The ongoing technology war between the US and China has widened the battlefield to the electric vehicle (EV) sector, with a particular focus on key components of batteries. Semiconductors have been a major point of contention before.
US to impose restrictions on foreign purchases of battery materials
But now the US Treasury and Energy Departments have proposed rules that could limit electric vehicle buyers from claiming tax credits if they use battery materials from China or other countries deemed “hostile” to the US.
These proposed rules are in line with efforts to reduce US dependence on China’s supply chains, a trend gaining momentum in an era of technological divergence. Under President Joe Biden’s climate legislation, consumers are eligible for subsidies of up to $7,500 for electric vehicles made in the US using predominantly domestic materials.
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But rules targeting battery materials from China and certain other countries could hamper Biden’s effort to boost electric vehicle sales as part of his broader plan to cut greenhouse gas emissions by 50% by 2030.
China responded assertively, with the Commerce Ministry stating that the USA rules “discriminate against Chinese companies and violate WTO rules”. Denying Chinese suppliers US tax benefits is seen as a non-market-oriented policy and practice. This tit-for-tat between the US and China adds another layer of complexity to the already strained relationship between the two economic giants.
The global EV battery market is dominated by Chinese companies, with CATL and BYD accounting for around 53% of the world’s EV battery use in the first ten months of the year. The US move directly affects its goal of curbing China’s dominance in the fast-growing EV sector. China currently holds a 58% share of the global EV market, followed by the US and Germany.
South Korean battery giants such as LG, Samsung and SK On are seen as potential beneficiaries in an environment of deteriorating US-China relations. But even these companies are grappling with new geopolitical challenges. Despite SK On building battery factories in the US alongside Ford and Hyundai, parent company SK Group has expressed concerns about the US keeping battery costs high.
Tesla has announced that the first versions of the Cybertruck will be delivered at the Gigafactory in Texas, and a date has been given.
This has led SK On to seek alternative sources for non-Chinese materials as China continues to control much of the global supply chain for electric vehicle batteries, from the extraction of rare minerals to cell production.
While Gotion, BYD and CATL, among others, have strategic plans to manufacture in the US, they face obstacles such as scrutiny from US politicians, as seen in Ford temporarily halting plans for an EV battery factory with CATL in Michigan.
The struggle for dominance in the EV market has expanded beyond vehicle production to the critical area of battery production, further complicating global supply chain dynamics.
