Despite the Biden Administration's push for EV supply chain localization through policies like the Inflation Reduction Act (IRA), the recent Fisker bankruptcy suggests these policies may have inadvertently hindered EV startups.
Fisker's bankruptcy and financial difficulties at other US EV startups, such as Rivian and Lucid, highlight the challenges these companies face in scaling up to compete with Tesla. The broader tightening of the EV market in the US and globally has surpassed initial forecasts. While the long-term outlook for EVs remains optimistic, the viability of cash-strapped startups is uncertain.
IRA Act: A Double-Edged Sword
The IRA Act plays a significant role in the EV landscape. These subsidies, offering up to US$7,500 for eligible vehicles, require local sourcing criteria to defend against low-cost competition from China's EV industry, including crucial components like vehicle batteries.
For US EV startups, meeting IRA subsidy criteria means producing vehicles at higher costs in North America. Failure to meet these manufacturing and sourcing criteria results in loss of subsidies. Among the mentioned startups, only Rivian's vehicles qualify for IRA subsidies, as most startups engage in small-scale production, lacking the flexibility of larger manufacturers to adjust supply chains.
Despite efforts to attract investments in battery production under the IRA, progress in reducing reliance on Chinese battery supplies has been slow. According to a report by the Center for Strategic and International Studies (CSIS), over 70% of EV batteries imported by US automakers in the first quarter of 2024 still came from China.
Political Uncertainty and Future Policy Direction
The future direction of US EV policies may hinge on the outcome of the November 2024 US presidential election. A Republican victory could result in policy changes affecting EV and battery subsidies. Key questions remain about potential adjustments to exclude Chinese supply chains from EV subsidies and how such changes might be implemented. These questions may become moot if EV subsidies are discontinued altogether.
However, any policy changes are unlikely to occur swiftly. Panasonic's President and CEO, Kazuhiro Tsuga, estimated that if Trump were to win, substantial changes to IRA subsidy policies would not happen immediately, with the current subsidy framework possibly continuing for another three years.
