Inflation Reduction Act Spurs US Manufacturing via EV Incentives
TL/DR –
The 2022 Inflation Reduction Act, the Infrastructure Investment and Jobs Act (IIJA), and the CHIPS and Science Act (CHIPS) have stimulated a resurgence of American manufacturing, particularly in electric vehicles (EVs) and associated technologies. Investment in manufacturing capacity for zero-emissions vehicles, batteries, and critical minerals has grown over 250%, from $14 billion to $51 billion within a year of the Inflation Reduction Act’s enactment. Moreover, the purchase of electric vehicles, including plug-in hybrids, has more than doubled from 4.4% to 9.9% of new passenger vehicle sales over the same period.
Revitalization of American Manufacturing through the 2022 Inflation Reduction Act and Electric Vehicles
The 2022 Inflation Reduction Act, Infrastructure Investment and Jobs Act, and the CHIPS and Science Act have initiated a resurgence in American manufacturing. The investments spurred by these Acts in zero-emissions vehicles, batteries, and critical minerals, have seen a rise of over 250 percent, increasing from $14 billion to $51 billion within a year after the passage of the Inflation Reduction Act, as reported by the Clean Investment Monitor1. This has led to a surge in the sales of electric vehicles (EVs), from 4.4 percent2 to 9.9 percent3 of new passenger vehicle sales over the same period.
These federal investments have helped domestic automakers increase their competitiveness, capture a larger market share, and leverage various incentives to accelerate the EV transition. This transition is crucial for climate change mitigation, public health, and the future of the industry. Already, EVs constituted 14 percent of global vehicle sales in 2022 and this figure is expected to hit 18 percent by the end of 20235.
Notably, the Inflation Reduction Act and the IIJA provide more than a dozen incentives to help the United States advance its transition to EVs and clean transportation. These incentives support the entire EV ecosystem, including manufacturing, adoption, and charging infrastructure, thus facilitating a more robust EV transition. They also contribute to on-shoring jobs in the growing EV market.
Key Incentives for EV Adoption and Manufacturing
Several tax credits and policy levers are key to driving the United States forward on EVs and clean transportation. These include the 45X advanced manufacturing production tax credit78, the 30D new clean vehicle credit16, 45W commercial clean vehicle credit27, and the 25E credit for previously owned clean vehicles33. In addition, there are incentives for deploying EV charging infrastructure36, as well as other funding opportunities such as the 48C investment tax credit40 and the DOE’s grant and loan programs41.
Impacts of the Programs
These programs have been successful in stimulating investment in domestic EV manufacturing. Investments of $92.3 billion have been announced for projects expected to create approximately 84,800 jobs49. The move towards domestic production of EVs is anticipated to lead to a manufacturing capacity sufficient to support more than 12 million new EVs per year by 202751. An increase in EV sales, expected to constitute 67 percent of all light-duty vehicle sales by 203256, will have significant impacts on U.S. greenhouse gas emissions and will bring massive health benefits due to reductions in local air pollution.
As EV sales continue to grow, U.S. automakers have a unique opportunity to embrace clean technology and industry with the support of the Inflation Reduction Act’s incentives. These comprehensive policies support domestic economic and energy security while fueling a renaissance in American manufacturing.
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