If you want to see how policy shapes the real economy, watch where factories get built.
Since the Inflation Reduction Act introduced the Advanced Manufacturing Production Credit under Section 45X, boardrooms from Seoul to Stuttgart have been running the numbers. And now, with the final regulations published by the Department of Treasury and the IRS in October 2024, the picture is sharper. The rules are clearer. The guardrails are firmer. The incentives are measurable.
This is not abstract tax policy anymore. It is a location strategy lever.
Let’s unpack how.
Domestic production is not optional
The final regulations confirmed something that matters deeply for global manufacturers. Eligible components must be produced within the United States (including U.S. territories) to qualify. There is no wiggle room on that point. The solar cell, the battery module, the wind turbine component, the critical mineral processing step. Production has to happen domestically.
That requirement alone is reshaping site selection models.
Previously, a company might have split operations. Raw processing abroad, intermediate manufacturing in Asia, final assembly in the U.S. Under 45X, that calculus shifts. If the substantial transformation required to treat the component as produced by the taxpayer occurs outside the U.S., the credit is not available. And for high-volume components, the per-unit credits are meaningful enough to swing internal rate of return projections.
At the same time, the regulations are careful. Constituent elements and subcomponents do not have to be domestically produced. That nuance matters. A battery manufacturer can still source certain materials globally, but the eligible component itself must be produced in the U.S. to unlock the credit.
In other words, the value capture point becomes strategic.
“Minor assembly” draws a line in the sand
One of the more telling changes in the final rules was replacing “mere assembly” with “minor assembly.” It sounds semantic. It is not.
The Treasury recognized that some eligible components, like solar modules or battery modules, are fundamentally assemblies. You cannot disqualify them simply because they involve putting parts together. So the focus shifts to whether the activity represents substantial transformation rather than superficial finishing work.
Why does that matter for location decisions?
Because multinational groups often structure production chains across jurisdictions. If the U.S. facility only performs minor assembly after a substantial transformation occurred elsewhere, that U.S. entity may not qualify as the producer. And if it does not qualify, the credit is off the table.
Now imagine you are deciding whether to invest $500 million in a new module facility. The difference between qualifying production and minor assembly is not academic. It affects projected cash flows for years.
So companies are rethinking where transformation occurs. Some are pulling more of the value-add steps into U.S. plants to ensure they cross the substantial transformation threshold. That is not patriotism. That is math.
Material costs and critical minerals shift upstream strategy
Another pivotal development in the final regulations relates to production costs for critical minerals and electrode active materials.
The proposed rules excluded material costs tied to extraction and acquisition. The final regulations reversed course in part. If extraction costs are incurred by the taxpayer in the U.S. or its territories, they can be included as production costs. Even acquired raw materials may count under Section 263A principles, subject to anti-duplication safeguards.
That clarification changes upstream investment logic.
Consider a company evaluating whether to extract and refine lithium domestically or import refined material from abroad. Under the revised framework, domestic extraction costs can feed into the 45X credit calculation. That improves economics for U.S.-based mining and processing facilities.
But there is a catch. If you purchase materials that are already eligible components, you cannot double-dip. The rules prevent multiple-crediting along the chain. And to include material costs, taxpayers must obtain sufficient supplier documentation to substantiate that no other taxpayer has claimed a 45X credit for the same materials.
This documentation requirement is not light. It demands supply chain visibility, contractual alignment, and compliance infrastructure. In global manufacturing networks, that is not trivial.
So location decisions are no longer just about labor and logistics. They are about audit readiness.
Contract manufacturing just got more strategic
Global manufacturing often relies on contract manufacturing arrangements. The final regulations address this head-on.
They clarify that in a contract manufacturing structure, the determination of which party’s tangible property constitutes the 45X facility applies regardless of which party claims the credit. There is even a special rule allowing the parties to agree on who will claim it.
That flexibility can be powerful.
Picture a foreign parent with U.S. operations that relies on a third-party manufacturer. Structuring the arrangement properly could determine whether the credit lands with the brand owner or the manufacturer. In capital-intensive sectors, that allocation can influence where the physical facility sits.
If the credit meaningfully enhances after-tax returns, parties may prefer to site production in the U.S. and negotiate economics around the credit. Conversely, poorly structured agreements could inadvertently disqualify both parties.
The absence of a broad safe harbor means companies must tread carefully. Which, again, feeds into location and structuring strategy.
45X versus 48C and the facility question
The interplay between 45X and the Section 48C advanced energy project credit is another strategic dimension.
The final rules simplify the definition of a 45X facility by focusing on independently functioning tangible property necessary to produce the eligible component. Importantly, subcomponents manufactured at a separate 48C facility do not automatically disqualify eligibility for 45X, provided statutory anti-duplication rules are respected.
For multinational companies, this opens structuring possibilities.
You might have one facility modernized under 48C incentives, producing subcomponents, and another facility claiming 45X for the final eligible component. The ability to layer incentives, within statutory boundaries, influences where to upgrade, where to expand, and where to consolidate.
The geographic chessboard gets more interesting.
A strategic inflection point
Stepping back, 45X does something powerful. It links tax policy directly to manufacturing geography.
It rewards production, not just installation. It targets tangible output. It ties credit eligibility to substantial transformation within U.S. borders.
For executives weighing whether to greenlight a new battery facility in Nevada or expand capacity overseas, the question is no longer simply about labor arbitrage or proximity to ports. It is about where value is created, how it is documented, and whether the structure withstands regulatory scrutiny.
If you are advising on global manufacturing strategy today, you cannot treat 45X as a footnote. It is a structural variable.
And here is the real question to consider. In five years, when we look at the map of clean energy manufacturing, how many of those pins will trace back to a line in the Federal Register published in October 2024?
Policy does not build factories on its own. But it can tip the balance. Right now, 45X is doing exactly that.
