On Wednesday, January 25th, US Senator Joe Manchin (D-WV) introduced legislation to the senate that would prevent automakers from receiving EV tax credits for vehicles that are unable to meet the new battery and mineral standards outlined in the Inflation Reduction Act (IRA). The IRA, penned in part by Senator Manchin, had originally allowed for a transition period for automakers to adjust to new regulations requiring minerals used in EVs to be mined in North America. With the majority of rare earth minerals (REMs) used in EV production sourced from outside of the United States, automakers and suppliers were already facing a steep uphill battle to move their mining operations to the US. Acknowledging this challenge, a grace period was built in to lessen the financial burden of this transition and ensure that EV credits were able to be properly distributed to OEMs.
Senator Manchin’s new bill is intended to keep manufacturing in America, as he said in a press conference on Wednesday. Manchin told reporters that “the IRA is first-and-foremost an energy security bill, and the EV tax credits were designed to grow domestic manufacturing and reduce our reliance on foreign supply chains for the critical minerals needed to produce EV batteries.” Further, Manchin explained that “being an automotive powerhouse is in our blood which is why it is shameful that we rely so heavily on foreign suppliers, particularly China, for the batteries that power our electric vehicles. We cannot continue down this path.” Taking a protectionist stance, it is unclear whether Manchin will have the support to push this bill through the Democrat controlled Senate and Republican controlled House.
This has caused some rumblings of concern from OEMs who say that it will take two to three years for them to properly move their mining and manufacturing operations solely on American soil. For now, the IRA remains as it was signed into law last year, with standards for material sourcing increasing 10% a year through the end of the decade. It remains to be seen if Senator Manchin’s new rules are able to overcome political hurdles to be signed into law, but one thing remains certain: automakers will need to spend a lot of time and money to ensure eventual compliance with the IRA.
With these potential new logistical challenges, OEMs will have to consider the prospect of completely revamping their supply chains and finding new ways to cut back on costs. The foreign outsourcing of REMs and critical materials for batteries and EVs is in itself a cost cutting measure, as domestically most of these capabilities were abandoned during the 1960s and 1970s. Forcing OEMs to immediately shift these operations to North America will undoubtedly present great costs and also open the door to new opportunities for domestic suppliers. Both commercial and light EVs are experiencing an explosion in demand in the US and abroad, as their market share grows higher each year. With Senator Manchin’s new proposal, the need for increased mining and manufacturing in the US could move at a furiously fast pace, and domestic Tier 1’s should be ready to step in to fill the gaps that OEMs need to meet customer demand and federal tax requirements.
For consumers, this new proposal could have a variety of noticeable effects on their options and buying power. Due to the possible increase in costs, US consumers may find themselves paying more for EVs and potentially having to wait for OEMs to catch up with demand. Private vehicle sales may struggle as light EV demand could outpace production capabilities. However, with less stringent requirements for commercial EVs and the immense tax credits medium and heavy duty vehicles are eligible for, business customers will be able to largely replace their fleets of ICE trucks/vans at a reasonable price. Senator Manchin’s new bill may have the potential to create the perfect storm for a rapid and massive adoption of commercial EVs across the country and by many different types of businesses and government departments.
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Though in its infancy, Senator Manchin’s modification of the IRA could bring about a variety of changes that OEMs, suppliers, and consumers need to pay close attention to. Great opportunity already exists on the supply chain side of the market, and Manchin’s bill could increase these opportunities drastically. Commercial vehicle operators as well must be ready to adapt to the financial benefits of investing in medium/heavy duty EVs as OEMs see the benefits in their development, production, and adoption industrywide. The EV world is rapidly expanding and evolving, and only time will tell what the future holds for the most important segment of the automotive industry.
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