President Donald Trump wants to boost the U.S. battery supply chain with part of his massive tax and spending law. But analysts say the budget bill may have the opposite effect, at least for now.
The law makes substantial changes to Section 45X, the advanced manufacturing production tax credit established under the Inflation Reduction Act.
That credit rewards domestic manufacturers making parts used for clean energy production, such as components used to harvest solar and wind energy and to build batteries.
Like the trade war, the concerns about implementation of the law highlight the global nature of the automotive industry, a web of suppliers and sourcing that can be hard to untwine.
Still, some analysts say initial price hikes are worth the long-term benefit: a stable, domestic supply chain for critical goods, including batteries.
“It won’t happen overnight, but I think everyone’s kind of putting their heads together and saying, ‘How do we make this work?’” said Tom Alongi, a partner at UHY, a national accounting and advisory firm.
Requirements for relationships with foreign entities are challenging
The revisions to 45X were written by Congress in the budget bill and signed into law by Trump on July 4. The Trump administration has taken steps to reduce federal support for EVs, and the battery component tax credit was originally at risk of being eliminated entirely.
MEMA, the Motor and Equipment Manufacturers Association, “supported the bill’s retention of vital advanced manufacturing programs that were under threat of being eliminated during this process,” including 45X, the organization said in a statement.
The changes to the law restrict the credit to battery components for which 65 percent of material costs are attributable to subcomponents “mined, produced or manufactured” in the U.S.
“Although the 45X requirement changes are a setback, it’s a head scratcher to say, ‘How do we compete?’” said Alongi. “We need to not rely on foreign countries for the amount of product that we do today.”
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