The US is limiting China’s ability to profit from the electric car industry
The Biden administration on Friday proposed new rules aimed at shifting more production of electric vehicle batteries and the materials that power them to the United States, in an effort to build a strategic industry now dominated by China .
The rules are intended to limit the role Chinese companies can play in supplying materials for electric vehicles that qualify for federal tax breaks. They will also discourage companies seeking federal funding to build battery factories in the United States from sourcing materials from Chinese partners.
The rules could cause some consternation among automakers, which remain heavily dependent on China for electric vehicle materials and parts. They also face enormous cost pressures as they try to adapt their factories to make electric cars, and China offers some of the most advanced and cheapest battery technology in the world.
The Biden administration is trying to use billions of dollars in new federal funding to change that dynamic and create an American electric vehicle supply chain, both carrots and sticks.
The climate law that President Biden signed in 2022 includes up to $7,500 in tax credits for consumers who buy electric vehicles made in the United States and using largely domestic materials. The law also included a blanket ban on Chinese products. Lawmakers have ruled that companies in China, Russia, North Korea and Iran could be banned from supplying certain materials to cars that received these tax breaks.
But the law left several questions open, including what constitutes a Chinese or Russian company. Government officials said these definitions included any entity incorporated or headquartered in China or Russia, as well as any company in which 25 percent of the board seats or equity stakes were held by Chinese or Russian governments.
The law also requires battery manufacturers that enter into contracts or licensing agreements with Chinese companies to ensure that they retain certain rights to their projects. This provision is intended to ensure that a Chinese company does not effectively control such a project.
Some conservative lawmakers had challenged Ford Motor’s plans to license technology from Chinese battery giant CATL for a factory in Marshall, Michigan, arguing that such a partnership should not qualify for federal tax benefits.
In a letter to the administration in November, Senator Joe Manchin III, the West Virginia Democrat, said urged the Ministry of Finance to adopt the “strictest possible standards” to exclude Chinese companies from the stimulus programs.
The rules will come into effect in 2024 for battery components and in 2025 for critical minerals such as lithium, cobalt and nickel. They will remain open for public comment for several weeks and may be modified depending on industry views.
Auto industry lobbyists have warned that extremely strict regulations could hinder sales of electric vehicles. But General Motors Chief Financial Officer Paul Jacobson said the company has structured its electric vehicle business so it can be successful regardless of federal rules.
“We are not entrenching the company by saying this has to be done” regarding regulations, Mr. Jacobson told reporters on Thursday. If regulations change, he added, “it won’t be a debilitating thing for us.”
The government said it would offer some temporary exemptions until 2026 from strict sourcing requirements for lower-value battery components that are now difficult for carmakers to trace.
Wally Adeyemo, the deputy secretary of the Treasury Department, said in a briefing with reporters that the rules would help advance the administration’s goals of building a U.S. clean energy supply chain while reducing emissions in the transportation sector .
“Automakers have already adjusted their supply chains to ensure buyers qualify for these credits,” he said. “These changes take time, but companies are making the investments and Americans are buying these cars.”
Last year, companies in the United States invested $213 billion in producing and deploying clean energy, clean vehicles, building electrification and carbon management technology, according to research from the Rhodium Group and the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology. That is an increase of 37 percent compared to a year earlier.
Companies are also investing in factories and technologies aimed at developing the materials needed for electric vehicle batteries and other components, including in North Carolina, where several companies are trying to restart the lithium industry.
Eric Norris, president of energy storage at Albemarle Corporation, the world’s largest lithium producer, said in an interview this week that Inflation Reduction Act rules make the lithium his company produces in the United States more valuable.
“You could even argue that the product actually has a higher value compared to products from Asia because it provides a financial benefit that would not otherwise exist,” Mr. Norris said.
Yet the global electric vehicle industry remains strongly anchored in China, the world’s largest producer and exporter of electric vehicles. China produces about two-thirds of the world’s battery cells and refines most of the minerals essential to power an electric vehicle.
John Podesta, a senior White House adviser on clean energy, said Wednesday that China processes the majority of lithium and cobalt, as well as nearly 90 percent of the world’s graphite, “and they are completely outpacing the U.S. and our allies.” in the field of the production of batteries and their components.” But thanks to the government’s investments, he said, “we are rewriting that story.”
China’s dominance of crucial mineral supply chains has raised concerns that Beijing could turn to cut off the United States from materials that are crucial not only for cars, but also for jet engines and ammunition.
Others have raised concerns about poor working conditions, the use of child labor and a poor environmental record of crucial mineral supply chains running through countries such as the Democratic Republic of Congo and Indonesia.
Companies setting up mining, refining and battery-building operations in the United States and related countries would have to hold themselves to much higher labor and environmental standards — and meeting those requirements would come at a cost, said Bryce Crocker, the Australian mining company’s CEO Jervois.
Jervois was in Idaho building what would become the only cobalt mine in the United States. But the company halted construction in March after the global price of cobalt plummeted. Mr. Crocker attributed the collapse to a flood of cobalt produced by Chinese-owned companies heavily subsidized by the state.
Mr Crocker said on Thursday that Treasury regulations could impact his business, but that they were waiting for government guidance.
Battery makers in Japan and South Korea have also anticipated the rules because their supply chains are often closely integrated with China’s.
The rules also appear to ban automakers from sourcing the nickel used in their batteries from Russia, which is one of the world’s largest nickel producers.
One of the challenges for automakers will be developing systems to track all components of their battery through a long and often opaque supply chain.
Todd Malan, chief external affairs officer for Talon Metals, which is seeking approval for a nickel mine in Minnesota, said strict regulations could help prevent “mineral laundering” in which Chinese or Russian minerals would be routed through facilities in friendly countries.
The rules should be enforced through audits and reward clawbacks if companies breach them, and companies should also introduce “know your supplier” systems that can track inputs from mines through to recycling programmes, Mr Malan said.
In its announcement, the Treasury Department said that vehicles that were incorrectly reported would be deducted from an automaker’s eligibility for tax credits, and that automakers that committed fraud or deliberately ignored the rules could be ineligible for the tax credit in the future. credit.