Is the U.S. planning to break up the electric car industry’s relationship with China? Find out about the stringent measures being considered to dismantle this partnership and what it could mean for the future of electric cars.
The Biden administration is grappling with decisions that could reshape the future of the American electric vehicle (EV) industry, as it finalizes rules governing the sector. A case in point is Huntsman Corporation’s thwarted attempt to establish a $50 million plant in Texas, illustrating the complexities and high stakes involved.
Huntsman intended to manufacture ethylene carbonate, a crucial component for EV batteries, making it the sole North American producer. However, the influx of Chinese facilities flooded the market, causing a drastic drop in prices. The Biden administration’s imminent rules will determine whether companies can source parts and products from foreign entities, particularly China, for EVs set to receive substantial subsidies.
The proposed rules, expected this week, will shape the landscape for American EV manufacturers seeking tax credits of up to $7,500. Lawmakers, including Senator Joe Manchin III, have inserted language barring tax breaks if critical minerals or battery components are produced by a “foreign entity of concern,” defined as firms subject to the jurisdiction of North Korea, China, Russia, or Iran. However, the details, such as what constitutes a Chinese company and a “battery component,” are left to the administration.
The administration faces a delicate balancing act between enabling a broader choice of affordable EVs and building secure supply chains domestically, reducing dependence on China. The rules will also influence grants for battery factories, giving priority to companies avoiding materials from risky foreign entities.
Automakers, including General Motors and Hyundai, await the guidelines anxiously. The industry is racing to establish U.S.-based battery and processing facilities. While automakers aim to reduce dependency on China, they argue that complete autonomy is years away, as China dominates essential materials and components for EV batteries.
Tesla, a key player in the EV market, has advocated for less restrictive restrictions on foreign entities, suggesting limitations only on major battery parts, not minerals or other components. The potential dilemma is that even vehicles with the majority of parts made in the U.S. might be disqualified from tax credits if a single part originates from China.
Miners and manufacturers of battery materials warn against allowing China to flood the U.S. with cheap components, turning the nation into an assembly point for Chinese-made products. The climate law, aimed at boosting EV manufacturing in the U.S. and allied countries, has stimulated investment in EV and battery factories but not in mines and facilities producing essential battery components.
Until the final rules are issued, some companies are in a holding pattern, wary of potential changes in business calculations. The overarching question remains: how will the U.S. respond to the challenge posed by China’s dominance in the EV supply chain?