WASHINGTON — Ford Motor Co. first considered sites in Canada, Mexico and elsewhere for the $3.5 billion battery plant it plans to build in Michigan, company officials said Monday, but hefty new incentives in the Inflation Reduction Act pushed them to choose the United States.
It's an early indicator that the unprecedented spending in the IRA, pushed by the Biden administration, is having its intended effect: pulling emerging electric vehicle supply chains into the country with the promise of billions in federal support to attract jobs-creating investment and build technical expertise.
"The IRA was incredibly important for us and, frankly, it did what it intended to do," said Lisa Drake, vice president of EV Industrialization for Ford. "It allowed the United States to capture 2,500 fantastic technical jobs and all the indirect jobs that go with it, plus future growth. It's a big win for the U.S."
The IRA, passed by Democrats without Republican support last year, appropriated nearly $370 billion toward climate policies. It's the largest package aimed at combatting climate change ever passed, and a sizable portion of that funding will go to automakers' electrification plans.
The bill includes tax credits for battery cell production worth up to $35 per kilowatt hour of capacity and an additional $10 per kilowatt hour of capacity for the module. It also includes consumer-facing tax credits worth up to $7,500 off new electric vehicles.
The battery production credits only apply to U.S. plants. Vehicles only qualify for consumer tax credits if they were assembled in North America, if it meets increasing thresholds for critical minerals from the United States or a country it shares a free trade agreement with, and if it meets increasing thresholds for battery components built or assembled in North America.
The batteries that will be built at Ford's new Marshall plant when it starts production in 2026 will qualify for the battery manufacturing tax credits, Drake said. Vehicles built with those batteries will qualify for at least half of the consumer tax credit — the $3,750 tied to domestic battery production.
Over the next 10 years, the Congressional Budget Office estimates new consumer tax credits for new, used and commercial EVs will be worth $12.4 billion; tax credits for alternative fueling worth $1.7 billion; and tax credits for critical mineral and battery production worth up to $30.6 billion — which some experts say could actually be valued four times higher.
Ford CEO Jim Farley said Monday that building the battery in the United States will yield "an ultra-low cost battery" for EVs that "are great for customers and also profitable for Ford," in part because making them in the United States reduces shipping and import costs.
He added that he's been talking with the Biden administration about the investment: "This is the reason why the IRA was passed. These jobs could have been somewhere else, but they aren't. They're in the United States of America and in Michigan. We're really excited about that change. The economics of the IRA really made a difference."
Only two other new plants have been announced since the IRA was enacted last August: Our Next Energy's $1.6 billion investment in a battery plant in Van Buren Township and Tesla Inc.'s $3.6 billion plan to expand its plant near Reno, Nevada.
Tesla cut prices for several models in January to make them eligible for the credit, and CEO Elon Musk told investors the company saw the most orders that month than ever before. Ford also lowered the price of the Mustang Mach-E to qualify.
And executives are already telling investors that they expect to win big from the new law: Musk said the value of the credits will be "very significant" long term and CFO Zach Kirkhorn said the company expects to get up to $250 million per quarter in credits in this year alone. Farley has previously said he believes the company will receive more than $7 billion in credits from 2023 to 2026, and GM CFO Paul Jacobson said in January that the automaker expects to receive at least $300 million in tax benefits in 2023.
"It's fully expected that the production will shift around to take full advantage of these new incentives," said Sam Fiorani, an industry analyst at AutoForecast Solutions, especially for more affordable models that could qualify for the EV tax credits.
Automakers are already incentivized to locate battery plants near assembly facilities, said Sam Abuelsamid, principal research analyst with Guidehouse Insights, because of the sheer weight of vehicle batteries. Shipping them across oceans adds cost and emissions to the total lifecycle of the battery, and opens them up to other supply chain disruptions.
But Mexico, with cheaper labor costs, and Canada, with manufacturing incentives of their own, are attractive options for U.S. manufacturers. The IRA has changed the calculation for most major car companies, he said.
"It's certainly not a trivial amount of money," Abuelsamid said. "Anything you can do you take the cost out of the battery, that can go straight to your bottom line. You can't ignore the impact of any type of incentive like this."
Automakers are likely to split those savings between reducing prices for customers and for growing profit margins, he added.
President Joe Biden, a self-proclaimed "car guy" has avidly promoted electric vehicles since taking office. He set a goal for half of all auto sales to be electric by 2030; promised to build a national network of half a million chargers; and is pushing policies aiming to create hundreds of thousands of jobs building and supporting low- and zero-emission vehicles.
Global automakers, responding to regulatory changes in Europe and China and to climate pressures, already have pledged to spend $1.2 trillion through 2030 on battery-electric vehicles, according to the Alliance for Automotive Innovation, with $101 billion of that in the United States.
EVs remain only around 6.5% of total sales, but that is expected to rapidly increase as more plants come online and charging is more widely available. General Motors Co. plans to stop making gas-powered vehicles by 2035 and both Ford and Stellantis NV plan to be all-electric in Europe by 2030.
That means the massive incentives in the Inflation Reduction Act are coming at a pivotal time in the auto industry's history: Right as it is planning to switch to EVs but before the supply chains have fully formed to support that goal.
"Had this come about another year or two later, there would have been a lot of plants established in Canada, Mexico and all over the world," said Fiorani. "The whole industry is at the beginning, and it gives you a lot of room to lay some groundwork for what will be a major industry in five to 10 years."
