Toyota Announces US EV Expansion after Inflation Reduction Act

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Toyota Motors (NYSE: TM) has announced EV (electric vehicle) expansion in the US. The company would invest more money to manufacture batteries in the US, which is the world’s most profitable automotive market.

The company has announced an additional $2.5 billion investment in Toyota Battery Manufacturing North Carolina (TBMNC) which would help support higher EV production in the country.

Commenting on the investment, Toyota said, “This plant will serve a central role in Toyota’s leadership toward a fully electrified future and will help us meet our goal of carbon neutrality in our vehicles and global operations by 2035.”

Notably, the battery is a key component of an electric car. Automakers globally have been scrambling to secure the supplies of key battery metals amid fears of a global shortage. Tesla’s CEO Elon Musk even advised entrepreneurs to get into the lithium refining business.

Tesla has been expanding its production capacity and its plants in Berlin and Texas are ramping up production. After a visit to the company’s Berlin plant, Deutsche Motors reiterated its buy rating on Tesla. While Tesla sells much lower cars as compared to Toyota, it has a much bigger market cap.

EV Companies Are Ramping Up Production

Tesla said in its SEC filing that the company would increase its 2022 capex budget to $6-$8 billion, which is higher than the previous forecast of $5-$7 billion. Tesla has ample cash on its balance sheet to fund its growth. However, some of the other EV companies are looking to raise funds.

Lucid Motors has filed with the SEC to raise up to $8 billion from capital markets. Nikola has also announced a stock sale. Both these shares tumbled yesterday after announcing the stock sale as markets fear it would lead to dilution.

While several analysts have been getting bearish on startup EV companies, Ray Dalio bought more Lucid Motors shares in the second quarter. The billionaire also added more shares of Ford, NIO, and Xpeng Motors in the quarter.

Ford has been ramping up its EV production. It expects its annual EV production run rate to reach 600,000 by the end of 2023 and 2 million by 2026.

Toyota Bets on Global EV Transition

Global EV sales are rising and almost doubled last year even as the overall car sales fell due to supply chain issues. In the first quarter of 2022, global EV sales rose 75% YoY to 2 million. Automakers like Toyota Motors are investing billions to meet the expected surge in EV demand.

In order to hasten the EV pivot in the US, President Biden has signed the Inflation Reduction Act of 2022. Among others, it has increased the outlay towards EV tax credit. Under the previous regulation, the EV tax credit started to phase out once an automaker sold over 200,000 EVs. Tesla, General Motors, and Toyota cars did not qualify for the EV tax credit.

However, beginning next year, even their cars would be eligible as the law does away with the upper limit. In order to boost domestic manufacturing, the law mandates that the cars have to be necessarily assembled in the US.

Toyota Invests in Battery Plan after the Inflation Reduction Act

The Act also has battery sourcing requirements beginning in 2024 and by 2029 the battery would need to be built in North America to be eligible for the tax credit. Toyota expects production at the North Carolina plant to begin in 2025 which would help it meet the battery sourcing requirements.

President Biden has also signed the CHIPS Act which would help lift chip production in the country and help it take on China’s dominance. However, while the automotive industry is still battling chip shortages, there is an oversupply of chips used in gadgets.

To make this worse, PC and smartphone sales are expected to fall in 2022, which is putting pressure on PC makers’ earnings. HP released its earnings today and reported revenues of $14.66 billion in the quarter, which was 4.1% lower than the corresponding quarter last year and way below the $15.74 billion that analysts were expecting. It also lowered its full-year profit guidance amid the slump in PC sales.

However, when it comes to electric cars, almost all the companies are supply constrained and are investing billions in order to meet the increasing demand.

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