[Insight] Battery Industry Changes Triggered by the One Big Beautiful Bill Act (OBBBA)

Matthew Deng
Sep 9
7 min read

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA), significantly reducing clean energy subsidies established under the Biden administration’s Inflation Reduction Act (IRA). This legislation profoundly impacts U.S. battery market demand and supply chains.

This article is the first in a series analyzing U.S. policy shifts. Here, we focus on the policy changes introduced by OBBBA. In the next part, we will analyze its impact on various segments of the battery supply chain in conjunction with tariff dynamics.

Disruptive Adjustments to U.S. Battery Value Chain Policies

Compared to the Senate (June 16) and House (May 22) drafts, the final version of OBBBA includes minor adjustments. While slightly more lenient than the drafts, it fundamentally overturns the IRA’s subsidy framework. Notably, the $7,500 per electric vehicle (EV) purchase subsidy (30D) will end after September 30, 2025—three months earlier than proposed in the House draft.

Although EV purchase subsidies are eliminated, the eligibility criteria tied to Foreign Entities of Concern (FEOC) have been retained and expanded into a broader Prohibited Foreign Entity (PFE) framework, incorporated into the assessment standards for a wider range of clean energy subsidies.

This article focuses on two tax credit provisions with the greatest impact on the battery value chain:

Section 45X – Advanced Manufacturing Production Credit (AMPC): Provides up to $35 per kWh for eligible U.S.-based battery manufacturers, with an additional $10 per kWh for locally produced modules.
Section 48E – Investment Tax Credit (ITC): Offers up to 30% of project costs for qualifying energy storage and clean energy projects, with an additional 10% for projects meeting specific domestic content requirements.

CRU’s Core Insights on OBBBA

Termination of EV Subsidies: The $7,500 per EV purchase subsidy (30D) will end after September 30, 2025. While battery production (45X) and energy storage investment (48E) subsidies are retained, new constraints—Prohibited Foreign Entity (PFE) and Material Assistance Cost Ratio (MACR)—aim to reduce Chinese companies’ involvement in U.S. battery and storage project investments and supply chains.
Upstream Raw Materials: The bill temporarily relaxes restrictions on using Chinese critical minerals for U.S. battery and storage companies in the short term but mandates gradual decoupling from Chinese entities in the long term, limiting full reliance on Chinese raw materials.
Impact on Chinese Companies: Most Chinese firms directly investing in the U.S., classified as PFEs, will be ineligible for 45X AMPC subsidies.
Technology Licensing Agreements: Battery projects involving pre-existing technology licensing agreements with Chinese firms (e.g., CATL and Ford) remain eligible for 45X subsidies, but new agreements may lead to subsidy disqualification.
Stricter Energy Storage Subsidies: Projects not commencing construction or substantial investment by December 31, 2025, will face stricter MACR requirements, making 48E tax credits harder to obtain post-2026.

New Standards for Subsidy Eligibility

Prohibited Foreign Entity (PFE) Framework

The PFE framework evolves from the IRA’s 30D FEOC restrictions, expanding and refining its scope with a two-tier structure: Specific Foreign Entity (SFE) and Foreign Influenced Entity (FIE). This framework broadens scrutiny, allowing U.S. regulators to assess subsidy eligibility based on equity stakes, debt holdings, technology licensing, and operational control (e.g., appointing key roles like CEOs).

Most Chinese firms investing directly in the U.S., previously flagged by regulators, will be classified as SFEs and lose eligibility for 45X AMPC subsidies.

A key difference between IRA’s FEOC and OBBBA’s PFE lies in supply chain scrutiny:

IRA’s FEOC: Adopted a one-strike rule, where even minimal involvement of an FEOC supplier disqualified 30D EV tax credits. While enforcement allowed some flexibility for hard-to-decouple materials, it significantly impacted Chinese firms’ overseas sales.
OBBBA’s PFE: Avoids a one-strike approach, focusing on “control.” PFE suppliers can participate in battery or storage projects as long as they do not influence operations, decision-making, or key appointments. This “limited coexistence” reflects a pragmatic acknowledgment that fully decoupling from Chinese supply chains is challenging.

Material Assistance Cost Ratio (MACR)

Under the “limited coexistence” mechanism, MACR sets a ceiling on PFE supply chain involvement, serving as a critical threshold for 45X and 48E subsidy eligibility. Contrary to its name, MACR measures the proportion of compliant (non-PFE) direct material costs (for 45X) or facility costs (for 48E), with escalating requirements over time.

Note: The calculation formula is simplified in the referenced figure for reader understanding.

OBBBA sets different MACR thresholds based on subsidy type. The table below summarizes the requirements for 45X (applicable to critical mineral and battery component factories) and 48E (applicable to energy storage projects):

The most notable feature in 45X subsidy eligibility is that MACR requirements for critical mineral sourcing are more lenient than FEOC rules. Until the end of 2029, the MACR requirement for critical minerals is reduced to 0%, meaning U.S. battery manufacturers can freely use PFE-sourced minerals (e.g., lithium salts, nickel sulfate, cobalt sulfate) without affecting subsidy eligibility. From 2030, the compliance requirement rises to 25%, reaching 50% by 2033.

In contrast, IRA’s 30D FEOC rules were far stricter, requiring EV manufacturers to prove 50% compliant critical minerals by 2024 to qualify for subsidies.

Additionally, due to the rushed legislative process, OBBBA temporarily adopts a bundled value-based calculation method (based on total material value) to assess the compliance value ratio of critical metals and battery components. This approach grants manufacturers flexibility to prioritize compliant supplies of high-value materials (e.g., lithium, nickel) to offset lower-value materials harder to source non-PFE (e.g., manganese, graphite).

However, OBBBA’s fine print lays the groundwork for future tightening: the U.S. Treasury and IRS must establish updated MACR thresholds for each critical mineral by December 31, 2027. Thus, compliance requirements may increase from 2028, introducing significant uncertainty for manufacturers, with the relaxed critical mineral requirements lasting at most two years.

Disqualification Triggers and Exemptions

OBBBA outlines three triggers for disqualifying 45X and 48E subsidies:

PFE directly owns or controls the project.
PFE indirectly gains operational control via technology licensing or financial agreements.
MACR thresholds are not met.

To mitigate impacts on existing contracts, OBBBA includes key exemptions, summarized in the referenced figure:

Exemption 1: Pre-Existing Technology Licensing AgreementsAgreements signed before July 4, 2025 (e.g., CATL-Ford’s LFP battery licensing) are exempt from PFE scrutiny if unchanged, protecting existing Chinese-U.S. collaborations despite potential “effective control” risks under the new rules.
Exemption 2: Pre-Existing Supply ContractsRaw material contracts signed before June 16, 2025, are exempt from MACR scrutiny under conditions:
- For battery manufacturers: Materials must be used or sold in downstream products by January 1, 2027.
- For storage developers: Materials or equipment must be used or sold by January 1, 2030.
Exemption 3: Storage Projects Starting Before 2025OBBBA uses the project commencement date, not the draft’s operational date, to determine MACR scrutiny. Projects starting construction by December 31, 2025, are exempt from MACR requirements. From January 1, 2026, projects must meet escalating MACR thresholds (55% in 2026, 75% by 2030).“Commencement” is defined by IRS standards:
- Physical Work Test: Tangible construction progress (on-site or off-site, e.g., custom component production).
- 5% Test: 5% of total project costs incurred via binding contracts or payments.

According to CRU’s energy storage cost model, in 2025, LFP battery packs imported from China account for over 60% of U.S. storage project costs, leaving non-PFE costs at 40%—below the 55% MACR threshold for 2026. As storage system integrators will continue to rely heavily on Chinese imports in the short term, U.S. storage developers are likely to accelerate construction starts to secure exemptions.

Market Reactions Post-OBBBA

Short-Term Dynamics

Despite relaxed MACR requirements for critical minerals until 2029 and the removal of FEOC’s one-strike rule, U.S. manufacturers are unlikely to heavily rely on Chinese supply chains due to uncertainties:

Supply Chain Traceability: It remains unclear whether MACR calculations cover only tier-1 suppliers (e.g., cathode materials) or extend to upstream inputs (e.g., precursors, lithium salts).
Future PFE Inclusion: Will PFE-sourced critical minerals be included in battery component MACR calculations from 2027?
Component-Level Assessments: Will cathodes, anodes, etc., face separate MACR evaluations?

To maintain subsidy eligibility, battery manufacturers are actively seeking policy clarifications and adopting a wait-and-see approach. U.S. automakers face dual pressures: reducing costs due to subsidy cuts and tariff hikes while ensuring supply chain compliance. The temporary exemptions and relaxed standards make a significant return to Chinese suppliers unlikely in the short term.

Mid-Term Trends

Balancing Cost and Risk: Manufacturers will prioritize production in cost-competitive, geopolitically stable locations like Morocco and Indonesia.
Chinese Firms’ Adjustments: Chinese companies may reduce PFE risks through equity restructuring. For example, GEM Co. plans to lower its stake in an Indonesian precursor project, introducing external investors and relinquishing operational control to meet PFE requirements.
Korean Firms’ Compliance: Korean battery makers like SK On are securing non-PFE supply chains, e.g., partnering with EcoPro for local lithium hydroxide over the next two to three years.
LFP Technology Licensing Scrutiny: Beyond OBBBA’s PFE restrictions, China has added high-density LFP cathode preparation technology to its export restriction list, potentially limiting overseas LFP cathode expansion. Currently, only one Chinese-owned LFP cathode plant operates overseas—PT LBM in Indonesia, majority-owned by Longpan Technology, which has scaled production and exports to the U.S.
Storage Project “Rush to Start”: U.S. storage developers are accelerating battery procurement to meet “commencement” criteria and secure 48E ITC exemptions, driving a surge in Chinese LFP battery exports since July 2025.

Although LFP battery production technology exports are not restricted, China’s intent to retain core battery intellectual property is clear. Chinese LFP battery manufacturers will remain cautious about signing new licensing agreements with U.S. firms while pursuing overseas market opportunities.

The “rush to start” storage projects has spurred an LFP export boom. U.S. storage developers are preemptively procuring batteries to meet “commencement” criteria and secure exemptions, avoiding escalating MACR threshold scrutiny. Meanwhile, major Chinese LFP battery producers have significantly increased production schedules since July, fueling a new wave of export surges aligned with U.S. developers’ efforts to meet year-end exemption deadlines.

Conclusion and Navigating the Future with Kada Energy

The OBBBA introduces significant shifts in the U.S. battery and energy storage landscape, balancing short-term flexibility with long-term decoupling from Chinese supply chains. While exemptions and relaxed MACR thresholds offer temporary relief, the evolving PFE framework and stricter future requirements pose challenges for manufacturers and developers. Companies must strategically adapt to maintain compliance while optimizing costs in a rapidly changing regulatory environment.

At REBIO GROUP, our Kada Energy division is dedicated to empowering businesses to navigate these complexities. We provide innovative solutions for sustainable battery production and energy storage, ensuring compliance with global regulations while maximizing efficiency. Visit Kada Energy to explore how we can support your transition to a resilient and compliant energy future.