The Infrastructure Effect: A made-in-America battery supply chain

This post is part of a series exploring the impacts of federal investments in home electrification, transportation, supply chains, and climate resilience.

Federal incentives for electric vehicles can encourage diversification and domestic production of critical inputs currently made in China, research from Carnegie Mellon University shows.

China dominates the supply chain for electric vehicle battery materials, not because raw materials are located in China, but because China dominates materials refining and manufacturing. Diversifying these supply chains beyond China could help prevent supply shocks that lead to higher prices for consumers and mitigate geopolitical leverage over critical material supply.

Researchers with Carnegie Mellon University found that incentives from the Inflation Reduction Act (IRA) make U.S. production of EV batteries more competitive. A previous study had found that the supply chains for battery materials such as lithium, cobalt, nickel and manganese are vulnerable to disruptions. In fact, for virtually all chemistries, the entire supply chain would be profoundly affected if China’s exports were disrupted.

That led the researchers to analyze the impact the IRA is likely to have on reducing these supply chain vulnerabilities. Among the provisions they reviewed:

• 30D New Clean Vehicle Credits: $3,750 per EV if a sufficient portion of critical minerals come from free trade countries and another $3,750 per EV if enough battery components are made in North America. Both 30D credits are restricted to batteries whose supply chains avoid U.S.-designated foreign entities of concern (FEOCs) entirely—including companies or manufacturing based in China, Russia, Iran, and North Korea.
• 45W Commercial Clean Vehicle Credit: Up to $7,500 per EV that can be used as an alternative to the 30D credits without FEOC restrictions when cars and trucks are leased instead of sold.
• 45X Advanced Manufacturing Credit: Of the 45X credits relevant to batteries, there is a 10% incentive for critical minerals processing and electroactive materials manufacturing within the United States. Further battery cell and module manufacturing credits worth $35 per kWh and $10 per kWh of battery energy capacity, respectively, can be claimed by domestic battery manufacturers in the United States. 

Overall, the researchers found that the IRA primarily incentivizes the diversification and onshoring of downstream supply chain stages, like battery and vehicle manufacturing. Most new North American EV supply chain developments since the IRA passed in 2022 have been in downstream manufacturing stages. 

Direct incentives to onshore upstream stages, like materials extraction and refining, are smaller, and there has been less development in North America. However, FEOC restrictions, which came into effect in 2024, incentivize automakers either to diversify the entire supply chain by avoiding China or to lease vehicles instead of selling them.

As the world shifts from gasoline toward electric vehicle technologies, China’s dominance in EV production and EV battery supply chains puts U.S. automotive industries at a disadvantage and introduces strategic and security risks to the U.S. Strong and stable policies can help reduce risk, overcome frictions, and encourage development of EV battery supply chain industries in the U.S. while diversifying imports to reduce vulnerabilities.