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New legislation raises outlook for BEVs, but presents sourcing and cost challenges

THE ALIXPARTNERS AUTOMOTIVE MINUTE

The U.S. Senate and now House have greenlighted sweeping legislation designed to, among other things, accelerate the market’s migration to battery-electric vehicles built locally over the longer term but also to cut back on subsidies for higher-end BEVs, the majority of the BEV market today.

The bill’s sourcing requirements and incentives need to be understood and planned for. Key among them: New vehicles qualifying for consumer tax credits must be produced in North America; by 2024, at least 50% of the components in the battery must come from North America, rising to 100% in 2028; and by 2026, 80% of the minerals in the battery must come from the U.S. or countries with which the U.S. has free-trade agreements (i.e., not China, plus many other countries around the world).

The legislation also erects price caps for the tax credits of $55,000 for cars and $80,000 for pickups and SUVs. And the credits apply only to buyers with incomes below $300,000 for joint-filers and $150,000 for single-filers -- all meaning that automakers and suppliers will need to find ways to dramatically cut costs on BEVs to address the mass market, versus the “early-adopter” focus of many of today’s vehicles.

AlixPartners’ 2022 Global Automotive Outlook highlights many of the challenges automakers and suppliers face when it comes to managing the transition to a market increasingly populated by BEVs. This new legislation pressures automakers and suppliers to re-evaluate those strategies right now. 

That includes everything from preparing for a business world likely populated with many more lower-cost (but also lower-range and lower-density) lithium-iron phosphate (LFP) batteries to dramatic material-processing-investment and manufacturing-footprint changes to more material-source tracking all the way down to the raw materials in battery components.

READ MORE: The BEV revolution: Sitting on the fence could prove costly

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