By Michael Elkins
A UBS analyst hosted an investor call with Ulderico Ulissi, the Battery Lead at Rho Motion. The call concerned the United States’ new Inflation Reduction Act. Investors are concerned about some of the restrictions. Ulissi said that IRA specifics are “vague”, and that there is room for discussion/ policy refining over the coming months. The analyst believes that investors are looking for “gray areas and loopholes” that may allow for short-term workarounds for “foreign entities of concern” (FECs).
Eliminating FECs is a large part of the IRA. “Foreign entity of concern” (FEC) includes China and Russia amongst others. From 2024 no battery components can come from an FEC and receive a US$3,750 EV tax credit. In 2025 this restriction will extend to critical mineral extraction, processing, and recycling for an additional US$3,750 credit (US$7,500 total).
The analyst wrote in his note that UBS believes “Tesla, GM and Ford appear better placed with North America partnerships already in place. We believe battery materials producers in FTA countries such as LGES, SDI and POSCO Chemical should also benefit. FEC players have most likely seen a negative impact to TAM. In terms of onshore manufacturing cells, separators, cathode and electrolyte are relatively easy to set up. Graphite and cathode pre-cursor presents greater CO2 compliance challenges.”