Background

The Section 45X Advanced Manufacturing Production Tax Credit (45X PTC) included in the Inflation Reduction Act (IRA) provides valuable tax credits for producing eligible components, constituent materials, and products in the United States. This includes tax credits to domestically produce electrode active materials for batteries, credits for critical minerals such as lithium, cobalt, nickel, graphite, manganese, and fluorspar, and for producing battery packs and cells. While this credit allows for many battery materials to be covered, there are gaps in the definitions that leave ambiguity in the statute and do not align with standard industry practices to target the appropriate supply chain segments. In addition, as currently constructed, the Section 45X PTC fails to provide adequate financial tax incentives necessary to spur a domestic upstream battery materials market.

The Section 45X PTC as currently written also does not offer protection from foreign adversaries from qualifying for these taxpayer-funded incentives. These areas all need to be addressed to ensure impact and effectiveness on the battery materials supply chain.

BATT Coalition’s 2025 Goals

Changes to Credit Percentages

Currently, the Section 45X PTC is far more generous (relative to the percentage of total costs) to cell and pack producers than to upstream materials producers (such as electrode active materials and critical minerals).

Current 45X Credit Amounts:

$35/kWh for cell production (40% of 2023 costs)
$10/kWh for pack production (25% of 2023 costs for cell to pack ratio)
10% of production costs for critical minerals
10% of production costs for electrode active materials

Considering that cell and module production historically have aligned closely with EV demand, the current incentive is especially lopsided. The BATT Coalition is advocating that the Section 45X credits need to be adjusted to more closely align with downstream incentives for domestic production.

Goal: The BATT Coalition advocates for increasing Section 45X credits for critical minerals and electrode active material production to 25% of production costs.

Restrictions on Foreign Entities of Concern (FEOCs)

Currently, firms owned and backed by FEOCs (China, Russia, Iran, and North Korea) are eligible to receive federal tax credits through the Section 45X Advanced Manufacturing Production Tax Credit.

While American upstream battery materials companies struggle to compete due to China’s unfair trade practices and market manipulation, the federal government is subsidizing Chinese competitors using taxpayer dollars through the Section 45X PTC.

Goal: The BATT Coalition advocates for adding FEOC restrictions to the Section 45X PTC similar to those found in Section 30D to prohibit FEOCs from accessing federal tax credits.

Changes to Sourcing Requirements

The Section 45X PTC does not restrict the material sourcing or production requirements. Companies claiming the Section 45X PTC can source material from an FEOC, a non-North American country, or a non-Free Trade Agreement (FTA) country.

Goal: The BATT Coalition advocates for adopting North American/FTA material sourcing requirements to the eligibility rules for the Section 45X PTC.