The IRA includes US$37.4bn in clean manufacturing incentives and US$14.2bn in tax credits for new and used EVs. The subsidies could cut the cost of making electric vehicles by as much as US$9,000. That will unleash a wave of private capital as companies are going to go where they get the best offer. We expect US battery production capacity to soar to 403GWh by 2025, up from 70GWh in 2021.

The impetus of this spending surge is shoring up economic growth, shifting to clean energy systems—and reducing dependence on China. The US IRA and USMCA phases in its regional content requirements for tax credit eligibility to incentivise domestic manufacturing and break China’s grip on the supply chain. Mexico and Canada will benefit from their inclusion in these measures.

The IRA‘s US$7,500 EV tax credit will only apply if domestic sourcing thresholds are met and excludes vehicles containing battery components or minerals from a “foreign entity of concern”—namely China. Similarly, the US$369bn Chips Act, designed to build a leading-edge US semiconductor industry, will restrict companies from expanding chip capacity in China for 10 years if they receive federal money.

The US has already highly restricted the export of advanced chip-making technology to China. A battery-electric vehicle has easily twice as many semiconductors as an ICE car. Intel is building two US$20bn chip factories in Ohio and Arizona.

The new North American trade deal raises the regional content requirement for duty-free treatment for passenger vehicles, light trucks, and certain parts to 75% from 1^st July 2023, from 62.5% under NAFTA, the region’s previous trade deal. Currently at 72%, it is almost fully phased in. It also sets out a US$16 per hour labour value requirement. EV batteries are considered “core parts,” and therefore fall within the 75% threshold for manufacturers to meet the 2.5% tariff reduction.

The US$7,500 IRA EV tax credit is split evenly at US$3,750 for battery components and battery minerals. In 2023, 50% of the battery components and 40% of the battery metals must be sourced within the US or a country with whom the US has a free-trade agreement or have been recycled in North America. These requirements rise progressively to 100% for battery components in 2029 and 80% for battery metals in 2027. From August 2022, EVs also need to be assembled in North America to qualify.

The US Department of Energy will loan US$2.5bn to Ultium Cells, a JV between General Motors and LG Energy Solution, to help finance construction of new battery cell manufacturing facilities. Ultium Cells plans to have 160GWh of battery production capacity later this decade.

United States

Nevada

The DoE last month announced a US$2bn loan to Redwood Materials planned US$3.5bn recycling and re-manufacturing complex in Nevada for EV battery cathode materials. A month earlier, the DoE said it planned to loan Ioneer up to US$700m to build its Rhyolite Ridge lithium mining project in Nevada.

Michigan

Michigan has approved US$824.1m in incentives for General Motors to invest US$6.6bn in two EV investments. That comprises a US$4bn refurbishment of its Orion Assembly plant for electric truck production and the US$2.6bn battery plant in Delta Township. They are expected to create 4k new jobs.

The 50GWh battery plant, a JV with LG, will also be exempt from city taxes for 18-years, estimated to be worth US$158m. The Michigan Strategic Fund expects the investments to generate US$28.8bn in personal income for residents over the next 20 years. The plant, the third Ultium facility, is expected to come online in late 2024.

Separately, LG received a US$189m incentive for a US$1.7bn expansion for its existing 5GWh battery plant in Holland, Michigan. The expansion is expected to quintuple capacity and create an additional 1.2k jobs.

Michigan has approved a US$1bn incentive package for Ford and CATL’s US$3.5bn battery plant in Detroit. Ford is expected to own and operate the 35GWh LFP plant, with CATL listed as a technology partner. Michigan’s auto industry has an estimated US$225bn value to the state, along with 291k jobs.

Ohio

Ultium Cells started production at its first 40GWh, US$2.3bn battery factory in Ohio in September 2022. The Warren plant is expected to create 1.1k jobs. It received US$13.8m in state tax credits.

Georgia

Georgia has approved US$1.8bn in state tax breaks and incentives for Hyundai to invest US$5.5bn in an EV and battery plant in the state. The EV plant is expected to open in 2025, with an annual capacity of 300k EVs. The 20GWh, US$1.9bn battery plant is a JV with SK Innovation and is expected to start up in 2026.

SK opened a US$1.2bn, 9.8GWh battery plant in Commerce, Georgia, in January 2022. A second plant in Georgia, with a 11.7GWh capacity, is expected to come online in 2023 and cost US$1.4bn. The state has offered US$300m in incentives. The complex will cost US$2.6bn in total.

Tennessee

GM and LG’s US$2.6bn, 50GWh battery plant in Tennessee is expected to come online later this year. It will receive US$78m in grants. The Spring Hill plant, which is expected to create 1.7k jobs, will be the second Ultium battery facility.

Tennessee has signed off on US$884m in incentives for the US$5.6bn EV assembly and battery plant being built by Ford and SK. That includes US$500m in capital grant funds. The plant, with a planned capacity up to 43GWh, is expected to create around 6k jobs and come online in 2025.

Kentucky

Kentucky has approved US$829m in financial incentives for Panasonic’s US$4bn battery plant in De Soto. The 40GWh plant is expected to begin production in March 2025. The Japanese giant already has a 39GWh plant in Nevada, which produces cells for Tesla. Panasonic aims to increase its North American manufacturing capacity to a massive 150-200GW by 2030.

Envision AESC’s US$2bn, 30GWh battery plant in Warren County, Kentucky is expected to begin in 2025. The Glendale plant is expected to create 2k jobs. Kentucky officials have approved US$116m in incentives.

Ford and SK’s US$5.8bn complex in Kentucky is expected to begin production in 2025. The two battery plants have a planned production capacity of up to 43GWh each. The Glendale complex is expected to create 5k new jobs. The JV, known as BlueOval SK, will get US$250m in upfront state incentives.

Ascend Elements battery recycling plant is set to cost US$1bn and come online in 2024. The Hopkinsville facility is expected to recoup enough material for 250k EVs a year. Ascend Elements has received US$480m in grants from the DoE. The company anticipates an economic impact of US$4.4bn for Kentucky within 10 years.

Kansas

Kansas has approved US$829.2m in state incentives for Panasonic’s planned 40GWh battery plant in Johnson County, Kansas. The plant, set to cost US$4bn and come online in 2025, is promising 4k jobs. The factory will be the largest economic development plan in Kansas history.

South Carolina

Japan’s Envision AESC plans to build a 30GWh battery factory in Florence, South Carolina at a cost of US$810m to supply BMW. It will create 1.2k jobs. South Carolina has awarded a US$135m grant and US$70m in economic development bonds. The new plant, expected to come online in 2026, will bring Envision’s US battery capacity to 70GWh. The company has an existing battery plant in Tennessee and one under construction in Kentucky.

South Carolina has approved US$70m in incentives for BMW’s US$1.7bn investment at its plant in Spartanburg to assemble batteries and produce EVs. It will create 300 jobs. China’s AESC will supply the batteries from its planned battery plant in the state. BMW wants to produce at least six fully electric BMW X models in the US by 2030.

Canada

Canada, rich in key materials for EV battery production, has been wooing battery makers to safeguard the future of its auto manufacturing industry, while achieving net-zero emissions by 2050. But its government support is dwarfed by the US IRA and pressure has been building on lawmakers to level the playing field.

Canada’s 2022 budget included C$15m for EV chargers, US$1.7bn for the government leasing program and up to US$4bn to advance the development of critical minerals, known as the Canadian Critical Minerals Strategy.

In 2020, the country launched the US$8bn Net Zero Accelerator fund in 2020 to fund clean projects and technologies. Since 2019, the country has offered up to C$5k in rebates when you buy or lease an eligible light-duty EV and up to C$200k for medium and heavy duty EVs.

LG and Stellantis are investing US$4.1bn to build Canada’s first large-scale EV battery plant. The 45GWh plant in Ontario is expected to come online in 2024. It is expected to create 2.5k jobs. “I know between Ontario and Canada, we’re putting in hundreds of millions of dollars,” Ontario Premier Doug Ford said in September 2022. The exact figure hasn’t been disclosed yet.

Last month, LG inked an offtake agreement with Piedmont Lithium for 200ktpa of spodumene concentrate for four years from 2023. Piedmont operates the NAL mine in Quebec with partner Sayona Mining. The mine is expected to restart this quarter.

There have been smaller investments in Canada’s battery ecosystem. In Quebec, the Lion Electric Company announced a US$185m battery assembly plant, supported by US$100m in total contributions from the federal and provincial governments.

General Motors and BASF each plan to build US$500m battery cathode manufacturing plants in Quebec. In 2021, GM said it would invest US$1bn in facilities in Ingersoll, Ontario, to produce its BrightDrop electric commercial delivery vehicles.

In 2020, Ontario and the federal government each agreed to contribute US$295m, or US$590m in total support, so Ford would commit to a US$1.8bn retrofit of an assembly plant for EVs in Oakville, Ontario.

Canada is starting to take steps to limit China’s influence within the domestic supply chain. In November, the country ordered three Chinese companies to sell their interests in small Canadian lithium firms. Ottawa said it must build a resilient critical minerals supply chain with like-minded partners.

Mexico

Mexico’s manufacturing industry will benefit from its inclusion in the US IRA subsidy for EV final assembly and higher regional content requirements under USMCA. The country is also attracting investment from multinationals looking to relocate production closer to customers to limit their vulnerability to shipping problems and geopolitical tensions. Indeed, Mexico recorded its highest foreign direct investment in seven years in 2022 at US$35.3bn.

Tesla announce plans this week to build a new assembly plant in Monterrey, northern Mexico, which could cost around US$1bn. Tesla currently has a capacity to build 2m cars a year at four factories in California, Texas, Germany, and China. Tesla has set a goal to eventually build 20m cars a year. That is expected to cost US$150-175bn, including the US$28bn it has already invested. The automaker delivered 1.3m in 2022.     

Last month, BMW said it would invest EUR800m (US$847m) to start EV production and assemble batteries at its plant in San Luis Potosí from 2027. That will create 1k new jobs. BMW is joining forces with Evergo in Mexico to build more than 4k public EV charging stations in the country over the next five years.

Chinese companies are also participating in the reshoring shift, in a sign of the breach dividing it from the US. But even more than that, it also signals the powerful economic link between the two countries. Lizhong, a Chinese manufacturer of automobile wheels, is erecting the company’s first factory outside Asia at an industrial park in Nuevo León. Its largest customers are Ford and General Motors.

In late February, Mexico’s President Andrés Manuel López Obrador officially signed a decree to nationalise the lithium mined in the country. The move came amid a backdrop of rising resource nationalism in Latin America. Bolivia has made lithium a state monopoly and Chile is planning to set up a state-owned lithium company.