Automakers are trying to thwart US efforts to cut China out of the electric vehicle supply chain

The world’s largest automakers are trying to ease efforts by the Biden administration to replace Chinese components with American ones in electric vehicles, as the industry grapples with dependence on battery materials processed abroad.

President Joe Biden’s groundbreaking climate law, the Downsizing Act, offers generous tax credits for electric vehicles made in North America. The new rules regarding the origin of batteries, their components and the important metals that make them up will come into force in phases starting in 2024.

Starting that year, to qualify for the maximum $7,500 tax credit available under the new law, EVs must not contain any battery components that were manufactured or assembled “by a relevant foreign entity” — a reference to China, Russia, Iran and North Korea. In 2025, these batteries must exclude critical metals mined, processed, or recycled in the same countries.

However, automakers still rely heavily on metals processed in China, and they worry they will lose customers for any car that doesn’t make the US government $7,500 cheaper. While automakers initially welcomed the new law, the companies and their trade groups have been pushing for a relaxation of rules on what is considered a Chinese-owned company, with some calling for a small amount of Chinese content to continue to be allowed.

“As our industry localizes our supply chain, clarity and guidance on what may constitute a ‘foreign entity of concern’ is necessary to ensure that projects involved in the extraction, processing or recycling of critical minerals do not cause compounds to be automatically disqualified. [from the tax credit]said Christopher Smith, Ford’s chief government affairs officer. Likewise, clear guidance on the scope of ownership is essential.

Ford, Stelantis and Volkswagen are among the automakers asking regulators to set a limit allowing a small amount of Chinese content in batteries. Volkswagen suggested setting it at 10 percent or less.

Ford also wants to avoid designating a “relevant foreign entity” for any company organized in the United States, regardless of ownership, and for joint ventures belonging to blacklisted countries. The Michigan automaker said in July that CATL, a Chinese battery maker, will provide batteries for next year’s Mustang Mach-E and for the F-150 Lightning truck in 2024. The two companies have signed a non-binding memorandum to explore further. Expand the relationship.

China has invested in mining important minerals around the world over the past decade, said Kristin Dziczek, an auto policy expert at the Federal Reserve in Chicago. While mineral deposits are mined where they are discovered, the International Energy Agency reports that China controls processing of 35 percent of the world’s nickel, half of the lithium, 60 percent of the cobalt, and 90 percent of the rare earth elements.

Production throughout the electric vehicle battery supply chain is concentrated in a handful of companies, with Chinese companies dominating the manufacture of cathodes and anodes, both essential components of batteries.

A recent IEA analysis found that seven companies were responsible for more than half of global cathode production, and two of the three largest were Chinese.

The IEA said the six largest manufacturers of anodes, another important component of batteries, are Chinese and account for two-thirds of global production capacity.

Dzicek said the country’s dominance means that for automakers “turning on a dime to not use any is going to be tough.”

But representatives of US suppliers are keen to hasten the day when China’s role in the battery industry is reduced. Allowing Chinese content through “today’s loopholes” would have “long-term ramifications for the supply chain,” said Ben Steinberg of Finn Strategies, a Washington lobbying firm that represents US battery manufacturers and important metal miners.

“The North American industry is interested in setting up shop in our country, and we need to give them every opportunity to do so,” Steinberg said.

Automakers, suppliers and environmental groups have until the end of the year to pressure the Internal Revenue Service, which plans to release final rules at that time. The stakes in the conflict over “vague accounting rules” are high, said Sam Aboulsamid, an analyst at Guidehouse Insights, because automakers “want to be able to make electric cars as affordable as possible, so they can sell as many of them as possible.”

Ultimately, the US auto industry wants to reconfigure its supply chain, Aboul Samed said, in order to avoid the supply disruptions that have plagued it since last year. She just doesn’t want to move as quickly as the IRS requires.

“It’s very difficult to separate China from this supply chain,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “In order to do that, you have to use policy tools that we haven’t thought of using before.”

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *