4Q 2022

How the Inflation Reduction Act Will Impact the Electric Vehicle Industry

In early August, the United States Senate passed the Inflation Reduction Act (IRA) of 2022, which has fundamentally changed the federal program incentivizing consumers to purchase plug-in electric vehicles (PEVs). The revised scheme is targeted at mid-income and lower-income buyers for both new and used PEVs and incentivizes production of PEVs and batteries in North America. This report looks at the new program and how it will likely impact the PEV market over the next decade.

The original PEV credit program, which was established as part of the American Clean Energy and Security Act of 2009 to jump-start adoption of PEVs, included a sales cap of 200,000 PEVs per manufacturer before the incentives phased out. Under the IRA, the sales cap has been eliminated and two clean vehicle credits established, each up to $3,750—one for meeting the content threshold for critical minerals and the other for North American production of battery components. The combination of significant sales increases of PEVs in 2021 and 2022, regulatory pressure, and the critical mineral requirements of the IRA have lead automakers and suppliers to accelerate plans to localize production of both PEVs and battery components.

This Guidehouse report analyzes the requirements and incentives laid out in the IRA; forecasts the impact on the US PEV market; specifies who benefits among manufacturers and consumers; and gives recommendations for automakers and suppliers.

Pages 16
Tables | Charts | Figures 3
  • What are the new purchase incentives for PEVs under the IRA?
  • What vehicles qualify for the new incentives?
  • How will battery manufacturing be impacted by the IRA?
  • How much will the IRA impact PEV sales?
  • How should automakers and suppliers adjust their planning of PEV and battery production?
  • EV OEMs
  • Advanced battery manufacturers and vendors
  • Battery cell and component manufacturers
  • EV advocacy groups
  • Investor community




How Has the Inflation Reduction Act Changed Clean Vehicle Credits?

Volume Caps on PEV Sales Have Been Eliminated

Local Content Requirements Have Been Added

Critical Minerals Requirements Will Be a Challenge

Income and Price Limits Have Been Added

Credit Transfers Have Been Added

Incentives for Used PEVs Have Been Added

Medium and Heavy Duty Vehicles

Changing Production Plans, Not Product

What Is the Impact on Automakers?

More Lithium Iron Phosphate Is Expected

Automakers May Leverage the Software-Defined Vehicle

Long-term Impact on the Market Is Likely Positive

What Must Automotive Suppliers Do?

Which Vehicles Qualify?

Which Consumers Win and Lose?

Which Manufacturers Win and Lose?

Accelerate Local PEV and Battery Production and Reduce Cost


Countries That Have Free Trade Agreements with the US

Critical Minerals as Defined by the IRA

  • Model Proliferation of PEVs by Price Bracket, 2021 vs 2025
  • PEV Market Share, United States 2016-2022
  • Impact of IRA on PEV Sales, United States: 2021-2030
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