US EV startups impacted by IRA local sourcing rules
TL/DR –
The Biden Administration’s policies aimed at localizing the EV supply chain, such as the Inflation Reduction Act (IRA), may unintentionally challenge EV startups like Fisker, Rivian, and Lucid as they scale up to compete with Tesla. The IRA Act offers subsidies of up to $7,500 for eligible vehicles but requires local sourcing, making vehicle production more expensive for US startups and causing potential loss of subsidies if criteria aren’t met. The future of U.S. EV policies, including EV and battery subsidies, could change based on the outcome of the November 2024 presidential election, with key questions regarding Chinese supply chains and potential discontinuation of the subsidies.
Impact of Biden Administration Policies on EV Startups
Despite policies like the Inflation Reduction Act (IRA) aiming for EV supply chain localization, Fisker’s bankruptcy hints at possible unintentional hindrances for EV startups. This, coupled with financial complications at other US EV startups like Rivian and Lucid, underscores the uphill battle they face in challenging Tesla. The tightening EV market, both domestically and internationally, has exceeded initial estimates. While EVs have a bright long-term outlook, the future of cash-strapped startups is shaky.
IRA Act: A Boon and a Bane
The IRA Act, offering up to US$7,500 in subsidies for eligible vehicles, necessitates local sourcing to combat cheap competition from China’s EV sector. However, this mandate results in higher production costs for US EV startups, risking loss of subsidies if they fail to meet the criteria. Of the aforementioned startups, only Rivian’s vehicles meet the IRA subsidy requirements, reflecting the difficulties faced by small-scale manufacturers in adjusting supply chains.
Efforts to spur investment in battery production through the IRA have seen slow progress in lessening dependence on Chinese supplies. A CSIS report reveals that over 70% of EV batteries imported by US automakers in 2024’s first quarter were sourced from China.
Political Uncertainty and Upcoming Policy Shifts
US EV policies’ future trajectory may be influenced by the 2024 US presidential election results. With a potential Republican win, EV and battery subsidies might undergo changes. Key issues include modifications to exclude Chinese supply chains from subsidies and implementation strategies. However, these concerns may be null if EV subsidies are entirely phased out.
Yet, any policy shifts are expected to be gradual. Panasonic’s CEO, Kazuhiro Tsuga, proposed that significant changes to IRA subsidy policies would not be immediate, even if Trump were victorious, and the current framework could persist for another three years.
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