Electric cars in the USA: a boom in battery cell production thanks to tax incentives

E-cars can only be subsidized in the USA from 2023 if an increasing minimum proportion of the raw materials comes from the USA itself or associated countries.

Manufacturers like BYD – here the blade battery – either have to be very cost-effective in order to be able to export competitively to the USA, or they have to produce according to the specifications of the Inflation Reduction Act. (Image: BYD)

Northvolt, a Swedish producer of battery cells, is considering building a factory in Schleswig-Holstein: You have to recalculate because of the sharp rise in energy prices, according to the NDR, citing a company spokesman. The start of the construction site in mid-2023 and production from 2025 would currently be unrealistic. Instead, it could be that you first focus on the US as a location. A change in thinking that can currently be observed frequently: in the United States, massive amounts of money are being invested in battery production. The reason for this is the so-called “Inflation Reduction Act”, which the Biden government passed in August. The $7,500 tax credit is tied to the source of the battery materials.

Specifically, for tax eligibility from 2023, 40 percent of the critical resources in a traction battery, such as lithium, must come from the United States or a country that has a free trade agreement with the United States. For example from Canada (USMCA). Forbes reported this in August 2022. This value increases by ten percentage points every year to 80 percent for 2027. For materials that are not rated as critical – for example steel – the minimum proportion increases from 50 percent for 2023 to 100 percent for 2029.

From 2025, and this is particularly important for cell production for batteries in electric cars, critical metals that come from a country of particular concern are taboo – if you want to claim the tax credit. The latter is only theoretically relevant because nowhere is the margin so high that a manufacturer could do without such a sum and still be competitive. The list of “countries of particular concern” includes Russia and China.

Northvolt, a Swedish producer of battery cells, will postpone investing in a factory in Schleswig-Holstein. Northvolt is known for its joint venture with Volkswagen in Salzgitter. Instead, the focus is on the USA for the time being. The cause is the Inflation Reduction Act. (Image: Northvolt)

China is not only the country that is home to two of the three largest battery producers in the world, CATL, and BYD. A large proportion of the graphite, which is used as the anode material in virtually all of today’s cells, also comes from China. In addition, lithium from countries of origin such as Australia is processed there in large quantities to form lithium hydroxide. The dependency on China in the supply chain is correspondingly powerful.

The $7,500 tax credit has other limitations: only electric cars costing $55,000 or less are eligible. As usual in the USA, this means the net price without VAT. For trucks and vans, the limit is $80,000. This is important because the Ford F-150 pickup is the top seller among all vehicles and the electric F-150 Lightning only costs a good $52,000 in the basic version. However, the XLT trim line is over $59,000, and the F-150 Lightning Lariat costs at least $74,000. Anything but irrelevant: Anyone who earns more than $150,000 per year as an individual will generally get nothing.

The Inflation Reduction Act was initially heavily criticized. President Biden could thus destroy the beginning boom in electric cars. An assumption that seemed plausible in view of the few eligible electric cars: only certain versions of the Tesla Model 3 and Model Y are deductible, and with the VW ID.4 only those customers who have a vehicle from the Tennessee production site and not from Zwickau can apply for a $7,500 tax credit partly because the free trade agreement “Transatlantic Trade and Investment Partnership” (TTIP) is not yet in force. In this way, TTIP receives fresh impetus.

Reality is now showing that the opposite of the fears is happening: There are gigantic investments in battery production in the USA with the associated supply chains. Apparently, hardly anyone can and wants to do without the potential of around 15 million cars per year. It is common for cars to be produced where they are sold: for China, regardless of the brand, most of them are built in China, for the USA in the USA, and for the EU in the EU.

The USA has thus succeeded in combining economic development with geostrategic interests. It’s speculation, but Northvolt probably followed this pull. There are also considerations in Germany and other EU countries to diversify the supply chains. However, concrete actions are not known and projects such as the lithium production in the Rhine Graben are determined by debates about possible dangers.

Northvolt Batteries
In the US, electric cars are eligible for a US$7,500 tax credit only if a minimum annual percentage of the traction battery’s raw materials come from the US or associated countries. This is how the USA combines economic development with geostrategy. And: From 2025, not one gram of cell material may come from China or other countries of particular concern for eligibility.(Image: Northvolt)

If the supply chains for the production of battery cells in Europe are not diversified, the result will be extensive dependence on primary products from China. From January 1, 2035, i.e. in a good twelve years, only passenger cars and commercial vehicles with an unladen weight of up to 3.5 tons that do not emit direct CO₂ emissions will be allowed to be newly registered in the EU, and according to current estimates, these will mostly be battery cells and some fuel cells – be electric vehicles.

The “Production Engineering of E-Mobility Components” (PEM) chair at the RWTH Aachen regularly compiles how much production capacity for battery cells in Europe is announced for the year 2030, i.e. five years before the end of the remaining period for combustion engines. As of July 2022, that is 1411 GWh annually. A quantity that would be sufficient to equip not only all passenger cars and all types of commercial vehicles but also stationary storage systems.

Whether the announcements in Europe will also become reality remains to be seen. It is astonishing that politics and industry recognize the danger of blackmail from supply chains dominated by China, but do not react to it. In any case, in the USA the revision of the purchase promotion for electric cars is having a clear effect.


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