US is debating whether to cut the electric car industry’s ties with China
The Biden administration has been trying to jump-start the domestic supply chain for electric vehicles so that cleaner cars can be made in the United States.
But the experience of a Texas company whose plans to help make an all-American electric vehicle were undermined by China underlines the stakes at stake as the administration finalizes regulations for the sector.
Huntsman Corporation began construction two years ago on a $50 million plant in Texas to produce ethylene carbonate, a chemical used in electric car batteries. It would have been the only location in North America making the product, aiming to power battery factories that would spring up to serve the electric vehicle market.
But as new facilities came online in China and flooded the market, the price of the chemical fell from $4,000 to $700 per tonne. After pumping $30 million into the project, the company stopped work this year. “If we started the project today, we would lose a lot of money,” said Peter R. Huntsman, the company’s CEO. “I would basically pay people to take the product.”
The Biden administration is now finalizing rules that will help determine whether companies like Huntsman will find it profitable enough to participate in the U.S. electric car industry. The rules, expected to be proposed this week, will determine the extent to which foreign companies, especially in China, can supply parts and products for U.S.-made vehicles that will receive billions of dollars in subsidies.
The government is offering up to $7,500 in tax breaks to Americans who buy electric vehicles in an effort to boost the industry and reduce the country’s carbon emissions. The rules will determine whether electric vehicle makers that want to take advantage of that program will have the flexibility to source cheap parts from China, or whether they will instead have to buy more expensive products from U.S.-based companies like Huntsman.
The lawmakers who wrote the climate bill, including Sen. Joe Manchin III, the West Virginia Democrat, have used language that would prohibit an electric car from qualifying for tax breaks if the crucial minerals or other components used in the battery are made by ‘a foreign entity’. of care.” Lawmakers defined this as any company owned, controlled or subject to the jurisdiction of North Korea, China, Russia or Iran.
But they left it up to the Biden administration to fill in the details, including key questions like what is a Chinese company and what product qualifies as a “battery component.”
The administration faces a difficult calculation with the new rules. If this allows more companies to qualify for the benefits, Americans will have a wider selection of low-cost electric vehicles to choose from. That would put more clean cars on the road and help combat climate change. It could also help shore up the finances of U.S. automakers that are losing big on electric vehicle production.
But such a path could undermine the administration’s other priority: building safer supply chains for electric vehicles. The administration has sought to use the climate law to boost production of electric vehicles and their parts in the United States and allied countries, and reduce dependence on China, which dominates global markets for electric vehicles and their batteries.
The attempt to balance these concerns has ignited a battle between automakers and parts makers, American miners and labor unions.
Car manufacturers are eagerly awaiting the guidelines.
Automakers such as General Motors and Hyundai, spurred by the new climate law, are rushing to build factories in the United States to produce batteries and process materials such as lithium. But it will still be years before they can produce an electric vehicle without materials and components from China, auto industry representatives say.
China dominates the production of materials, such as graphite and processed lithium, that are essential for the flow of electricity in a battery, and for the cathodes and anodes, the basic building blocks of a battery. Thanks to both formidable government subsidies and enormous economies of scale, Chinese companies are now selling some of the world’s most advanced electric vehicles and the parts used to make them at much lower prices than competitors in other countries.
Automakers are also under great pressure to keep costs down by buying from the cheapest suppliers. Ford Motor lost $1.3 billion on electric vehicles in the third quarter, the company said last month, meaning a loss of $36,000 on every car sold.
In June, Tesla, which sources key components from China, submitted comments to the government arguing that the coming restrictions on foreign entities should be less restrictive. Restrictions on foreign purchases should be limited to key battery components, such as the cathode and anode, and not the various minerals or other components used to make them, Tesla suggested.
In the worst case scenario, says Albert Gore III, executive director of the Zero Emission Transportation Association, “you could have vehicles made in the U.S., with the vast majority of parts coming from the U.S., which could be excluded from the tax credit because of a only part comes from China.” Mr Gore, whose organization counts both Tesla and battery makers as members, said he expected the government to strike a balance.
Miners and other makers of battery materials and components, on the other hand, say allowing China to supply cheap parts could open the United States to a flood of foreign products. That would leave the United States as just a staging post for Chinese-made technology and products, leaving the U.S. economy deeply vulnerable, they say.
So far, the climate law appears to have done more to spur investment in factories to make electric vehicles and their batteries than in the mines and facilities that produce the minerals, chemicals and smaller components that go into the battery itself.
In fact, the only planned cobalt mine in the United States is temporarily owned by Jervois in Idaho closed this year. The company blamed cratering prices caused by a new flow of material produced by China. Jervois a number of exploratory drillings have been resumed this fall, thanks to new funding from the Department of Defense.
Until the final rules are issued, some companies have halted plans for new U.S. investments, aware that their business calculations could change significantly in the coming months.
“You’re seeing a bit of a holding pattern until the final guidance is released by the administration,” said Abigail Seadler Wulf, vice president and director of critical minerals strategy at Securing America’s Future Energy, a nonprofit organization.
Mr Huntsman said there was no point in further investing in the company’s Texas project unless the government restricted the use of Chinese materials. He said the Chinese government heavily subsidizes the production of ethylene carbonate, allowing Chinese companies, which account for 90 percent of global production of the chemical, to sell it so cheaply.
“The question really is: how does the United States want to respond to this?” he asked.
Alan Rappeport reporting contributed.