The US electric vehicle market stands to reap significant benefits from federal policy incentives rolled out for the industry. Under the provisions of the Inflation Reduction Act, there are incentives available for the entire electric vehicle ecosystem which makes for a favorable outlook for attracting investments in the industry. The investment announcements indicate a bullish outlook shaping for the battery manufacturing and vehicle manufacturing, though the capacities are far from commissioning. A strong demand and sales momentum in the electric vehicles helps maintain the favorable outlook.
GDP (Current Prices) USD (2021) | 22,996.08 bn |
GDP Growth Forecast (constant prices) (2021-2025) | 2.26% |
EV Penetration | 5.6% of the total new passenger vehicle sales in 2022 |
EV Target | 50% share of electric vehicles in total new passenger vehicle sales by 2030 |
Planned Year of Phasing Out ICE Vehicles | No federal-level targets |
GDP Source: IMF, World Economic Outlook
Policy Regulation
The Bipartisan Infrastructure Law, (or the Inflation Reduction Act (IRA)) is the most significant change in the policy framework impacting electric vehicles and its related sectors (such as battery supply). There are other significant policy steps aimed at promoting the indigenous industrial base which potentially impacts the electric vehicle ecosystem. A common thread across such recent policy pronouncements has been the need to incentivize investments in the face of global competition.
The IRA offers a package of incentives. From 2023, the electric vehicle manufacturers won’t be subject to the 200,000 units cap on sales to avail the clean vehicle tax credit. This eases the constraint for many of the leading automakers such as Tesla and GM which had met the mark ahead of schedule last year. Also, the cap helps restore some of the relative competitiveness against the imported vehicles. Furthermore, the new vehicles will be eligible for a $7,500 tax credit at the point-of-sale. This credit is bifurcated in two parts, namely the critical mineral and battery components – both of which need to be fulfilled in terms of their sourcing requirements.
IRA’s local sourcing requirements are the most notable, for the larger ramifications it has on the industry. The norms require indigenous sourcing of battery components for the vehicles manufactured after 2023. Also, over 50% of the battery component manufacturing and assembly should be in North America starting 2023, with this share rising by 10% every year through 2028. As a corollary to these regulations, all the vehicles’ final assembly is to be in North American facilities.
The IRA provisions also include the commercial electric vehicles in the tax benefits. Starting 2024, clean commercial vehicles will be eligible for tax credit equivalent to 30% of the vehicle cost or the difference between the cost of such vehicle and its conventional engine counterpart.
Five-year (FY 2022-26) National Electric Vehicle Infrastructure Funding by State (USD million)
The federal policy framework devotes notable attention towards the charging infrastructure. This not only involves funding the infrastructure build-up, but also incentivizing the direction of such a growth. In June 2022, the US Department of Transportation (DoT) proposed minimum standards and requirements for the charging projects’ funding.
DoT’s $5 billion National Electric Vehicle Infrastructure (NEVI) Formula program makes funding available to states for development of charging stations and the related interconnected network for data collection, access, and reliability. Up to 80% of the project costs are covered through the budgeted allocation. The funds are distributed through the Federal Highway Administration (FHWA) based on the outlay of each fiscal year till 2026. The charging stations funded under such a scheme are required to meet certain criteria such as non-proprietary technology, amenable to open access payment methods, be publicly available or available to the authorized commercial motor vehicle operators from more than one company and to be located at FHWA- designated alternative fuel corridors.
At the state-level, as of April 2022, there were at least 45 states and the District of Columbia offering an incentive for electric vehicles either through a specific utility or through legislation. The incentives include either tax benefits or rebates for meeting fleet acquisition targets, exemptions from emission testing or reduction in the utility time-of-use rates.
Another important federal legislation that adds fillip to the overall industry landscape is the enactment of $280 billion Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act of 2022. The CHIPS Act is aimed at enabling investments in the US domestic semiconductor industry. While this is still in the longer-term, the enabling provisions stand to potentially impact the electric vehicle industry due to the significant technology spillovers involved in the process.