The US Inflation Reduction Act (IRA) is aimed clearly at re-centering passenger car manufacture back in the USA. What it has NOT aimed at doing is accelerating EV uptake in the US, so in a sense it is self-defeating. This is the conclusion of a report out this week from Rethink Energy, an update on its EV passenger car forecast to 2030 entitled Global EV markets rally despite weak overall car sales.
The report can be purchased here and the executive summary downloaded for free.
Because the IRA aims to relocate global battery and EV supply chains onto home soil, while simultaneously reigniting the US automotive manufacturing industry, its immediate effect is to slow EV car imports and initiate a two to three year rethink to how car makers supply the US market. This plays into the hands of US pure play battery EV suppliers Tesla, Rivian and Lucid at the expense of GM, Ford and Stellantis.
The non-inclusion of all things Chinese will leave Chinese firms no option but to approach the US last after securing bridgeheads in Europe and then when the do hit the US , to sell at ultra-low prices, so that failure to secure subsidies places no barrier in the way of sales. Chinese supplier CATL has just re-thought the process of building its first battery plant int the US.
This overall US market rethink will involve rebuilding raw materials supply chains for battery supply, in a world where the rarity of the key rare earth metals it requires – Lithium, Cobalt, Manganese – have already caused a supply chain bottleneck which is resisting price falls for lithium ion batteries and therefore EVs. The US could be left in the impossible position where consumers just want to buy EVs, but no-one can build them quickly or cheaply enough.
The immediate impact will be one of a gold rush among OEMs, scrambling to secure domestic raw materials within the US and its partners. And that goes for European car makers too – who all jumped on a plane the day the IRA was passed, and sent chasing US and Latin American partners to sign fresh supply chains.
The US will experience a two to three year slow-down which could be fatal to its domestic EV manufacturing ambitions.
While the IRA is one cause of this, the initial reluctance for US major car makers to embrace Electric Vehicles also contributed. It led to all US suppliers being significantly behind their international rivals, with plans for battery manufacturing plants in the US now scaling over a 4 year period from 2022. The combination of supply chain friction and insufficient factory capacity will mean that US manufactures will lose US market share all the way to 2027, before stabilizing. Oddly they will do better overseas where they can still use Chinese components.
Add the supply chain and metals market disruptions occurring as a result of the Russian war in Ukraine and you have a perfect storm for disruption to the global EV car market.
And yet still miraculously Rethink predicts that by 2030 the EV car fleet will have reached 268 million globally, from 26 million by the end of 2022, making up 20% of all passenger cars on the planet, and 63% of all new car shipments, due largely to accelerated adoption in Europe and China.
Meanwhile as Europe enters a prolonged energy crisis, we can already see consumer demand for total new passenger vehicles falling, while perversely demand for Battery Electric Vehicles continues to grow.
European EV demand will continue to climb as charging infrastructure rolls out and grids are progressively electrified under the impetus of Russia’s weaponization of natural gas. Chinese vehicle sales remain incredibly strong and while regional lockdowns still occur in China as it pursues a no-Covid policy, this hasn’t had a significant impact on consumer demand or EV supply.
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