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.