The Battery Belt
How the World of Clean Energy Manufacturing Suddenly Changed
“The United States is effectively now the most attractive destination for global capital in clean energy and cleantech.”
– Aaron Brickman, Senior Principal at the Rocky Mountain Institute.
There’s no getting around it, the Inflation Reduction Act of 2022 (IRA) is an unqualified success. In just one year, the law’s tax incentives are working as planned. They spurred massive investments in clean energy – far more than anyone expected.
The Congressional Budget Office expected the electric vehicle (EV) tax breaks in the law to generate $14 billion in tax savings for consumers over a decade. With a year’s worth of data, Goldman Sachs just upped that estimate to $393 billion.
That implies a massive investment (and consumption) of electric vehicles.
The reason for the massive increase is because the IRA did the unthinkable. It brought manufacturing back to the United States…in the most unlikely route. Nearly 100 new clean energy manufacturing facilities or factory expansion were announced in the past year. That’s almost $80 billion in new investments directly attributable to the IRA.
And it attracted some major international businesses. According to Reuters, car makers Audi and Tesla, power generation firm Drax Group, and battery maker Northvolt AB all have plans to build manufactories in the U.S., thanks to the IRA.
Mercedes Benz plans to invest billions of euros to build 10,000 fast-chargers in North America. That includes 2,500 chargers at 400 locations across most of the U.S. and Canada by 2027.
The rules for getting the tax break ramp up over time. Right now, just 50% of battery components must be made in the U.S. But by 2029, 100% must be made here.
That’s driving the investments in manufacturing. And with manufacturing comes jobs.
And it’s not just electric vehicles. Goldman Sachs updated another CBO estimate, this time in wind and solar manufacturing. The CBO projected $37 billion in tax savings over a decade. The latest data from Goldman Sachs is already up to $190 billion.
That’s a huge change. And it implies a massive amount of investment in cleantech. Again, based on announced plans for new manufacturing.
These are businesses that were located in China. The EV supply chain starts and ends there. Roughly 75% of the world’s EV batteries are made in China. Giant battery maker CATL alone makes 1/3rd of the global supply.
But the IRA already brought some of that home to the U.S. and will bring more.
Here’s what’s important – the economic benefits of these new jobs will have widespread impacts on the U.S. economy. Good jobs in clean tech could be coming to a town near you. And other countries took notice.
The European Union could pass similar legislation to get a slice of those jobs. The success of the IRA could create a virtuous circle of climate friendly investment and manufacturing to the west. That’s something we couldn’t conceive, even a few years ago.
Good Investing,
Matt Badiali
P.S.: The boom in EV manufacturing will drive demand for the energy metals that go in them. And the IRA means that we need more metals produced in North America. Mangrove Investor’s New Energy publication identifies opportunities for investors to participate in the companies that supply the EV boom.
Numbers to Know
17
Georgia — not Michigan — leads the country in post-IRA clean energy factory investments, with over $17 billion. South Carolina comes in second with $9.3billion, and only then Michigan, with $8.1 billion. (Canary Media)
134
Chattanooga poised to become the buckle of the battery belt of what experts project will be a $134 billion market for EVs and batteries by the year 2027.(Chattanooga Times)
26%
Welcome to the Battery Belt. The Department of Energy estimated that people work in electric vehicle manufacturing increased by 26% from 2021 to 2022. Most of these jobs are in the Battery Belt. (Battery Industry)
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