Driving the global EV supply chain: a comparison of international policies and implications for Australia’s mining industry

In this article, we look at what policies are being implemented overseas to drive decarbonisation of the transport industry. We compare what incentives are being offered at a national and international level, and what further support we need to see to secure Australia’s mining, processing, and manufacturing position in the global EV supply chain.

The growth of EVs

Electric vehicles: you either want one, have one, or know someone who does. There are noticeably more EVs on our roads in recent years – in 2020, they comprised 4% of total car sales worldwide; in 2022, that number increased to 14% and was expected to increase further to 18% by 2023. The surge in EV sales to date is made possible by the active, concerted efforts to support battery and

EV supply chains, including upstream extraction of raw materials used to manufacture batteries, the processing and refinery of those raw materials, through to downstream manufacturing and assembly of battery cells and EVs.

In the early growth stages of the industry, government support in the form of emissions targets, EV quotas and purchase subsidies spurred the initial uptake of light-duty EVs and promoted the scale up in EV manufacturing and battery industries.

As the market grows, we are observing broader and more robust government intervention and
regulation across the supply chain to support the EV industry. These policies include a mix of subsidies, tax incentives and emissions standards all designed to nurture the industry’s growth and promote stakeholder engagement.

The wave of first movers to the EV market is over and mass consumers are now making the decision to purchase EVs. In turn, more OEMs are committing to electrify their fleet to respond to changing consumer behaviour, meet market expectations to decarbonise the industry, as well as to meet voluntary sustainability targets. For example:

• Mitsubishi plans for 50% of its car sales to be EV sales by 2030 and 100% by 2035.
• The BMW Group plans to launch over 10 battery electric vehicles over the coming years, and plans for half of all Mini sales to be electric by 2027.
• Ford is investing $22 billion in electrification through 2025 and anticipates 40% of its global sales will be EVs.
• Jaguar plans to stop global production of all petrol and diesel vehicles from 2025. Sister brand, Land Rover, plans to phase out diesel engines in 2026 and have a full electric-vehicle range by 2036.
• Mercedes-Benz has announced that all new car models will be electric-only beginning 2025, and by the end of the decade the company plans to be all-electric.
• BYD has ceased internal combustion engine (ICE) vehicle production and has only produced EVs since March 2022.
• Fiat will transition to an electric-only brand worldwide between 2025 and 2030, and has already stopped selling ICE vehicles in the United Kingdom.

Policy outlook

Australia

To date, Australia has implemented a number of consumer-led incentives for the EV industry,
including fringe benefits tax exemptions, rebates and discounted registration fees.

The Australian Government is aware and committed to growth across all participants in the supply
chain – such as miners, downstream processors and manufacturers – although amongst the array of incentives currently on offer it is difficult to identify targeted government support for these stakeholders.

While the direction set out in the Federal Government’s Critical Minerals Strategy (Strategy) was welcomed by industry, it fell short of enacting tangible incentives or concessions to support downstream processing and manufacturing or to attract the much-needed investment into these aspects of the industry. To attract foreign investment and give Australian miners and manufacturers a competitive edge, Australia needs to introduce similar tax incentives and concessions being offered by other jurisdictions.

Some examples of these international policies are set out below.

USA

In 2022, the United States passed its Inflation Reduction Act (IRA). The IRA is the United States most significant climate change legislation to date, introducing a package of tax credits, grants and incentives totalling US$370 billion designed to incentivise the development and deployment of clean energy technologies. The package includes an array of incentives at all levels of the EV supply chain, including tax credits and loan facilities to participants in the processing and manufacturing aspects of the EV supply chain, with targeted support for rural communities. Examples include:

• the Advanced Manufacturing Production Credit for manufacturing of components along the supply chain for solar modules, wind turbines, battery cells and modules, and critical minerals processing;
• a $40 billion loan authority to the Department of Energy Loan Programs Office to guarantee loans for innovative clean energy technologies, including renewable energy systems, carbon capture, nuclear energy, and critical minerals processing, manufacturing, and recycling;
• the Alternative Fuel Vehicle Refuelling Property Credit, which allows eligible businesses to receive a tax credit in relation to alternative fuel vehicle (AFV) infrastructure such as EV charging stations placed in service after 1 January 2023;
• a Production Tax Credit (PTC) and Investment Tax Credit (ITC) which allows taxpayers to deduct a certain percentage of the cost of renewable energy systems (such as EVs) from their federal taxes; and
• the Clean Vehicle Credit of up to US$7,500 for consumers who purchase new qualifying clean vehicles (discussed further below).

Canada

In 2022, Canada introduced:

• a non-refundable 30% Critical Mineral Exploration Tax Credit (30% CMETC) aimed at increasing investment for certain mining companies exploring specifically for one or more of 15 critical minerals. This 30% CMETC targets mineral exploration expenditures incurred in Canada and replaces the flow-through share incentives which were available for flow-through share agreements entered into after 7 April 2022 and before 31 March 2027; and
• the Zero Emission Vehicle Infrastructure Program (ZEVIP), which provides up to 50% funding contribution (up to a maximum of $10million per project) towards projects focusing on EV charger deployment in public places, on-street, residential units and workplaces.

European Union

In March 2023, the European Union proposed the Net Zero Industry Act, establishing a framework of measures aimed at bolstering Europe’s battery manufacturing capacity, with the goal for Europe to domestically manufacture at least 40% of its clean energy technologies by 2030. The Act seeks to improve investment certainty, policy both focus and coordination by setting clear objectives and monitoring mechanisms for investment, as well as streamline administrative requirements and facilitating permitting.

Policies are driving EV demand, but what’s driving supply?

These international policies demonstrate the commitment by foreign governments to support all levels of the supply chain to manufacture EVs. These policies are just the tip of the iceberg and as the industry grows, we expect to see more creative and varied means of supporting the EV supply chain, particularly as private investment in the sector grows. According to the US Department of Treasury, since the IRA was enacted, at least $45 billion in private-sector investment has been announced across the US clean vehicle and battery supply chain. We anticipate more public support for the supply chain will inevitably attract greater support by private investors to the growing EV market.

Applying these lessons back home, it is clear that Australia must adopt similar incentives to drive local and foreign support to our mining industry to secure Australia’s position in the EV supply chain. In February 2024, AMEC announced that it led a broad delegation of companies to Canberra to progress discussions with the Federal Government about a production tax credit. AMEC has engaged Mandala Partners to economically model the introduction of an US IRA style PTC into Australia, which concluded that a 10% tax credit for downstream materials producers would reduce the production cost disadvantage faced by Australian projects compared to the USA.

While Australia’s mining and resources industry is well placed to support net-zero targets, the pace and extent to which the government can support the industry will dictate how well Australia can position itself on a global stage.

Overseas policies with onshore consequences

While jurisdictionally specific policies are critical for growth at all stages of the EV supply chain, we are seeing an emergence of international policies which appear designed only to benefit their own sovereign interests.

For example, the United States’ Clean Vehicle Credit offers a credit on an EV purchase of up to US$7,500, comprising:

• US$3,750 if the vehicle’s battery meets a critical mineral requirement. The vehicle must contain a threshold percentage of critical minerals extracted or processed in the United States or a country that the United States has a free trade agreement with, or recycled in North America. That initial threshold was 40% in 2023, and has and will continue to increase by 10% each year to 80% from 2027.
• US$3,750 if the vehicle meets certain standards for manufacturing or assembly. For this the vehicle must contain a threshold percentage of battery components manufactured or assembled in North America. That threshold was 50% in 2023, and has and will continue to increase by 10% each year to 100% from 2029.

These subsidies do not apply for vehicles from which battery components are sourced or assembled by a ‘foreign entity of concern’ (FEOC). This includes any entity, ‘owned by, controlled by, or subject to the jurisdiction or direction of a government’ of specified nations, including China, Russia, Korea and Iran.

An entity will be owned or controlled by another if:

• 25% or more of the entity’s board seats, voting rights, or equity interest are cumulatively held by that other entity, whether directly or indirectly via one or more intermediate entities; or
• with respect to the critical minerals, battery components, or battery materials of a given battery, the entity has entered into a licensing arrangement or other contract with another entity (a contractor) that entitles that other entity to exercise effective control over the extraction, processing, recycling, manufacturing, or assembly (collectively, “production”) of the critical minerals, battery components, or battery materials that would be attributed to the entity’.

The IRA also proposes that qualified manufacturers will be required to conduct due diligence tracing with respect to all battery components and applicable critical minerals to determine whether the components and minerals are FEOC-compliant. This due diligence must comply with standards of trading, including international battery passport certifications and enhanced battery material and competent tracking and labelling.

This obviously means that any EV which has been manufactured by a company that is controlled by a FEOC will likely be an ‘unattractive choice’ for EV consumers as they will be ineligible for these reasonably generous credits.

Impact on Australian miners and manufacturers

In addition to taking notes from overseas as to what policies could be implemented in Australia to support industry, these policies should not be considered as irrelevant to the Australian mining industry. What is clear from these international policies is that governments are trying to reduce global reliance on offshore downstream processing and manufacturing of critical minerals, batteries and vehicles, and obtain greater independence and security in the EV supply chain. This is apparent by many overseas jurisdictions expressly excluding any tax benefit or incentive offering where the inputs used to manufacture an EV have been processed, manufactured or assembled by specific countries or entities controlled by those countries.

To that end, we expect to see greater scope (as has already been proposed by the IRA’s due diligence mechanism) that all aspects of the EV supply chain will be scrutinised and required to be reported on. This includes taking steps to certify where the minerals used to manufacture a battery have been sourced and processed, as well as the ownership structure of each participant along the supply chain. It may be the case that we start to see a ‘FIRB-like’ ownership assessment of the EV supply chain, and eventually, restrictions or penalties imposed dependent on the participants involved.

This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.