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Pity Donald Trump. He spent four years in office tearing up trade agreements and ranting about rewriting old ones, all to little avail. Now, a key U.S. climate law is doing more to change the dynamics of international trade than any blustering and bullying ever did.
The Inflation Reduction Act has been hailed as a win for domestic producers of minerals that are critical to electric vehicles and other hallmarks of the decarbonized economy. The most impactful so far have been the provisions that require a minimum amount of domestic sourcing and processing to be eligible for the $7,500 EV tax credit. That language alone has spurred tens of billions of dollars of investment in the U.S. battery supply chain.
But there’s no way the U.S. can produce all that’s needed — the country simply doesn’t have enough reserves, while China has a lock on many parts of the market. So the law also includes a handy loophole qualifying minerals from countries with which the U.S. has a free trade agreement. The law already qualified “North American” suppliers, and the free trade language opens the door further.
Late on Monday, the door opened a little wider as the U.S. and Japan announced a trade deal encompassing cobalt, graphite, lithium, manganese and nickel, all minerals that are key components of EV batteries. The agreement opens up both markets to new supplies of the minerals, allowing battery manufacturers and automakers to benefit from the IRA’s minerals requirement.
For now, Japan is the only country to successfully negotiate a new agreement in the wake of the IRA, but it probably won’t be the only one. The EU, which has made no secret about its displeasure with the new law, is also in talks with the U.S.
In the seven months or so since the IRA was passed, the global landscape for critical minerals and battery manufacturing has changed rapidly, and a potentially steady stream of new free trade agreements promises to keep things fluid. For founders and investors alike, that injects a fresh dose of uncertainty.
Why startups should care about geopolitical repercussions of US climate law by Tim De Chant originally published on TechCrunch
The current battery boom might feel familiar to those who lived through the clean tech bubble that burst a decade ago, with an awful lot of money being invested in what are still nascent markets.
But certainly they’re bigger this time around: The number of electric vehicles on the road has more than doubled in the last seven years, for example, and demand doesn’t seem to be slowing. Market share for EVs has been growing even as the overall automotive market has softened in recent years.
It’s been enough to convince automakers and battery companies to commit nearly $300 billion to building a raft of gigafactories around the world, including more than $38 billion here in the U.S. alone. That confidence has cascaded through the market, driving waves of investment that have resulted in over $42 billion in venture and private equity capital committed to battery research, development, commercialization and manufacturing.
For battery startups like Michigan-based Our Next Energy, betting it all on the automotive market, which is notoriously fickle, can be a risky proposition. Demand for cars and trucks often craters when the economy tumbles. EV sales have been historically tied to an even more volatile indicator: gas prices. As COVID showed, just a few ripples in the automotive supply chain can send shockwaves through the market. The automotive market has a lot of volume, sure, but that doesn’t make up for the fact that margins are typically thin.
As investments go, the automotive sector doesn’t seem like a great place to make massive, long-term bets like the kind required for gigafactories.
And yet the money keeps flowing, and companies like ONE and its investors are increasingly confident that this round of climate tech investments will turn out very differently from the last. What’s behind that bravado?
Why so many gigafactories? It’s not just EVs driving demand by Tim De Chant originally published on TechCrunch
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