The Impacts of the US Inflation Reduction Act on EV Supply Chains

The Inflation Reduction Act (IRA) passed by the United States in 2022 affected the global layout of electric vehicle (EV) supply chains. This paper explores the impacts of the IRA on the decisions of overseas battery suppliers and domestic EV manufacturers in the US. The main findings are that (1) the suppliers’ and manufacturers’ optimal decisions depend on the local subsidy, tariff, and battery R&D costs: tariffs (subsidies) reduce (increase) the battery R&D level for overseas (local) suppliers, EV prices, and supply chain members’ profits; (2) subsidies and tariffs are key factors in distinguishing manufacturers from overseas procurement and local procurement when R&D cost coefficients are determined; cost coefficients and service fees are the key factors for manufacturers to choose local procurement or R&D cooperation strategies; and (3) when local supply chains compete with overseas supply chains, subsidies will give the local supply chains a sales advantage while giving overseas supply chains a price advantage, and when local supply chains compete with cooperative supply chains, subsidies will give local supply chains a price disadvantage and a sales disadvantage.