Ahead of the Curve: Forecasting Corner: How Trump’s One Big Beautiful Bill Will Impact America’s Electric Vehicle Supply Chain

On July 4, 2025, US President Donald Trump signed a new federal budget, known as the One Big Beautiful Bill Act (OBBBA), into law. Key priorities include cutting government spending to address the increasing national debt and lowering energy costs through a significant enhancement of domestic oil production.

The recently passed bill signals a policy shift that claims to support domestic EV production and battery supply chains but introduces uncertainty around how those goals will be achieved.  This ambiguity is especially risky in a capital-intensive sector where the US is still working to catch up with China, reduce reliance on foreign inputs, and generate new jobs.

New Law Ends Consumer EV Tax Credits

The OBBBA abolishes the $7,500 tax credit for new EV purchases and the $4,000 credit for used EVs as of September 30. Both incentives, created under the Inflation Reduction Act (IRA), were integral to consumer uptake of EVs.  

To gauge the impact of cancelling these consumer credits, it is imperative to understand how these incentives, especially the tax credit of $7,500 on new EVs, attracted investments into the US. 

The Inflation Reduction Act (IRA) was signed into law in August 2022 under former President Joe Biden. The law focused on, but was not limited to, promoting local manufacturing of clean vehicles and incentivizing renewable energy. 

As of 2025, EVs had to meet several criteria to qualify for the $7,500 credit. First, they could not exceed a maximum retail price of $80,000 for electric vans, SUVs and electric pick-up trucks and $55,000 for electric sedans and small cars. Second, vehicle batteries and battery components needed to include a certain percent of localized content. Batteries needed to include 60% of critical minerals produced in the US (or in a country with which the US has a free trade agreement) and battery components needed to be 60% manufactured or assembled in the US.  

While these mandates were difficult for carmakers to align with globally, the tax credits played a vital role in making EVs more affordable. Several global car and battery makers invested heavily in the US over the past two-to-three years, and within 18 months of signing the IRA into law, in January 2024, the Biden administration announced that the US had attracted more than $100 billion in investments from automotive companies.

IRA Policies Drove Significant Growth in EV Sales and Supply Chains

The IRA contributed directly to EV sales growth while strengthening EV supply chains in the US.  However, the removal of these credits is expected to raise EV prices for consumers, leading to a significant decline in market demand and sales. S&P Global Mobility’s newly forecasted yearly battery demand for North America in 2030, expressed in GWh, has declined by approximately 56% compared to last year's forecast.

Furthermore, the removal of tax credits and the supporting policy trajectory brings uncertainty to the market, potentially incentivizing the direct import of battery cells and modules from China. China-based imports would undermine recent investments made by battery companies in the US. South Korea’s LG Energy Solution, SK On, and Samsung SDI as well as Japan’s Panasonic all announced big-ticket investments in building a battery supply chain ecosystem following the IRA’s enactment.

“The Section 30D tax credits were tied to FEOC (Foreign Entity of Concern) guidelines, which significantly restricted the import of battery cells from China. Under this framework, the cost advantage of lower-priced Chinese batteries could not offset the loss of the $7,500 tax credit, effectively limiting their competitiveness. However, with the removal of the 30D incentive, tariffs now remain the only substantial barrier to Chinese imports. If existing duties prove insufficient, the OBBBA could unintentionally trigger an inflow of LFP batteries from China,” explains Ali Adim, Head of Battery Research at S&P Global Mobility.

Rising Tariffs Increase Battery Manufacturing Costs in North America

S&P Global Mobility further estimates that rising tariffs on imported components such as cathode and anode active materials (CAMs and AAMs) could inflate the price of manufacturing NCM811 (nickel-cobalt-manganese) battery cells in North America from $90 per kWh in 2024 to $97 per kWh in 2025. This would create a 73% disparity compared to the more affordable lithium iron phosphate (LFP) cells produced in China, based on current pricing levels.

In this context, the absence of incentives to produce cells in the US / North America could drive vehicle manufacturers to import battery cells from China instead of localizing them in the US for economic benefits.

Domestic LFP Battery Production Faces Supply Chain and Regulatory Challenges

At the same time, battery makers, which are working to produce LFP cells in the US but are dependent on manufacturing equipment from China, could face significant hurdles, thanks to the tightened FEOC guidelines introduced under Section 45X of the OBBBA. 

Under the IRA’s 45X, which was designed to stimulate the creation of a localized battery supply chain, automakers received a credit of $35 per kWh for each battery cell and $10 per kWh for each battery module produced and sold in the US. These manufacturing credits complemented the demand-side incentives to significantly attract new investments. 

The OBBBA does not immediately eliminate these credits but introduces a phase-down beginning in 2030, with subsidies terminating by 2033. This adds a layer of long-term uncertainty for investing companies. 

The OBBBA additionally changes the 45X manufacturing credits by adding new FEOC restrictions and modifying the domestic content rules. The main goal of this change is to restrict battery manufacturers from China, whether in the form of a partnership or a joint venture, from becoming eligible for the credits. 

“A potential silver lining of the OBBBA is the continuation of the advanced manufacturing tax credit through 2033, which could help revitalize the disrupted US battery industry. Clearer guidelines on areas such as licensing and joint ventures with foreign entities may finally enable large-scale LFP production domestically. Nevertheless, sourcing FEOC-compliant materials for LFP components remains a critical challenge that must be addressed,” Adim concludes.

Conclusion: A Policy Shift with Unsettled Consequences for the EV Supply Chain

The OBBBA introduces major policy changes under the banner of domestic revitalization, but its rollback of consumer incentives and tighter FEOC restrictions create uncertainty for the EV supply chain. As production credits phase down and compliance challenges grow, the momentum built under the IRA now faces headwinds. How industry players respond—and how clearly remaining incentives are defined—will shape the future of US competitiveness in EV manufacturing.