“Chinese Electric Vehicle Suppliers Invest in U.S. Free Trade Partners to Access the American Market”

Table of Contents

Chinese Battery Companies Forge Partnerships with U.S. Free-Trade Allies to Navigate American EV Market Dynamics

"Chinese Electric Vehicle Suppliers Invest in U.S. Free Trade Partners to Access the American Market"

Chinese Battery Companies’ Strategy in the U.S. Market

Chinese battery companies that play a pivotal role in the electric vehicle (EV) industry are embarking on strategic partnerships with U.S. free-trade partners, such as South Korea and Morocco. Their primary goal is to tap into the ever-growing demand in the American EV market while circumventing regulations designed to restrict their access.

Substantial Investments in South Korea

These Chinese businesses, which supply the raw materials essential for EV batteries, have announced a total of nine joint ventures and investments valued at over $4.5 billion in South Korea this year alone, based on a review of stock exchange filings conducted by The Wall Street Journal.

Moroccan Resource Riches

Simultaneously, at least four Chinese firms have disclosed plans to construct battery-related product plants in Morocco. This North African nation possesses a significant share, over 70%, of the world’s known phosphate reserves, a critical raw material for EV batteries.

Capitalizing on Incentives through Strategic Alliances

The motivation behind these collaborations is to enable Chinese suppliers to serve automakers and battery manufacturers that qualify for incentives under the $430 billion Inflation Reduction Act (IRA). The IRA rewards businesses that source materials either domestically or from free-trade partners.

Shifting Landscape under the IRA

The IRA’s upcoming provisions are set to exclude battery content and essential materials from entities considered “foreign entities of concern,” a measure that experts believe aims to minimize China’s involvement in the American EV supply chain.

Strategic Calculations by Chinese Suppliers

Industry analysts suggest that these joint ventures are the Chinese suppliers’ calculated move to ensure their customers can continue to source from them while benefiting from incentives, which offset a significant portion of the average EV’s cost. “The Chinese don’t have much choice,” observes Johan Bracht, a McKinsey analyst.

Not Abandoning the U.S. Market

Pan Hua, Deputy General Manager at GEM, a company based in Shenzhen, China, affirms their commitment to the U.S. market. He notes that the U.S. cannot completely exclude Chinese suppliers from its market because much of the upstream supply chain is concentrated in China.

Key Partnerships and Investments

GEM, for example, declared its intention in March to invest up to $900 million alongside South Korean companies SK On and EcoPro Materials to establish a precursor plant in South Korea by the end of 2024. SK On, a prominent EV battery manufacturer partnered with Ford and Hyundai, plans to build multiple factories in the United States.

Mutual Benefits of Chinese-South Korean Collaboration

South Korean EV suppliers, in turn, derive considerable advantages from collaborating with Chinese firms as it grants them access to crucial materials and expertise in processing. Several Chinese suppliers have explicitly stated that their Korean joint ventures will support their international expansion, with a keen focus on the U.S. and Europe as target markets.

China’s Growing Interest in the U.S. EV Market

Chinese battery companies have long been eyeing expansion in the United States, the world’s second-largest auto market following China. The incentives provided by the IRA have accelerated their entry into the American market. Simultaneously, intense competition and overcapacity challenges in China have motivated these firms to explore opportunities overseas.

Uncertainties Surrounding IRA Regulations

One significant uncertainty in this endeavor is the lack of clear definitions by U.S. authorities regarding what constitutes a “foreign entity of concern” under the IRA. The criteria for acceptable levels of Chinese involvement at various stages of the supply chain for auto and battery producers to qualify for tax credits remain undefined.

Scrutiny and Controversy

The indirect benefits China gains from the IRA have come under scrutiny from American politicians. For instance, Ford recently suspended a $3.5 billion project for manufacturing EV batteries in partnership with Chinese battery giant Contemporary Amperex Technology Co., or CATL, in Michigan, after facing pressure from lawmakers in Washington regarding its Chinese partner.

China’s Dominance in Battery Component Production

Chinese companies are the world’s largest producers of the four essential components for EV battery production: cathodes, anodes, electrolytes, and separators. This dominance presents a challenge for the U.S. and Europe in their efforts to establish an independent EV battery supply chain without China’s involvement, at least in the near future.

Collaboration Amid Global Restrictions

Prominent battery materials suppliers in China, including GEM, Huayou Cobalt, and CNGR Advanced Materials, have been actively pursuing cross-border collaborations. They cite growing global investment restrictions against China as a primary motivation for their cooperative efforts.

Precursors for Cathodes Production

Many of these Chinese partnerships with South Korean and Moroccan firms focus on producing precursors, a mix of metals essential for cathode production, a critical component of batteries. Batteries represent a substantial portion of an EV’s cost, around 40%.

Adaptations in Response to Regulatory Changes

Several companies, including Posco Future M, the Posco subsidiary with Chinese partnerships, anticipate potential challenges in meeting IRA requirements. They are prepared to modify their joint venture agreements to reduce Chinese partner stakes should they fall short of compliance. Additionally, sourcing raw materials from countries like Indonesia, the Philippines, and Australia is a strategy to reduce reliance on China.

Preparing for Regulatory Shifts

Companies like CNGR are considering the sale of shares in their ventures in case of significant legal and policy changes. GEM’s Pan emphasizes the importance of involving overseas partners to mitigate risk, acknowledging that fully disentangling from China’s supply chain is presently unfeasible.

In a dynamic landscape where U.S.-China trade relations and regulatory frameworks are evolving, Chinese battery companies are navigating complex terrain to secure their position in the lucrative American EV market.

Why are Chinese battery companies forming partnerships with South Korea and Morocco in the U.S. EV market?

Chinese battery companies are forming these partnerships to access the growing American EV market while aiming to qualify for incentives provided under the $430 billion Inflation Reduction Act (IRA).

What is the main goal of the IRA in relation to Chinese involvement in the U.S. EV market?

The primary goal of the IRA is to minimize China’s involvement in the American EV supply chain.

How much are Chinese suppliers investing in South Korea and Morocco for EV production?

Chinese suppliers have invested more than $4.5 billion in South Korea and are planning to build battery-related facilities in Morocco.

What regulatory challenges do these Chinese suppliers face in the U.S.?

One key challenge is the lack of clear definitions for what constitutes a “foreign entity of concern” under the IRA, creating regulatory uncertainties.

Why is China’s dominance in EV battery component production significant for the U.S. and Europe?

China’s dominance makes it challenging for the U.S. and Europe to establish independent EV battery supply chains, given their reliance on Chinese-made components.

Why are Chinese companies actively pursuing cross-border collaborations?

Growing global investment restrictions against China are driving Chinese companies to seek collaborative efforts with international partners.

What is the focus of many of these Chinese partnerships with South Korean and Moroccan firms?

Many of these partnerships are focused on producing precursors for cathodes, which are costly components of EV batteries.

How are these companies preparing to adapt to regulatory changes in the U.S.?

Companies are considering measures such as reducing Chinese partner stakes and diversifying their material sources to meet evolving regulatory requirements.

What challenges do Chinese battery companies face in their endeavors in the American market?

They face uncertainties related to U.S.-China trade relations, evolving regulations, and shifting political landscapes.

What is the overarching strategy of Chinese battery companies in the U.S. EV market?

Chinese battery companies are strategically forming partnerships and investments to ensure their presence in the lucrative American EV market while navigating complex regulatory environments.

Leave a comment