🐞Su$tainable Mobility: The new $7,500 EV tax credit is a feature, not a bug
Vol 36
This bi-weekly newsletter aims to separate the signal from the noise for making money in sustainable transportation: Electrification, mode shift, active and public transit, and mobility aggregation, across both people and goods movement.
This week features a Deep Dive on how the stringent new $7,500 vehicle tax credit in the Climate Bill (aka the Inflation Reduction Act) is a feature, not a bug.
I have a busy month of September! I’ll be speaking with StartOut (remote event) about where climate change meets the LGBTQ+ community on Sept 15 as part of their 3rd annual Equity Summit, on a panel at Micromobility America about Harnessing Cleantech and Mobility Funds for Micromobility on Sept 16 in the Bay Area, and in SF for Hyundai CRADLE presents Orchestrating Ecosystems on Sept 22. Later this month, I’ll be speaking at Move America on Sept 27 on two topics: Accelerating mobility startups from 0 to 100 and Promoting zero emissions through curb management programs. If you’re at any of these events, drop me a line so that we can meet up!
QUICK HITS: Notable news from the last 2 weeks
🤳🏽 Hong Kong is making it safer for smartphone-addicted pedestrians to cross the street. Smart policy sometimes means meeting people where they are.
📐 Paris is doubling down on car-free dropoff streets at schools, with the count now up to 168 streets. This is a great example of a soft stick to discourage private car use in cities.
🚍 Los Angeles now beats the SF Bay Area in transit ridership. Sadly, this is less about Los Angeles leapfrogging and more about SF’s post-COVID challenges.
💳 Pittsburgh is launching a universal basic mobility pilot. It’s high time for a mobility wallet.
🛩 France will crack down on private jet use. Perhaps Taylor Swift will eventually write a song about becoming a fan of high-speed trains.
🚄 Germany’s ultra-cheap train ticket program was a huge climate success. As Europe enters a brutal winter of energy shortages, be on the lookout for similar programs.
💧China’s heat wave is taking EV infrastructure offline due to a lack of hydropower. The future of mobility will be powered by decentralized energy resources.
🚫 California announced its rules for banning sales of internal combustion-only cars by 2035. It’s going to be a tough sprint for Japanese carmakers to be able to comply with the model year 2026 rules.
🔟 Electric cars now account for 10% of global car sales. Chinese automakers like BYD continue to power forward.
2️⃣0️⃣ Tesla’s plan to sell 20 million EVs in 2030 may be too costly. Reuters claims the factories alone could cost Tesla $400 billion over 8 years. Meanwhile, Mitsubishi Motor’s 1.5 million in annual production capacity is worth an enterprise value of $5 billion, so perhaps Tesla will look at picking up some existing capacity on the cheap.
😬 Toyota belatedly acknowledges California’s emissions standards. GM, Toyota, FiatChysler (now Stellantis), and others made a collective bet during the Trump era that massively backfired. It’s good to see Toyota admit the error.
💨 Honda announced a US battery plant, Toyota grudgingly announced one too, and Hyundai may accelerate the construction of its US EV plant. Most of these plans pre-dated the Inflation Reduction Act (aka the climate bill). Expect a slew of announcements like this over the next year from automakers.
🏁 Retiring Formula One driver Sebastian Vettel criticizes the league for its environmental impact. F1 has a choice: go zero-emissions and compete with Formula E, or morph into a relic like bullfighting.
💸 EV manufacturers who went public via SPAC are desperate for another $9 billion. Half of the companies on this list won’t be with us in one year.
🏭 Foxconn revealed its first production car. This should terrify every car manufacturer.
Tesla’s virtual power plant in California surpasses 50MW. This is the kind of innovation where Tesla is still miles ahead of legacy car manufacturers.
🤔 Uber wants an exemption from congestion pricing in NYC. From the company that mastered surge pricing as a way to manage supply and demand…
🏦 Uber struck a deal with fintech firm Moove to bring 10k EVs to London drivers. Applying fintech to green vehicle access is great, but Uber’s track record on driver programs has been spotty.
🙈 Google started “airbrushing” climate data for flight searches. There’s a lot of transparency missing here.
👯♂️ Google’s Waze unit is shutting down its carpooling service. The economics of shared mobility are generally brutal, even at the scale of Google/Waze.
👩👩👦👦 Rad Power Bike is being sued for ignoring the fact that minors ride their e-bikes. I had no idea until this article that children weren’t supposed to ride e-bikes.
STARTUP WATCH: Sustainable mobility startups (generally pre-seed or seed) to keep an eye on
🚌 AsIsToBe (Norway): Software to increase ridership and optimize cost in public transport
🏍 Leoparda Electric (California, USA): Converting existing motorcycles to electric in Latin America
📲 RouteZero (United Kingdom): Sustainable business travel booking tool
🧑🏽🍳 Sparks Spaces (Texas, USA): Hospitality-focused EV charging network
FUNDING: Capital raises from startups previously featured in Startup Watch
Zerojet (Vol 12) raised a Series A (amount undisclosed) from Movac, K1W1, Investible, and New Zealand Growth Capital Partners
Liefergrün (Vol 24) raised a $12M Series A from Norrsken VC, Speedinvest and eCapital
Bauen (Vol 26) was acquired by Decarbonfuse
Solar Taxi (Vol 27) raised an undisclosed amount from Persistent Energy
DEEP DIVE: The new $7,500 vehicle tax credit in the Climate Bill (aka the Inflation Reduction Act) is a feature, not a bug
Like a lot of folks, I’m still digesting the impact of the Inflation Reduction Act (IRA) and how it will impact the trajectory of sustainable mobility in the US. One of the items I’ve seen criticism around is the new $7,500 vehicle tax credit, notably on the new content provisions. The revised credit will have two $3,750 components:
Component 1 is based on the % of critical minerals in the battery that are extracted or processed in the US or a country with a free-trade agreement with the US.
Component 2 is based on the % of battery manufacturing or assembly in the US or a country with a free-trade agreement with the US
Vehicles meeting one but not both requirements will be limited to a $3,750 credit.
It also introduces a household income cap and a vehicle price cap to counter criticism that the tax credit has been used to date by rich Tesla buyers who didn’t need it anyway.
Critics immediately pointed out that the majority of EVs today would not qualify. The CEO of the Alliance for Automotive Innovation trade group estimates that “50 of the 72 electric, hydrogen or plug-in hybrid models that are sold in the United States wouldn’t meet the requirements.” And that’s likely based on battery manufacturing criteria alone, as the North American critical minerals supply chain is nascent, at best.
The stringency of this new tax credit is a feature, not a bug. A huge portion of the EV value chain sits in Asia today, including R&D and key elements of battery manufacturing (e.g, processing, cell manufacturing, etc). While some of that takes place in countries that are US allies, such as South Korea and Japan, a significant portion takes place in China. Ramping up EV sales in the US without a commensurate increase in the domestic R&D and supply chain would be risking our future.
The structure of the tax credit is beautifully designed to encourage incremental changes in the domestic supply chain between now and 2027. For example, the minerals content requirement for US or free-trade agreement country sources starts at 40% in 2024 and climbs to 80% by the beginning of 2027.
This will unleash a tidal wave of activity within car manufacturers, with billions of sales at risk for OEMs who have trouble mastering these kinds of seismic shifts (e.g, Honda, Toyota) and those who thrive under them (e.g., Stellantis, Hyundai).
The impact will be felt far beyond the car manufacturers, as they enter an arms race to make sure they hit these targets. In particular, be on the lookout for how much this will benefit any startup that is meaningfully engaged in any battery R&D or manufacturing in North America. Any founder in these spaces is likely fielding a lot of inbound inquiries from car companies asking some variant of “how much and by when?”.