U.S. News: EV Rules Leave Room for Chinese Suppliers

"The Biden administration is moving to jolt the domestic electric-car industry out of its reliance on China. But much-awaited rules released Friday appear to leave some room for U.S. companies to work with Chinese partners.

The new requirements will likely reduce the number of electric-vehicle models that consumers can buy and qualify for a $7,500 tax credit. How many vehicles are eligible will hinge on automakers' ability to build cars that comply with the rules.

At issue is a new requirement that Americans can't claim the subsidy for buying any electric vehicle that contains battery materials produced by a "foreign entity of concern." The administration said Friday the definition would cover any firm based in China, including subsidiaries of U.S. companies, as well as companies elsewhere that are 25% or more controlled by Chinese state entities.

 Other arrangements that involve Chinese companies, such as licensing technology, might be permissible under the rules, officials said.

The decision could come as a relief to some automakers that already have relationships with industry-leading Chinese battery companies or were considering such ties. But it will likely frustrate lawmakers who wanted to see the U.S. auto industry severed from Chinese suppliers, the dominant source of minerals and components that power electric vehicles.

Biden administration officials declined to comment on whether specific companies' plans would meet the new definitions. Ford Motor has a lot at stake, lobbying the administration in recent months to allow technology-licensing deals, such as its agreement with the Chinese battery maker Contemporary Amperex Technology Co. Ltd., also known as CATL, under the subsidy rules.

Congress included a series of changes to the electric-vehicle buying subsidy in the Inflation Reduction Act and directed the Biden administration to work out the details of how to implement them. The Treasury Department has already narrowed the list of models that consumers can buy and claim the full $7,500 tax credit, based on other requirements in the law. For example, to get the credit, electric vehicles can't cost more than $80,000 for a van, pickup truck, or sport utility vehicle, or $55,000 for any other vehicle.

Officials worked for months to define a foreign entity of concern under the battery provision, trying to balance their goals of making EVs cheaper, to bring down carbon emissions, with reducing reliance on China.

Some Biden administration officials worried that interpreting a foreign entity of concern too strictly could make the tax credit impossible for consumers to claim. Officials have also sought to compel companies to make a serious effort to move supply chains out of China.

"Overdependence, including on China, makes America more vulnerable to risks that disrupt our access to that foreign production, from natural disasters, to macroeconomic forces, to deliberate actions such as economic coercion," Treasury Secretary Janet Yellen said Thursday while visiting Livent, a lithium company, in North Carolina.

Sen. Joe Manchin (D., W.Va.), the key author of the Inflation Reduction Act, blasted the administration's decision Friday, arguing it didn't go far enough to push automakers to move supply chains from China. He said he would seek to force Treasury to change the rules, such as by supporting lawsuits that might emerge opposing them.

The rules, which also cover Iran, North Korea and Russia, apply to battery components starting in 2024 and the minerals that go into them in 2025. The proposals issued Friday by the Treasury and Energy departments will be released for public comment and could change. Treasury plans to phase in enforcement.

"We appreciate the clarity today's guidance provides and the flexibility it creates for automakers," said Jennifer Safavian, president and chief executive of Autos Drive America, a trade group representing German, South Korean and Japanese car companies. A spokeswoman for General Motors said "we believe GM is well positioned to maintain the consumer purchase incentive for many of our EVs in 2024 and beyond."

When the rules fully take effect, EVs that contain battery materials produced in China won't be eligible for the car-buying subsidy. Even U.S. automakers with factories in China, such as Tesla, won't be able to import their materials for electric vehicles sold in the U.S. and remain eligible for the consumer subsidy, officials said.

While that approach will limit options for procuring minerals and components to manufacture electric vehicles eligible for the subsidy, car manufacturers had largely expected it.

A more-complicated question had been whether Chinese companies operating in the U.S. or in mineral-rich countries such as Morocco and Indonesia could play a part in the supply chain for electric vehicles that qualify for the subsidy.

Administration officials said such Chinese companies would comply with the rules as long as less than 25% of their equity and board seats are controlled by Beijing. They didn't say how many Chinese companies would fall afoul of that standard, and Biden administration officials declined to comment on how it would apply to major Chinese battery companies." [1]

1. U.S. News: EV Rules Leave Room for Chinese Suppliers. Duehren, Andrew.  Wall Street Journal, Eastern edition; New York, N.Y.. 02 Dec 2023: A.3.