Tesla (TSLA) and Li-Cycle (LICY): Battery makers leverage IRA benefits

The Inflation Reduction Act (IRA) provides production tax credits to US battery manufacturers that produce batteries with locally sourced materials. Electric vehicle (EV) manufacturer Tesla (NASDAQ: TSLA) and battery recycling company Li-Cycle Holdings Corp. (NYSE: LICY) are two such companies ready to benefit from the IRA.

Battery manufacturers and battery recycling take center stage

Ongoing supply chain issues and raw material scarcity, combined with rising battery supply costs, have forced electric vehicle makers to slow down their manufacturing operations.

So, EV manufacturers are setting up their own battery manufacturing facilities to cut costs. Likewise, due to the scarcity of materials, companies are turning to battery recycling as an alternative. These companies break down old, used lithium-ion batteries, undertake chemical processes, and turn them into usable parts for new batteries.

According to a WSJ report, automaker Jaguar Land Rover and South Korean conglomerate SK Group are investing $300 million in battery startup Ascend Elements.

Tesla seeks to take advantage of electric vehicle battery tax credits

One of the world’s largest electric vehicle manufacturers, Tesla (TSLA), is rerouting its cell-making equipment from Germany to the United States in a bid to take advantage of tax credits available to manufacturers of electric vehicle batteries. According to a WSJ report, Tesla is reconsidering its plans to produce its batteries in Germany. Instead, the automaker is focusing on manufacturing cells domestically and taking advantage of tax credits.

Analysts estimate that local manufacturing and packaging of battery cells will save up to a third of electric vehicle battery costs. Tesla is reportedly looking for a site in Texas to refine lithium, one of the most important components in batteries.

A report by Bernstein Research shows that a 75 kilowatt-hour battery, which is used in Tesla’s Model Y, could reduce production costs by 40% if the batteries are produced locally.

Is Tesla a good stock to buy?

Wall Street analysts are cautiously optimistic about Tesla. On TipRanks, TSLA stock has a Moderate Buy consensus rating based on 19 buys, six holds, and five sells. Tesla’s average price target of $309.38 implies upside potential of 2.2% from current levels. Meanwhile, the stock has lost 24.3% so far this year.

Li-Cycle will soon gain traction

Li-Cycle Holdings is committed to a sustainable process of recovering critical materials from all types of lithium-ion batteries. The Toronto-based company listed on the NYSE in 2021 through a merger with a special purpose acquisition company (SPAC). The company has recycling sites in Arizona, New York and Ontario, and plans to expand to Germany, Norway, Ohio and Rochester.

Is LICY Stock a good buy?

On TipRanks, LICY stock has a Moderate Buy consensus rating. This is based on buy two for two take. Li-Cycle Holdings’ mid-price forecast of $9.75 implies upside potential of 45.1% from current levels. Meanwhile, the stock has lost 33.3% so far this year.

end thoughts

The IRA seeks to boost EV adoption by offering up to $7,500 in tax credits for new EVs and $4,000 for used EVs, helping families save $950 per year. The US government is also seeking to incentivize companies to reduce their dependence on China and other countries for materials while stimulating local demand.

Battery manufacturing and recycling is a relatively new area involving high costs. Additionally, the limited availability of old batteries poses a challenge to increasing production. Nevertheless, the United States is rapidly moving towards electrification and presenting advantages for players at every stage of the chain.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.