USA studies unlinking its electric cars from China – 11/29/2023 – Market

Joe Biden’s administration has been trying to boost the domestic supply chain for electric vehicles so that cleaner cars can be manufactured in the United States.

But the experience of a Texas company whose plans to help produce an all-American electric vehicle were derailed by China highlights the stakes involved as the administration finalizes rules governing the industry.

Huntsman Corporation began construction on a $50 million plant in Texas two years ago to make ethylene carbonate, a chemical used in electric vehicle batteries. It would be the only place in North America to produce the product, with the aim of supplying battery factories that would emerge to serve the electric vehicle market.

But as new facilities in China came online and flooded the market, the price of the product plummeted from $4,000 to $700 per ton. After investing US$30 million in the project, the company stopped work this year. “If we started the project today, we would be bleeding money,” said Peter R. Huntsman, the company’s chief executive. “Basically, I would be paying people to take the product.”

The Biden administration is now finalizing rules that will help determine whether companies like Huntsman will find it profitable to participate in the U.S. electric vehicle industry. The rules, expected to be proposed this week, will dictate the extent to which foreign companies, especially from China, can supply parts and products for U.S.-made vehicles, which are expected to receive billions of dollars in subsidies.

The government is offering up to $7,500 in tax credits to Americans who buy electric vehicles in a bid to boost the industry and reduce the country’s carbon emissions. The rules will determine whether electric vehicle makers seeking to benefit from this program will have the flexibility to source cheap components from China or whether they will be forced to buy more expensive products from American companies such as Huntsman.

Lawmakers who wrote the climate bill, including Senator Joe Manchin III, Democrat of West Virginia, included a section that prevents an electric car from qualifying for tax incentives if the critical minerals or other components used in its battery are manufactured by “a foreign entity of concern.” Lawmakers defined this as any company owned, controlled or under jurisdiction by North Korea, China, Russia or Iran.

But they left it to the Biden administration to fill in the details, including important questions like what constitutes a Chinese company and what product qualifies as a “battery component.”

The government will face a complicated challenge with the new rules. By allowing more businesses to qualify for the benefits, Americans will have a greater variety of low-cost electric vehicles to choose from. This would put more clean cars on the roads and help mitigate climate change. It could also help shore up the finances of American automakers that are suffering losses in electric vehicle production.

But such a path could undermine another government priority — building safer supply chains for electric vehicles. The government aims to use the climate law to boost the manufacturing of electric vehicles and their parts in the US and allied countries, and reduce dependence on China, which dominates global markets for electric vehicles and their batteries.

The effort to balance these concerns has triggered a dispute between automakers and parts makers, U.S. miners and labor unions.

Automakers eagerly await the guidelines.

Automakers like General Motors and Hyundai, boosted by the new climate law, are rushing to build factories in the U.S. to produce batteries and process materials like lithium. However, auto industry representatives say they are still years away from being able to produce an electric vehicle without materials and components from China.

China dominates the production of materials such as graphite and processed lithium, which are essential for the flow of electricity within a battery, as well as for the cathodes and anodes, the basic building blocks of a battery. Through substantial government subsidies and huge economies of scale, Chinese companies now sell some of the most advanced electric vehicles in the world, and the components used to make them are priced much lower than competitors in other countries.

Automakers are also under intense pressure to keep costs low by buying from the cheapest suppliers. Ford Motor lost $1.3 billion on electric vehicles in the third quarter, the company reported last month, equating to a loss of $36,000 on each vehicle sold.

In June, Tesla, which sources key parts from China, sent comments to the government arguing that future restrictions on foreign entities should be less restrictive. Limits on foreign purchases should be restricted to important parts of batteries, such as the cathode and anode, and not the various minerals or other parts used to make them, Tesla proposed.

In a worst-case scenario, says Albert Gore III, executive director of the Zero Emission Transportation Association, “you can have vehicles that are manufactured in the U.S., with the vast majority of parts coming from the U.S., but that could be disqualified by the credit rate because a single part comes from China.” Gore, whose membership includes Tesla as well as battery makers, said he hopes the government will strike a balance.

In contrast, miners and other makers of battery materials and components argue that allowing China to supply cheap parts could open the U.S. to a flood of foreign products. This would ensure that the North American country is merely an assembly point for technology and products made in China, leaving the American economy highly vulnerable, they say.

So far, the climate law appears to have spurred more investment in factories to produce electric vehicles and their batteries than in the mines and facilities that produce the minerals, chemicals and smaller components that make up the battery itself.

In fact, the only planned cobalt mine in the U.S., owned by Jervois in Idaho, temporarily closed this year. The company blamed the drop in prices, caused by a new wave of material produced by China. Jervois restarted some exploratory drilling last month thanks to new funding from the Department of Defense.

Until final rules are issued, some companies have paused plans for new investments in the U.S., aware that their business calculations could change significantly in the coming months.

“We’re seeing a bit of a wait until final guidance is released by the government,” said Abigail Seadler Wulf, vice president and director of critical minerals strategy at Securing America’s Future Energy, a nonprofit organization.

Huntsman says that unless the government restricts the use of Chinese materials, there is no reason to invest more in the company’s Texas project. He claims that the Chinese government is heavily subsidizing the production of ethylene carbonate, allowing Chinese companies that account for 90% of global production of the product to sell it at such low prices.

“The question really is, how does the United States want to respond to this?” he asked.