Why Section 45X is a ‘game changer’ for U.S. EV battery supply chain

Automakers also are expected to benefit from 45X, though it remains to be seen whether the credits are used to lower EV prices for consumers.

In a third-quarter earnings call in October, Ford CEO Jim Farley estimated that a combined available tax credit for Ford and its battery partners in 2023-26 could total more than $7 billion, with a “large step up in annual credits” starting in 2027 as battery plants ramp up to full production.

However, the Alliance for Automotive Innovation is seeking clarity from Treasury to ensure that companies making or assembling the final battery component installed on the vehicle — whether a pack or module — are eligible for the $10 credit.

Giving the module credit to the manufacturer that installs the battery in the vehicle will “increase the likelihood that the 45X credit will be passed along to consumers,” the group, which represents Ford and other major automakers, said in recent comments to Treasury.

An analysis by Energy Innovation and the International Council on Clean Transportation found that on average over the 2023-32 period, the 45X tax credit could reduce light-duty EV purchase costs by up to $2,900 depending on how much of it is passed on to consumers in the form of reduced upfront prices.

Conrad Layson, senior alternative propulsion analyst at AutoForecast Solutions, is not so optimistic.

“Part of me says that prices will rise and adjust simply because of the ways the laws of demand work,” he said. If a company has battery components or critical minerals that are compliant with Inflation Reduction Act rules, “that’s worth something at a premium.”

It also depends on supply chain resilience, said Nathan Niese, associate director of electrification and climate change at Boston Consulting Group.

“With a whole new set of demand coming in — faster than otherwise might have been naturally expected — can the supply chains keep up?” he said. “If they can’t, then you have a supply shortage, and it only takes one or a subset of materials to drive prices up on batteries again.”