Has anyone seen any in-depth analysis on the likelihood that Panasonic 2170 or Tesla 4680 Models of Y and 3 will still be eligible for the full tax credit after the battery materials requirements rules come out in March? I haven’t, and it seems like a really big opportunity if they will, since in all likelihood, basically, no other vehicles would qualify for $7500 which will give Tesla at least another $3750 price advantage vs other EVs.
From what I have seen, most people assume Tesla will lose $3750 of the credit in March. I either have a huge blindspot or this doesn't make a lot of sense to me. I think the most likely outcome is that they keep the $7500 credit. Let me explain.
The delayed Treasury guidance details requirements that make $3,750 contingent on at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free-trade agreement, or recycled in North America.
The other $3,750 requires that at least 50% of battery components were manufactured or assembled in North America. Both percentages rise annually. Many countries are pressing Washington for a broad definition of a free-trade deal and other foreign automakers and countries want other interpretations.
GM says they can meet the 40% but not the battery components requirements so they would only be eligible for $3750.
The battery component requirement should be in the bag for Tesla given the batteries and packs are made in the US.
As a starting point on the 40% requirement, Elon said they expect to be fully compliant with the IRA Tax credit.
Here’s a transcript from the Q3 2022 earnings call.
“Thank you very much. And let's go first to the shareholder questions. The first shareholder question is given the stringent battery content and assembly requirements for consumer tax credit eligibility under the Inflation Reduction Act, can you speak to Tesla's ability to meet those thresholds in each of 2023, 2024, and 2025 through your existing and planned supply chain?”
Elon Musk -- Chief Executive Officer and Product Architect Well, yeah, I mean I think just at a high level, I'd say, we do expect to fully meet the IRA's requirements. Do you want to add?
Zachary Kirkhorn -- Chief Financial Officer Yeah. We view the passing of the Inflation Reduction Act, there's a significant boost toward accelerating automation, while also scaling the battery supply chain at large in the United States. We expect Treasury to publish detailed guidance by the end of the year. Until such time, it's difficult to fully determine the eligibility criteria, but we believe Tesla is very well-positioned to capture a significant share of that for solar storage and also electric vehicles.
Tesla has more insight into their supply chain than random internet articles. They would have interpreted it narrowly to play things safe. Also, if anything, a delay of 3 months in the rules going into effect allows for some Elon time breathing room for Tesla to get compliant with even their strictest interpretation of the law.
The batteries in the Model Y and 3 have very little cobalt in them relative to most other EV batteries. They can get the nickel from Australia and Canada which would make up most of the battery. Lithium is a very small percentage of the battery but could also probably be from a source that qualifies under the credit rules. I believe other companies like VW get a lot of Nickel from Indonesia.
Tesla is also the largest customer for battery materials, is the most flexible in terms of making rapid change, and has the ability to pay the highest price. So inevitably tesla will get first pick for their raw materials supply chain.
Tesla could also theoretically shift around what materials are used in what batteries for what vehicles if they needed to. They could put batteries with materials from countries that don’t qualify in their S, X, and Model Y performance vehicles since they are ineligible for the credits anyway. They could also move 2170 cells around to Powerwalls, old Megapack, Semi, vins reserved for leased vehicles etc. They can also ship all modele of 3s and Ys with batteries that have unqualifying materials to other countries besides the US (like Canada).
In the event that they still couldn't qualify on every vehcie, Y is igher margin and higher volume for them than the 3 so it seems most likely they would prioritize making sure it gets the full credits over any other vehicles they make.
So basically, my analysis is that if tesla is not eligible for the battery materials requirement once it goes into effect, then likely literally no vehicles would be eligible by any maker for the full credit.
Is there something I’m missing on this? Has anyone seen anything else to confirm my thoughts? It seems likely that if anything the treasury will save to pressure from other OEMs and make it easier to qualify vs find a way to make Tesla not qualify. Why would they let everyone in the back door with leasing and then create really strange rules that go against the plain language of the bill?
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