February 24, 2024
US will limit China's ability to profit from electric vehicle industry

The Biden administration proposed new rules on Friday aimed at shifting more production of electric vehicle batteries and the materials that power them to the United States in a bid to create a strategic industry now dominated by China.

The rules are meant to limit the role that Chinese companies can play in supplying materials for electric vehicles that qualify for federal tax credits. They would also discourage companies that seek federal funding to build battery factories in the United States by sourcing materials from Chinese partners.

These rules may cause some nervousness among automakers, which rely heavily on China for materials and components for electric vehicles. They also face intense cost pressures as they try to modify their factories to make electric cars, and China offers the most advanced and lowest-cost battery technology in the world.

The Biden administration is attempting to change that dynamic and use billions of dollars in new federal funding to build out the U.S. supply chain for electric vehicles through both carrots and sticks.

The climate legislation that President Biden signed in 2022 includes a tax credit of up to $7,500 to consumers who purchase electric vehicles made in the United States using largely domestic materials. This law also included a general ban on Chinese products. Lawmakers ordered that companies from China, Russia, North Korea and Iran be banned from providing certain materials to cars that receive tax exemptions.

But the law left many questions, including the formation of a Chinese or Russian company. Administration officials said those definitions included any entity incorporated or headquartered in China or Russia, as well as any firm in which 25 percent of board seats or equity interests were held by the Chinese or Russian governments.

The law also requires battery makers who sign contracts or licensing agreements with Chinese companies to ensure they retain certain rights over their projects. The purpose of that provision is to ensure that no Chinese firm effectively controls such a project.

Some conservative lawmakers have challenged Ford Motor’s plan to license technology from a Chinese battery giant called CATL for a plant in Marshall, Michigan, arguing that such a partnership should not qualify for federal tax credits.

In a letter to the administration in November, Senator Joe Manchin III, a West Virginia Democrat, urged the Treasury Department to adopt the “strictest possible standards” to bar Chinese companies from incentive programs.

The rules will come into effect in 2024 for battery components and in 2025 for critical minerals such as lithium, cobalt and nickel. They will be open to public comment for several weeks and may be adjusted based on industry views.

Auto industry lobbyists have warned that overly strict regulations could hurt electric vehicle sales. But General Motors Chief Financial Officer Paul Jacobson said the company is prepared to make its electric vehicle operations successful regardless of federal regulations.

“With regard to regulations, we are not promoting business by saying this has to happen,” Mr. Jacobson told reporters on Thursday. If the rules change, he said, “it’s not going to be a back-breaker for us.”

The administration said it would offer some temporary relaxations through 2026 to strict sourcing requirements for less valuable components of batteries that are now difficult for automakers to trace.

Treasury Department Deputy Secretary Wally Adeyemo said in a briefing with reporters that the rules will help advance the administration’s goals of building a U.S. clean energy supply chain while cutting emissions in the transportation sector.

“Automakers have already adjusted their supply chains to ensure buyers are eligible for these credits,” he said. “These changes take time, but companies are investing and Americans are buying these cars.”

Last year, companies invested $213 billion in the creation and deployment of clean energy, clean vehicles, electrification and carbon management technology in the United States, according to tracking by the Rhodium Group and the Center for Energy and Environmental Policy Research. Massachusetts Institute of Technology. This is an increase of 37 percent compared to a year ago.

Companies are also investing in factories and technologies aimed at developing the material needed for electric vehicle batteries and other components, including in North Carolina, where several companies are trying to restart the lithium industry.

Eric Norris, president of energy storage at Albemarle Corporation, the world’s largest lithium producer, said in an interview this week that the Inflation Reduction Act rules make much of the lithium his company is producing in the United States.

“In fact, one could argue that the product even has a premium price compared to product sourced from Asia because it offers financial benefits that would not otherwise exist,” Mr Norris said.

Nevertheless, the global electric vehicle industry remains largely anchored in China, the world’s largest producer and exporter of electric vehicles. China produces about two-thirds of the world’s battery cells, and refines most of the minerals critical to powering an electric vehicle.

John Podesta, a senior White House adviser on clean energy, said Wednesday that China processes most of the lithium and cobalt, as well as about 90 percent of global graphite, and they completely lag the U.S. and our allies in battery production. Let’s leave. Their constituents.” But because of the administration’s investment, he said, “we’re rewriting that story.”

China’s dominance of critical mineral supply chains has raised concerns that Beijing could move to cut off the United States from materials that are vital not only for cars but also jet engines and munitions.

Others have raised concerns about poor working conditions, the use of child labour, and the poor environmental record of critical mineral supply chains running through countries such as the Democratic Republic of the Congo and Indonesia.

Companies setting up mining, refinery and battery-manufacturing operations in the United States and allied countries will need to comply with much higher labor and environmental standards — and meeting those requirements will cost money, Chief Executive Bryce Crocker said. . Australian mining company Jervois.

Jervois was building the United States’ only mine for cobalt in Idaho. But the company stopped construction in March after the global price of cobalt fell. Mr Crocker blamed the collapse on a flood of cobalt produced by Chinese-owned companies, which were heavily subsidized by the state.

Mr. Crocker said Thursday that the Treasury Department’s rules could have an impact on his business, but he was waiting for guidance from the government.

Battery makers in Japan and South Korea are also hoping for regulations because their supply chains are often closely integrated with China.

The rules appear to prevent automakers from getting the nickel used in their batteries from Russia, one of the world’s largest nickel producers.

One of the challenges for automakers will be developing systems to track all the components of their batteries through long and often opaque supply chains.

Todd Malan, chief external affairs officer of Talon Metals, which is seeking approval for a nickel mine in Minnesota, said stronger rules could help prevent “mineral laundering” schemes in which Chinese or Russian minerals are shipped to facilities in friendly countries. Will be sent through.

Mr Malan said companies would need to be enforced by audits and awards clawbacks if they breach the rules, and firms would also be required to adopt “know your supplier” systems that link mines through recycling programs. Can track the input.

In its announcement, the Treasury Department said that vehicles that were misreported would be subtracted from an automaker’s eligibility for the tax credit, and that automakers that committed fraud or knowingly disregarded the rules would be charged in the future. May be disqualified for credit.

Source: www.nytimes.com

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