IRA impacts expected to drive up EV sales more than double previous forecast

Impacts from the US Inflation Reduction Act have boosted the outlook for electric vehicle sales in the country by 2030 to more than double the pre-IRA forecast, in turn driving up forecast electric load from the intensified electrification of vehicles.

Plug-in light duty EV load is expected to jump nearly 375% by 2030, according to S&P Global Commodity Insight's latest US Long-Term Plug-in Electric Vehicle Forecast. But the question remains whether grid infrastructure upgrades will follow the same growth rates.

"Whilst the US presents encouraging conditions for EV adoption, such as the size of the automotive industry and GDP per capita, EV uptake has lagged in comparison to China and Europe," said Suzanna Massingue, low carbon transportation analyst with S&P Global. "However, recent policy incentives/carrots enforced through the Inflation Reduction Act are expected to support increased adoption, with short-term sales already increasing."

The US Energy Information Administration projects EVs, including both battery-electric vehicles and plug-in hybrid electric vehicles, will account for between 13% and 29% of new light-duty vehicle sales in the US by in 2050 and between 11% and 26% of on-road light-duty vehicle stocks.

The number of charging stations has jumped over 400% in the last five years to 56,829, according to the US Long-Term Plug-in Electric Vehicle Forecast.

EV outlook

The US is forecast to sell over 1.3 million combined of battery electric EVs and plug-in electric light duty EVs combined in 2023, a year-on-year increase of 52%, Massingue added. By 2030, once original equipment manufacturer infrastructure investments and partnerships are online and more EV models qualify for IRA tax credits, EVs sales are anticipated to amount to over 6 million, of which more than two thirds will be full electric vehicles.

S&P Global analysts increased their EV sales forecast based on IRA impacts with fully electric vehicles now expected to surpass 4.6 million by 2030, more than double the previous expectation of 2 million.

"Given the forecasted increase in EV sales, electricity load is expected to increase, reaching 83 TWh by 2030," Massingue said. "In addition to the increase in forecasted vehicle sales, a larger proportion of these will be fully electric vehicles, generating a higher electricity demand. It is widely recognized that an upgrade of the power grid will be required to ensure the charging network can support the intended sales growth."

California leads

In California, the leading state for EV sales and fleet, there are already plans for grid reforms, Massingue added. California makes up the majority of sales – forecast at over 30% of the US total for 2023 – due to progressive policy and incentives, investment in charging infrastructure and its Low Carbon Fuel Standard to reduce transport related greenhouse gas emissions.

The California Air Resources Board has also voted to ban the sale of new internal combustion engine passenger vehicles in the state by 2035.

"This move has incentivized seven other states to follow suit, namely, Maryland, Massachusetts, New Jersey, New York, Oregon, Washington and Vermont," S&P Global said in the US Long-Term Plug-in Electric Vehicle Forecast. "In addition to these states, Arizona, Colorado and Delaware are also growing EV markets, together forming the 12 leading states which are forecasted to reach over 50% EVs market share in the next 10 years."

Lithium outlook

The IRA kickstarted EV supply chain realignment for the US, said Alive Yu, a senior analyst with S&P Global. The IRA's system of production and consumer tax credits is accelerating the production of critical minerals in the US and free-trade agreement partners, as well as the supply of battery components in North America.

Companies budgeted more money to explore lithium deposits in the US than any other country in 2022, a year that saw the most amount of funds being allocated to lithium exploration in the last decade, according to S&P Global Market Intelligence data.

Despite high labor costs and strict environmental safeguards, the US has taken the lead in the search for lithium due in part to the IRA, signed into law in August 2022, which contains incentives to produce critical minerals like lithium domestically. The IRA has incentivized and helped to de-risk investments in the development of lithium mining, processing, cathode and battery manufacturing in North America.

Post-IRA US energy transition demand for lithium will be 15% higher by 2035 than the rapidly growing volumes would have been pre-IRA, Yu said.

"The domestic content requirements pose immediate challenges due to a lack of eligible supply sources available," Yu said. "Automakers are therefore unable to shift sourcing origin and production location fast enough."

The total lithium exploration budget in the US, which holds the second-largest lithium reserves and resources in the world, hit $93.5 million in 2022, up 93.2% from $48.4 million in 2021, data from Market Intelligence showed.

Lithium prices have fallen from all-time highs reached in late 2022.

Platts, part of S&P Global, assessed seaborne lithium carbonate and lithium hydroxide at $24,000/mt CIF North Asia and $26,500/mt CIF North Asia Sept. 28, down 68% and 67%, respectively, since the start of the year.