Under the IRA, EVs will be eligible for a US$7,500 federal tax incentive. To qualify for the tax credit, a significant portion of critical materials used in the EV batteries will have to be sourced from the US or a free-trade partner. Australia and Chile, two major lithium-producing countries, already have a free-trade agreement with the US.

Multiple stakeholders, including Japanese and Korean automakers and battery producers, have complained about the ‘unclear and ambiguous’ IRA conditions. The US Department of Treasury announced that more guidance on the requirements will be issued in March 2023. Producers remain hopeful that lithium mined in non-FTA countries (such as Argentina) but processed in FTA-countries (Canada or Australia) will qualify for the credit.

Domestic Mining and Refining

This sourcing requirement has pushed EV makers to secure their supply of domestic lithium. Most recently, General Motors announced it will invest US$650m into Lithium Americas to help develop its Thacker Pass mine in Nevada. Last year Ford signed an offtake agreement with Nevada-based Ioneer.

Traditionally, it is rare for automakers to move upstream to secure their own raw materials. Tesla is going even further, with plans to build its own lithium refinery in Texas. Tesla CEO Elon Musk confirmed plans for a battery-grade lithium hydroxide facility but did not disclose a timeline or production capacity for the project.

To improve the domestic production of battery minerals and EV batteries, the Biden administration will award up to US$2.8bn in funding. President Biden stated he wants the US to take back a significant portion of the market from China.

US lithium giant Albemarle is one of the 20 companies to receive the grants from the US DOE. Albemarle received around US$150m which will be used towards the construction of its new large-scale lithium concentrator facility in North Carolina. The facility will supply up to 350ktpa of spodumene concentrate to a conversion facility, which is yet to be constructed. Piedmont Lithium will receive US$141m for the construction of its lithium processing facility in Tennessee. Lilac Solutions, Lake Resources’ partner, will receive US$50m to advance its DLE demonstration plant.

Battery Makers Incentivised

The majority of EVs currently contain batteries manufactured in China. To reduce the US’ reliance on China for its battery needs, the IRA will incentivise battery manufacturers to shift their production to the US using tax credits.

Under the ‘Advanced Manufacturing Production Credit’, up to US$45/kWh will be available. Cell manufacturers will receive US$35 for every kWh of battery produced domestically. An additional US$10/kWh will be available for battery module producers.

The IRA incentives are already paying off, with Tesla announcing that "the focus of cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act". Tesla is one of the first firms to announce a shift in their previous strategy prompted by the IRA. The company will pause complete cell production but continue battery assembly at its German site in Bradenburg.

In January, Tesla unveiled plans to invest an additional US$3.6bn in its Gigafactory Nevada. The investments will add a 100GWh 4680 cell factory to the gigafactory, enough batteries for 1.5m EVs annually. With the IRA incentives, Tesla will receive up to US$4.5bn in tax credit for the new 100GWh facility. Currently Tesla operates two US gigafactories in Nevada and Texas.

A Wave of New Gigafactories

A wave of large-scale battery manufacturing facilities has been announced since the IRA was released. Canada-based battery manufacturer Electrovaya will build its first US gigafactory in New York. The company plans to open the manufacturing facility in phases from late 2023. Electrovaya’s lithium batteries are used in a range of electric vehicles including e-trucks, e-buses, e-forklifts, and e-robots. Electrovaya received support from the NY state government for the gigafactory.

Panasonic began construction of its battery gigafactory in Kansas which was announced in 2022. The US$4bn facility will have a production capacity of 30GWh each year. The Kansas gigafactory will be Panasonic’s second battery production facility in the US.

Panasonic is in talks to open a potential third gigafactory in the US, possibly in Ohio, but the company has not confirmed any details yet. Production is expected to start by the March quarter of 2025. The company targets a four-fold increase in its North American manufacturing capacity by 2030, equivalent to 150-200GWh.

General Motors and LG Energy Solution are investing an additional US$275m on the Ultium Cells Spring Hill plant in Tennessee. Ultium is a joint venture between the two companies to manufacture EV batteries in the US. The additional investment will increase the annual production capacity from 35GWh to 50GWh. The companies already committed US$2.3bn to the Tennessee gigafactory. The plant, currently under construction, will be operational in late 2023.

The US Department of Energy finalised a US$2.5bn low-cost loan to Ultium Cells. Ultium will use the loan to build three gigafactories in the US. The loan will come from the US DOE’s Advanced Technology Vehicles Manufacturing program. Ultium is in the process of building battery cell manufacturing facilities in Ohio (40GWh), Michigan (50GWh), and Tennessee (35GWh). When all three gigafactories are at full capacity, Ultium will produce over 130GWh of batteries annually.

Hyundai and SK On have selected the site for their new gigafactory in the US. The Korean joint venture will set up the battery facility in Georgia. The gigafactory is expected to cost around US$5bn and start battery production in 2025. The state of Georgia continues to attract large investments from the EV industry, with total investments now reaching around US$20bn. SK On is increasing its US production capacity which is expected to reach 180GWh by 2025. Its other big projects include the joint venture with Ford (BlueOval SK) which will build gigafactories in Kentucky and Tennessee.

Battery Precursors

Under the IRA’s ‘Advanced Manufacturing Production Credit’, a 10% credit will also be available for the production of electrode active materials. The credit, measured as a percentage of total cost of production, will be available until 2030. This incentive will boost the production of cathode active material, crucial to building a robust domestic EV supply chain.

Redwood Materials announced its next Battery Materials Campus in Charleston, South Carolina. The company will invest US$3.5bn to recycle, refine, and manufacture anode and cathode components. Once fully ramped up, the plant will produce 100GWh of cathode and anode components each year. The materials will supply batteries to power over 1m EVs by 2025 and over 5m EVs by 2030.

Construction is expected to begin in early 2023. The company is also building another cathode plant in Nevada, which will begin production in 2024. Redwood’s new plant adds to the expanding list of EV-related facilities in the US ‘battery belt’.

LG Chem will spend over US$3bn on a new battery cathode factory located in Tennessee. Mass production is estimated to begin mid-2025. By 2027, the plant will ramp up to a production capacity of 120ktpa of cathode materials. At full capacity, the plant will supply around 1.2m EVs with cathode materials each year.

LG Chem will presumably supply cathode materials from the Tennessee factory to Ultium Cells. The Tennessee factory will make NCMA cathodes using nickel, cobalt, manganese, and aluminium. GM will use the NCMA battery chemistry for its new EVs powered by Ultium battery cells.