The Inflation Reduction Act (IRA) offers production tax credits to U.S. battery manufacturers that produce batteries with locally sourced materials. Electric vehicle (EV) maker Tesla (NASDAQ:TSLA) and battery recycling company Li-Cycle Holdings Corp. (NYSE:LICY) are two such companies primed to benefit from the IRA.
Battery Makers and Battery Recycling Take Center Stage
The ongoing supply chain issues and scarcity of raw materials, combined with rising costs for battery sourcing, have forced EV manufacturers to slow down their manufacturing operations.
Thus, EV manufacturers are setting up their own battery-making facilities to cut down on costs. Similarly, owing to the scarcity of materials, businesses are turning to battery recycling as an alternative. These companies break down old used lithium-ion batteries, undertake chemical processes, and convert them into usable parts for new batteries.
As per a WSJ report, car maker Jaguar Land Rover and South Korean conglomerate SK Group are investing $300 million in battery start-up Ascend Elements.
Tesla Seeks to Leverage EV Battery Tax Credits
One of the world’s largest EV makers, Tesla (TSLA), is rerouting its cell-making equipment from Germany to the U.S. in a bid to leverage the tax credits offered to EV battery makers. As per a WSJ report, Tesla is reconsidering its plans to produce its batteries in Germany. Instead, the carmaker is focusing on manufacturing cells domestically and availing the tax credits.
Analysts estimate that making and packaging battery cells locally will save up to one-third of EV battery pack costs. Tesla is reportedly looking for a site in Texas to refine lithium, one of the most important components of batteries.
A Bernstein Research report shows that a 75-kilowatt-hour battery pack, which is used in Tesla’s Model Y, could lower the production costs by 40% if the batteries are produced locally.
Is Tesla a Good Share to Buy?
Wall Street analysts are cautiously optimistic about Tesla. On TipRanks, TSLA stock has a Moderate Buy consensus rating based on 19 Buys, six Holds, and five Sells. The average Tesla price target of $309.38 implies 2.2% upside potential to current levels. Meanwhile, the stock has lost 24.3% so far this year.
Li-Cycle to Gain Traction Soon
Li-Cycle Holdings engages in a sustainable process for the recovery of critical materials from all types of lithium-ion batteries. The Toronto-based company was listed on the NYSE in 2021 through a merger with a special purpose acquisition company (SPAC). The company has recycling sites in Arizona, New York, and Ontario, and has plans to expand to Germany, Norway, Ohio, and Rochester.
Is LICY Stock a Good Buy?
On TipRanks, LICY stock has a Moderate Buy consensus rating. This is based on two Buys versus two Holds. The average Li-Cycle Holdings price forecast of $9.75 implies 45.1% upside potential to current levels. Meanwhile, the stock has lost 33.3% so far this year.
Ending Thoughts
The IRA seeks to boost EV adoption by offering up to $7,500 in tax credits for new EVs and $4,000 for used EVs, thus, helping families save $950 per year. The U.S. government also seeks to drive companies to reduce their dependence on China and other countries for materials while boosting local demand.
Battery manufacturing and recycling is a relatively new space involving high costs. Moreover, the limited availability of old batteries poses a challenge to increasing output. Nonetheless, the U.S. is turning rapidly toward electrification and has benefits for players in each step of the chain.
