Until recently, prospects for Green Manufacturing in the USA were pretty dim, with China having staked out a leadership position in the manufacturing of solar panels, wind turbines, energy storage systems, and battery electric vehicles.
But thanks to generous tax credits and direct payments from the 2022 Inflation Reduction Act, we might be able to catch up thanks to manufacturers suddenly deciding to open or expand production facilities here at home.
We take a look at the state of green manufacturing in America in this Formaspace manufacturing research article.
Can the Inflation Reduction Act (IRA) Incentivize Manufacturers to Build Green Tech in the USA?
When it comes to kickstarting a green manufacturing revolution here at home, the Inflation Reduction Act (IRA) could be the transformative catalyst that makes it happen – and quickly.
The IRA offers two topline numbers that are getting the attention of manufacturers – the first is the funding for $30 billion in production tax credits for clean energy production, followed by an additional $10 billion in investment tax credits for building new clean energy facilities.
To sweeten the deal, these tax credits can also be paid out in the form of direct payments for several years, allowing companies who haven’t booked enough US taxable profits to participate (although as we understand it these direct payments are taxable, thus less desirable than tax credits.)
Since the IRA legislation was signed, manufacturers have announced billions of dollars in new manufacturing investments in green technology manufacturing. Let’s take a look at what’s in store.
Energy Storage Production Incentives, Subsidized by the Gigawatt
Most of the new investment activity is centered around energy storage (aka battery) production.
Demand for BEVs is expected to skyrocket in the coming years, thanks to California (and now Washington state) legislating the phase-out of new ICE vehicles sales by 2035 and many fleet operators seeking to switch to all-electric fleets even sooner if possible (in Uber’s case by 2030).
Demand is also rising for battery storage systems that can bolster the electric power grid, providing additional capacity during peak demand hours as well as offering overnight storage when solar and wind power production tapers off.
So just how juice-y are these incentives?
Before we get into the numbers, let’s talk units. If you are not an electrical engineer, there’s a new language to learn when discussing power capacity.
- Battery packs for vehicles or home energy storage systems are often expressed in Kilowatt hours (kWh).
- A typical electric car battery capacity ranges from 40 to 100 Kwh or more –enough power to drive 100 – 300 miles or more.
- An average American home uses around 30 kWh of electricity per day.
- Electric power generation is usually expressed in Gigawatt hours (GWh), equal to a million Kilowatt hours.
- A power plant producing 1 GWh of electricity can typically power up 750,000 homes for an hour.
- Big battery factories use Gigawatt hours to quantify their annual production. The Tesla Nevada battery factory currently produces 35 GWh worth of batteries per year – equivalent to half a million 70 kWh batteries (although, in reality, they produce several different battery sizes.)
OK, now on to the IRA manufacturing incentives!
Production credits for energy storage batteries are divided into two categories:
The first available production credit is $10 per kilowatt-hour, awarded to manufacturers who assemble batteries into modules (defined as 2 or more cells wired in parallel) in the US – even if the individual battery cells themselves are sourced overseas, such as from China.
We think the idea here is to incent companies to re-shore battery assembly plants, e.g. an initial step toward building a vertically integrated domestic battery industry.
The second available production credit is a $35 per kilowatt-hour credit for domestic battery cell production, which requires a much bigger commitment to North American manufacturing.
In addition to the two production credits for battery production, the IRA offers a 10% investment tax credit available for creating new clean energy production facilities, such as metals refining/processing plants, to provide a local source of raw materials used in battery or solar panel production. Importantly, it appears that this particular tax credit can be applied to each separate step in the manufacturing process, e.g. 10% each for mining nickel, mining lithium, refining nickel, refining lithium, producing battery anodes/ cathodes, etc. etc.
Tesla Plans Added Battery Manufacturing Capacity in Nevada (in partnership with Panasonic), California, and Texas
Taken together, these generous credits seem to be moving the needle toward reshoring or expanding battery production here in the U.S.
For example, the combined $45 per kWh credits (totaling $3,375) could reduce the cost of a 75 kWh battery made by Tesla by as much as 40%, according to analysts at Bernstein Research.
Currently, Tesla and its partner Panasonic jointly operate a battery factory in Nevada, producing 35 GWh of batteries per year.
When the IRA credits kick in on Jan 1, 2023, this factory will be able to claim $1.575 billion in tax credits at current production levels. (We understand that per their agreement with Panasonic, Tesla will receive the tax credits.)
Even before the passage of the IRA, Tesla had announced plans to ramp up the production of its new 4680 batteries in Nevada and Austin, Texas.
However, in light of the new generous IRA tax credits, Tesla appears to be accelerating these plans even further, reportedly moving some of its battery production equipment, engineers, and technicians from their Berlin factory to their Austin factory, where they have acquired additional acreage to expand. Battery production is expected to increase at the Nevada plant as well, and even the crowded plant in Fremont, California, may see additional limited battery production as well. And there are other possible investments on the horizon as well, including a rumored battery cathode manufacturing facility on the Austin campus.
If Tesla can ramp up battery production to a million GWh per annum, it could earn tax credits (or direct payments) of $3.375 billion per year.
Elon Musk has also expressed interest in opening a new Lithium processing plant, with rumors pointing to a possible location just outside of Corpus Christi, Texas. This proposed plant would also benefit from a 10% investment tax credit thanks to the IRA legislation.
Panasonic Announces New Battery Factory in Kansas and Considers Second Plant in Oklahoma
Separate from its Nevada partnership with Tesla, Panasonic announced in July plans to build a $4 billion battery factory in Kansas that could employ 4,000 workers. Now Panasonic is considering creating a twin to this factory in Oklahoma.
LG Energy in Joint Venture with GM to Produce “Ultium” Batteries,
LG Energy Solution (formerly LG Chem) is the sole battery manufacturing partner for GM, which plans to electrify its entire line of vehicles based on a common “Ultium” battery design.
LG Energy and GM recently started production at their new $2.3 billion facility in Warren, Ohio, which, when running at full capacity, will employ 1,300 workers making 40 GWh of batteries annually.
A second $2.3 billion battery plant is expected to open in late 2023, located at GM’s former Saturn factory in Spring Hill, Tennessee, also expected to employ 1,300 workers.
For its third factory, GM and LG Energy plan to invest $2.6 billion to convert its former Orion Assembly plant in Lansing, Michigan, to battery production, creating another 1,200 jobs.
Finally, GM and LG Energy are also investigating adding a fourth battery factory, possibly in New Carlisle, Indiana.
Honda and LG Energy Plan New Battery Production Plant in Ohio
Given that GM announced in April 2022 that it will “co-develop” affordable EVs with Honda, it’s not surprising that Honda has also announced a partnership with GM’s battery partner LG Energy. The new $4.4 billion joint venture facility will be located somewhere in Ohio (Honda has its sole US car factory in Maryville, Ohio). The new plant is projected to open at the end of 2025.
LG Energy Explores Cobalt and Lithium Mining Operation Partnerships in Canada
LG Energy has signed Memorandum of Understanding (MOU) agreements with three Canadian mining companies to supply cobalt sulfate and lithium hydroxide, critical metals used in battery production and a necessary step to create a North America-based battery supply chain.
SK Innovation Collaborates with Ford to Open Three New Battery Factories in Kentucky and Tennessee
Meanwhile, GM’s arch-rival Ford is co-investing $11.4 billion in partnership with South Korea’s SK Innovation to build three battery plants, two in Kentucky and one in Tennessee, estimated to create 11,000 new jobs.
Samsung SDI and Stellantis to Open Battery Production Facilities in Indiana, Michigan, and possibly in Ontario, Canada
In 2018, Samsung SDI invested just over $60 million to convert a former Magna Steyr plant in Michigan to assemble battery cells sourced from Hungary into battery packs. It’s now planning to add a second production line at the facility for $30 million. Samsung supplies batteries for several manufacturers, including BMW, Rivian, and Stellantis (whose brands include Jeep, Chrysler, and FIAT).
Samsung SDI recently entered into a joint venture agreement with Stellantis to build a $2.5 billion battery factory in Kokomo, Indiana, targeting an initial 23 GWh capacity when the facility opens in 2025. They are also looking at adding a battery production facility in Ontario, Canada, to supply batteries for Stellantis’ vehicle plant in Brampton, Ontario.
Toyota Doubles its Battery Investment Budget, Plans New Battery Factories in North Carolina
In 2021, Toyota announced a partnership with Toyota Tsusho to invest $1.29 to build a new battery factory in Liberty, North Carolina, which would employ 1,700 workers.
But in September 2022, Toyota announced plans to nearly doubled its worldwide battery production investments, from $5.6 billion to $9 billion.
As part of these newly revised investment plans, Toyota has upped the investment in North Carolina by $2.5 billion and expects to have 2,100 workers on site when the plant opens in 2025.
BMW Announces Plans to Build Two North American Battery Plants
This month, BMW announced it has plans to build two battery plants in North America, however it has not yet named a partner or location. At the same time, BMW announced plans for a joint venture with the Chinese battery manufacturing giant CATL (the world’s largest battery manufacturer with over 32% of the market) and Eve Energy to build a new battery factory in China and another one in Europe.
CATL Could Invest $5 billion in a new Battery Factory, Possibly in Mexico
CATL, whose clients include Tesla in China, appears to also be contemplating building its own North American battery factory of its own, to the tune of $5 billion, possibly in Ciudad Juarez, Mexico. Analysts point out that although this location is across the Rio Grande from El Paso, Texas, it also offers easy access to US border stations in New Mexico, allowing the company to bypass any future border slowdowns, such as the one ordered by Texas Governor in April 2022.
Chinese Battery Company Gotion Considers new Building New Factory in Michigan
The large Chinese battery manufacturer Guoxuan High-Tech Co. is reportedly looking at investing $3.6 billion through its Gotion Inc. subsidiary to develop a battery production facility outside Grand Rapids, Michigan that could create 2,000 jobs.
We’re excited to see such a sudden influx of investment in green manufacturing in the USA. In a future article, we’ll look at the progress that is underway to jump-start solar panel and wind turbine manufacturing, upgrades to our charging facilities infrastructure, and improvements to the electrical grid here in the USA.
Formaspace is Your Partner for a Green Manufacturing Future
If you can imagine it, we can build it, here at our Formaspace factory in Austin, Texas.
Now is a great time to contact your Formaspace Design Consultant to find out how we can work together to make your next factory, assembly plant, distribution center, or laboratory a more productive, efficient, and ergonomically healthy place to work.