Tax breaks for EV battery plants could disappear in budget battle

• Losing those battery subsidies would compound manufacturers' other woes, from tariffs on key components to uncertain consumer demand.

Catch up quick: The manufacturing subsidies, established under the Inflation Reduction Act, were designed to help seed a domestic battery supply chain and cut reliance on Chinese imports.

• While some U.S. investments were already in the works, the tax credits turbocharged those efforts, with an additional $67 billion in battery facilities announced over the last three years, according to the Alliance for Automotive Innovation's EV investment dashboard.
• The credits are worth billions of dollars annually, slashing the costs of battery production by nearly one-third, which could help make EVs more affordable.

Driving the news: Ford Motor's executive chair, Bill Ford, warned of what might happen if the House budget bill's restrictions making it harder to access those tax breaks were to become law.

• A $3 billion Ford battery plant in Marshall, Michigan, now 60% complete, would be "imperiled," risking 1,700 jobs, he said at a policy conference last week in Michigan, per Reuters.
• "We made a certain investment based upon a policy that was in place. It's not fair to change policies after all the expenditure has been made, " Ford said.

Zoom in: The House budget bill passed last month effectively killed those credits by tightening the eligibility requirements such that they're unworkable, industry experts tell Axios.

• It would bar tax credits for batteries produced with components from China or minerals processed in China, which controls 90% of global refining.
• It would also prohibit credits for batteries made in the U.S. under a Chinese licensing agreement — a direct hit on Ford, which plans to license tech from China's leading battery manufacturer, Contemporary Amperex Technology Co., Limited (CATL).

What they're saying: "Tightening the eligibility requirements in essence eliminates the majority of projects eligible," says Gracelin Baskaran, a mining economist who is director of the Critical Minerals Security Program at the Center for Strategic and International Studies.

• The bill's language is ambiguous and overly broad, according to analysts at The Tax Law Center at NYU Law, but the practical effect is likely a chill on U.S. investments — the opposite of what lawmakers say they're trying to achieve.

Yes, but: Other provisions, including tax write-offs for R&D and capital equipment, could benefit manufacturers.

• Some companies could also be fairly insulated from the latest policy moves.
• General Motors, for example, has been investing heavily in North American mining and processing companies in recent years to protect its supply chains from risk.
• South Korea's LG Energy Solution, which has three U.S. battery plants and five joint ventures in North America, could also benefit, a spokesperson says.

What to watch: The big worry for some manufacturers is that they wind up saddled with stranded assets — costly factories that are underutilized or never completed.

• "It's inevitable that some number of them will decide not to complete their plants because the economics no longer work," Ethan Zindler, a policy analyst at BloombergNEF, tells Axios.
• More than $14 billion in clean energy investments in the U.S. have been canceled or delayed this year, AP reported, including a Freyr Battery plant in Georgia and a Kore Power battery plant in Arizona.
• Weak EV demand forecasts, not just policy signals, also likely played a factor.

The bottom line: The budget battle now moves to the Senate, which could rewrite the rules yet again.