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Tesla (TSLA) shifts battery factory plans to focus on Inflation Reduction Act tax credits

The Inflation Reduction Act (IRA) incentivizes companies like Tesla to focus on domestic manufacturing of battery cells, rather than overseas production.

Tesla is reportedly shifting its original plans to manufacture battery cells in Germany and is instead looking at domestic production in the United States. As for why, it turns out the company may qualify for additional tax breaks under the Inflation Reduction Act (IRA) should it pursue domestic production, rather than establishing a plant overseas.

Under the IRA, production tax credits are provided that can potentially offset “more than a third of the cost of EV battery packs” according to analysts and reports from outlets like the Wall Street Journal. The IRA also features incentives such as a $35 per kilowatt-hour credit. The only caveat is that these incentives specifically require battery cells to be manufactured and packaged in the United States.

Aerial view of one of Tesla's factories located in Fremont, CA.
© Tesla

Earlier this month, Tesla had been eyeing Texas as a site where it may potentially establish its own lithium refinery location for battery cell production. Tesla is still evaluating the feasibility of the project though, and noted that only “preliminary development activities” had been started thus far.

Currently, China serves as the main source for battery materials (including nickel and cobalt), and controls more than half the world’s lithium processing and refining. The U.S. on the other hand controls just 1 percent.

Should Tesla’s application to build its own plant here in the U.S. be approved, the company would be allowed to begin construction as early as Q4 2022, with the project able to reach “commercial operations” by Q4 2024. For more on this, be sure to read up on our coverage of Tesla eyeing Texas as a potential lithium refinery location.

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Morgan is a writer from the frozen wastelands of Maine who enjoys metal music, kpop, horror, and indie games. They're also a Tetris fanatic who's fiercely competitive in games like Tetris 99... and all games in general. But mostly Tetris. You can follow Morgan on Twitter @Author_MShaver.

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