide not to complete their plants because the economics no longer work," Ethan Zindler, a policy analyst at BloombergNEF, tells Axios.
More than $14 billion in clean energy investments in the U.S. have been canceled or delayed this year, AP reported, including a Freyr Battery plant in Georgia and a Kore Power battery plant in Arizona.
Weak EV demand forecasts, not just policy signals, also likely played a factor.