Electric Vehicle Market Surges in Wake of Federal Investments
As a result of the Inflation Reduction Act, unprecedented investments and job growth are occurring in the electric vehicle market and experts anticipate this growth will continue.
To say the electric vehicle (EV) market is growing is an understatement given the recent explosion in federal investments and accompanying job growth. Certainly, green energy investments have been steadily increasing over the long term, but it was the Inflation Reduction Act (IRA) that served as the primary catalyst for this steep increase in EV growth.
Federal funding has led to increases in EV manufacturing and growth. Image used courtesy of Adobe Stock
Signed into law on August 16, 2022, the IRA has sparked this market into motion. The figure below illustrates how the passing of the IRA and a key infrastructure bill account for the exponential growth in EVs currently happening across the United States.
Fiscal investments in the EV market. Image used courtesy of the EDF
Beginning in 2021, these two legislative interventions facilitated growth by funneling federal funds into manufacturing channels, which led to surges in job growth and production. A total of $156 billion has been injected into EV manufacturing over the course of the last eight years, but what is even more surprising is that 56 percent of that investment capital was contributed in just the last year since the IRA was written into law.
The Environmental Defense Fund (EDF) has been closely studying and monitoring this growth, and experts anticipate continued growth, which demands careful management and support.
Domestic Battery Production
A critical component of successfully managing EV market growth depends on domestic battery production, which has historically lagged behind other countries that are more equipped to meet growing EV demand.
But because of the IRA’s system of manufacturing credits, battery production is also incentivized in order to avoid a counterproductive imbalance between vehicle and battery production. Forbes has detailed the following breakdown of the fiscal incentives offered by the IRA, noting that battery cells produced in the U.S. are eligible for a credit of up to $35 in credit per kW hour. Modules are eligible for $10 per kW hour or as much as $45 for each module if battery cells are not used.
The per-unit payoff may seem minimal, but the total value of these credits is estimated to approach $200 billion over the next 10 years. Such careful incentivizing that targets multiple facets of the EV market is critical to ensure that U.S. clean energy manufacturers do not become beholden to legacy players overseas who are more than ready to capitalize on this EV surge.
Notable Disparities in State Participation
This unprecedented EV market growth is often conceptualized as a national wave, but the reality is that a small number of states are harnessing this growth while others fall behind as they fail to adapt to clean energy market shifts.
A mere 10 states account for 88 percent of total EV investments, and the following table delineates these top participants in the EV market surge with respect to investment capital as well as job growth. Perhaps surprisingly, a swath of southern states that often lag behind states like Washington and California when it comes to green energy innovation are taking full advantage of the incentives offered by the IRA.
EV investment and job data by state. Image used courtesy of the EDF
Georgia is quickly becoming an EV manufacturing hub and has used the affordances of the IRA to entice multiple companies to make multibillion-dollar investments that have fueled the state economy.
This activity is being documented in an open database and can serve as a helpful resource for those interested in tracking important information associated with the IRA and related clean energy provisions.
The transformation of the EV market in such a short time and in some unlikely places points to a promising horizon where clean energy innovations and sustainable manufacturing can efficiently replace outmoded methods of production.