Semiconductors have in recent years become central to US efforts to block China’s technological progress. Now Washington is turning its sights on another hot tech area where China is making big strides: batteries for electric vehicles.
Earlier this month, the Ministries of Finance and Energy suggested rules that would limit electric vehicle buyers from claiming tax credits if their cars contain battery materials from China and other countries deemed “hostile” to the U.S. Under President Joe Biden’s signature climate change law passed last year, consumers are eligible for subsidies of up to $7,500 purchases of electric vehicles manufactured in the US using mostly domestic materials.
In response, China’s Ministry of Commerce shot back last week, saying the US rules “discriminate against Chinese companies and violate WTO rules.” Excluding Chinese suppliers from US tax benefits is a “routine non-market-oriented policy and practice,” the ministry said.
The rules, aimed at reducing U.S. reliance on Chinese supply chains in a new era of decoupling, are likely to hamper Biden’s efforts to increase sales of electric vehicles as part of the President’s plan to halve his greenhouse gas emissions greenhouse gases warming the planet by 2030.
Also at stake is the U.S. goal of curbing China’s dominance in a fast-growing sector fueled by the country’s shift to electric vehicles. CATL and BYD, two of China’s biggest battery makers, together accounted for about 53% of global EV battery use for the first ten months of this year, according to data from SNE research.
As of the third quarter of this year, China is the world’s largest electric vehicle market with a 58% share, followed by the US and Germany, according to a research firm Counterpoint.
South Korean giants such as LG, Samsung and SK On provide competitive alternatives to China’s cheap and advanced batteries and are likely to benefit from the deterioration of US-China relations. But even Korean companies are unsettled by the new geopolitical complications.
Although SK On has been tapped by both Ford and Hyundai to build US battery designs, parent SK Group chairman Chey Tae-won recently accused US to keep battery costs high. The battery arm of the Korean chaebol is now forced to look elsewhere for non-Chinese materials. China owns much of the global supply chain for EV batteriesfrom rare mineral mining, refining to cell production.
To maintain their cost appeal, Chinese battery companies are asking to set up factories in America that will continue to qualify their buyers for the EV tax credit. Industry giants such as Gotion, BYD and CATL have made strategic plans to manufacture in the US, although their journey is not without obstacles. Ford, for example, has temporarily halted plans to build a $3.5 billion EV battery plant with CATL in Michigan as US politicians scrutinize its deal with the Chinese company.
