Despite its name, the massive Inflation Reduction Act – passed by the US House on Friday and now awaiting President Joe Biden ’s signature to become law – is mainly a climate bill. While it includes provisions on taxes and healthcare, it is the most significant effort in US history to curb the effects of climate change, with US$360 billion allocated to drive a shift toward solar, wind and other renewable energy. The legislation aims to electrify the biggest source of greenhouse emissions in the US: the transport sector. The Biden administration aspires for at least half of Americans to buy “made in America” electric vehicles rather than fossil fuel-powered rides by 2030. To this end, the measure tries to localise manufacturing of electric vehicles with incentives directed at both carmakers and prospective buyers. Currently, 200,000 EV buyers from an individual manufacturer receive a tax credit of US$7,500. The new law will remove the 200,000 cap but adds a steep requirement aimed at weeding out “foreign entity of concern” from supply chains. However, the American EV industry is still heavily reliant on China-linked components. Under the legislation, to get the maximum US$7,500 tax credit for new and US$4,000 for used electric vehicles, at least 40 per cent of the “critical minerals” like cobalt, lithium, graphite and nickel must be “extracted and processed” in North America or in countries that have signed free trade agreements with the US, and not from a “foreign entity of concern”. Around 70 per cent of EVs currently in the US would be ineligible for the incentive, which will take effect in January 2023. By 2026, no less than 80 per cent of the components should be assembled or sourced domestically or in a friendly country, according to its provisions, and by 2029 that figure should be 100 per cent. Not one current EV model would qualify for full tax credits once additional sourcing requirements take hold. Electric cars’ reign may arrive sooner than expected in 2033, EY says John Bozzella, chief executive of the Alliance for Automotive Innovation, which represents manufacturers that produce almost all the cars and light trucks sold in the US, wrote in a blog post that the requirement for “material, component and assembly will immediately reduce (by a lot) the number of qualifying electric vehicles available to consumers for purchase with the tax credit”. “That’s going to be a major setback to our collective target of 40-50 per cent electric vehicle sales by 2030,” he said. On Thursday, Rivian, an EV manufacturer backed by Amazon and Ford, revised its outlook for 2022, expanding its forecast for losses to US$5.45 billion, from US$4.75 billion and warning that many of its models would not qualify for Biden’s tax credits. The company managed to roll out 7,000 EVs in the first half, tracking much lower than its production target of 25,000 vehicles this year. In 2020, EVs accounted for only 2 per cent of the US new-car market, according to Pew Research. Biden’s bold targets are part of the push to “friend-shore” critical supply chains after coronavirus-induced disruptions to global trade exposed America’s economic and military vulnerabilities and its dependence on China-linked trade routes. Jonas Nahm, a professor of energy, resources and environment at Johns Hopkins University, speculated that the urgency attached to these goals would prompt a “mad scramble to get this all ready and set up” given how global supply chains are deeply entwined. “In the beginning it will be hard to actually get a vehicle that would qualify for these tax credits because a lot of them won’t, even Tesla. Battery manufacturing in the United States relies very heavily on imported lithium from China,” he said, adding, “I think it’s doable, just not doable on the time frame that we see here.” A recent report by the Peterson Institute for International Economics shows that China, Vietnam and Russia hold 70 per cent of global reserves of rare earth minerals critical for energy transition. China possesses more than 50 per cent of those reserves. “Geographically, Australia produces more than half of the world’s lithium, followed by Chile and China. This order is reversed when it comes to reserves,” the report said. According to an analysis by S&P Global Market Intelligence, Chinese EV and battery companies “acquired 6.4 million tonnes of lithium in reserves and resources in 2021, as of October 18, nearly matching the 6.8 million tonnes of lithium acquired by all companies in 2020”. What will it take for global battery makers to catch up with China’s lead? Expected Chinese investment in the lithium sector in Taliban-ruled Afghanistan could also be a concern for the US. The war-torn country is sitting on unexploited deposits worth US$1 trillion. China is one of the few countries maintaining an open diplomatic line with the Taliban regime after US forces left last summer. China currently has 79 per cent manufacturing capacity for lithium-ion batteries, as opposed to only 7 per cent for the US, and also leads the Western powers in refining, processing 59 per cent of the world’s lithium. The US and Canada account for 3 and 3.5 per cent, respectively. Simon Moores, chief executive of Benchmark Mineral Intelligence, a London-based price reporting agency that specialises in lithium-ion batteries and EVs, said it was “almost impossible” for US free trade agreement countries, like Australia and Chile, to “fill China’s raw material gap for the USA’s EV demand between now and 2024”. To address this, the climate law sets aside US$30 billion worth of tax credits to accelerate US manufacturing of batteries, critical minerals, solar panels and wind turbines. But Moores cited the lack of time, not money, as the roadblock. Supply issues to sustain EV metals prices at elevated levels by 2025 “Considering it takes seven years to build a mine and refining plant but only 24 months to build a battery plant, the best part of this decade is needed to establish an entirely new industry in the United States,” he said. The Zero Emission Transportation Association, a federal coalition that advocates for 100 per cent EV sales by 2030, has reportedly sought a 12- to 18-month extension for compliance deadlines. Nahm also highlighted the absence of human resources to mine and process rare earth minerals “because most of the jobs in the US green industries have been in the service sector”. He also questioned how the necessary workforce would be trained. “That’s not in this bill. There’s no support for … vocational training in that bill,” he said. The chief architect of the legislation, Senator Joe Manchin, a West Virginia Democrat, wants the EV industry and mining companies to accept the challenge and dramatically alter the supply chains in the US’ favour in record time. “Tell (carmakers) to get aggressive and make sure that we’re extracting in North America, we’re processing in North America and we put a line on China,” he said on August 3. Bozzella, of the automotive trade group, said EV manufacturers “share the goal of reducing reliance on China” but called the bill’s requirements “unattainable and punitive to consumers”. “We can’t currently meet the demand for these raw materials on our own. That’s the reality,” he said.