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The US Inflation Reduction Act of 2022 Boosts EV Demand and Supply-Chain Manufacturing

Anne Zhang - Epoch Times

Mar 29, 2023

Last December, Foxconn’s strategic initiatives director for the United States, Alan Yeung, confirmed to the media that in addition to producing...

The US Inflation Reduction Act of 2022 Boosts EV Demand and Supply-Chain Manufacturing

President Joe Biden’s 2022 Inflation Reduction Act (IRA) is igniting a growing demand for new and used electric vehicles (EVs). It also incentivizes manufacturers across the entire EV supply chain with credits when they build new or retool existing facilities for EV manufacturing inside the United States.

Taiwan’s Foxconn, the global leader in smart manufacturing, credits the IRA legislation for the company’s venture into the U.S. vehicle battery business. It will build a storage battery facility in Wisconsin and develop vehicle battery pack capacity at its Ohio facility.

During a recent earnings conference call, Foxconn’s chairman of global operations, Young Liu, said IRA legislation was “very beneficial” to Foxconn since it has been developing in the United States. “To us, the timing is pretty good. Aside from developing EV assembly locally, we will have battery cell, battery pack, and EEA structure. We see these development direction as very helpful for local industry. The U.S. government is also very supportive.”

In recent years, Foxconn has leveraged its software and hardware platforms to diversify into various industries, including electric vehicles, artificial intelligence, and semiconductors.

Foxconn’s EV battery production will begin in a 6.2 million square foot plant it acquired last year in Ohio from Lordstown Motors, a U.S. EV startup. This agreement led to the subsequent taking over of multiple EV manufacturing contracts from several U.S. companies, enabling an existing customer base for its new battery plant.

Under the agreement, Lordstown will outsource its manufacturing operations associated with the plant to Foxconn. Foxconn will continue to employ over 400 of Lordstown’s employees to produce its Endurance electric commercial pickup truck.

Foxconn also signed a joint venture agreement with Lordstown and invested $100 million to develop a new electric vehicle using Foxconn’s MIH open-source platform.

U.S. EV company Fisker Inc. also announced last May that it was partnering with Foxconn’s Ohio plant to produce its second EV, the Fisker PEAR. Production is scheduled to begin in 2024 with a minimum annual production capacity of 250,000 units.

Last August, Foxconn signed a manufacturing contract with Monarch Tractor, a California agricultural equipment company, to produce self-driving electric tractors at its Ohio plant. Production was scheduled to begin in the first quarter of this year.

Last October, Foxconn announced it signed a memorandum of understanding with INDIEV, a U.S. EV startup, to produce a prototype of INDIEV’s first EV, the Indi One.

Foxconn is also expanding its involvement in the energy storage battery industry by developing its Mount Pleasant, Wisconsin, manufacturing facility. Storage batteries are mainly used as energy saving devices for solar and wind power plants and communication base stations. This type of battery offers much potential for lithium battery companies.

Last December, Foxconn’s strategic initiatives director for the United States, Alan Yeung, confirmed to the media that in addition to producing servers and storage equipment, the Mount Pleasant site has begun to help solar panel and battery system suppliers to produce micro-inverters. He said the Wisconsin site may also be involved in medical equipment, aerospace, and batteries for the EV supply chain.

More Taiwanese EV Companies Venture Into North America

In addition to Foxconn, Taiwan’s Pegatron and Quanta are also planning to expand their EV-related production capacity in North America this year. Their plans are geared primarily to facilitate Tesla’s expansion in the United States.

Tesla confirmed to investors on March 1 that it will build an EV gigafactory in Monterrey, the capital of the northern Mexican state of Nuevo Leon. This location is within a seven-hour drive of Tesla’s plant in Texas.

The products that Pegatron manufactures for Tesla include center consoles, ECU electronic system controllers, and home charging stations. Pegatron’s facilities in Taiwan, Suzhou, and North America are currently supplying Tesla’s operations in California, Shanghai, Berlin, and Austin, Texas. Pegatron’s recently expanded facility in Mexico is situated within a half-day’s drive of Tesla’s plant in Texas and its new gigafactory in Mexico.

Earlier this year, Pegatron vice chairman Cheng Jianzhong said the company will spend between $300–350 million in the capital during 2023 to prepare for investments in Mexico and Southeast Asia.

Quanta’s Shanghai plant is the ECU supplier for Tesla’s Shanghai Gigafactory. Quanta is also investing in operations in Nuevo Luz, Mexico, to meet the needs of Tesla and other U.S. automakers and their customers. The new plant, which began construction last July, is planned to supply ECUs to Tesla and advanced driver-assistance systems to other U.S. automakers.

With the establishment of a Tesla gigafactory in Mexico, both Pegatron and Quanta expect their manufacturing businesses there to grow significantly.

Taiwan’s Delta Electronics ranks among the top five companies in the world that manufacture fixed charging stations for EVs. Delta’s charging stations are supplied to Tesla and other EV automakers.

On Jan. 29 this year, Delta reported its assembly facility in Texas will be retooled to manufacture key components and in-vehicle electric controls by the end of the year. Delta’s chairman, Hai Ying-chun, credited investments in the plant’s modifications to Biden’s IRA legislation.

Weng Zongbin, general manager of Compal Electronics in Taiwan, a leading manufacturer of LCD products and smart devices, said in March his company is evaluating the establishment of a factory in the United States. Compal was already renting manufacturing space in Mexico to meet the growing demand for its automotive electronics and servers.

IRA Dilutes China’s Advantage Over EV Supply Chain

On Feb. 8 this year, Korea’s SNE Research reported that six Chinese firms ranked among the world’s 10 largest battery manufacturers. In 2022, these companies collectively achieved 56 percent of the global market share of EV batteries.

In 2023 and beyond, China’s share of North America’s EV market is expected to shrink due to an uptick in EV supply-chain manufacturing investments made possible in the United States by countries willing to comply with the new IRA legislation.

Further to the disadvantage of China, the new legislation states unless stringent battery manufacturing requirements are met, consumers will be ineligible to receive a $7,500 tax credit when buying a new or used EV.

For example, to receive half of the tax credit, at least 50 percent of EV battery components sold in the United States must be manufactured or assembled in the United States, or in a country with which the United States has a free trade agreement.

The legislation also states that to receive the other half of the credit, at least 40 percent of the key minerals used in EV batteries must be extracted and processed in the United States, or a country with which the United Staes has a free trade agreement, or recycled minerals from North America by 2024; this percentage will increase by 10 percent each year from 2024, to 80 percent by 2027.

Although these legislative requirements create difficulties for some EV supply-chain manufacturers, they create opportunities for others who are willing to comply with them.

Last Aug. 29, Japan’s Honda Motor Co., Ltd announced a $4.4 billion joint investment with Korea’s LG Energy to build a new EV battery plant in the United States. Two days later, Japan’s Toyota Motor Corporation announced it would triple its investment in a new EV battery plant in the United States to meet the rising market demand.

On Sept. 22, General Motors announced a strategic investment in Lithion Recycling, a Quebec, Canada-based lithium-ion battery recycling company, to build a sustainable supply chain for its goal of “reaching one million electric vehicles per year by 2025.”

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