China Finds a Place in the US ‘Battery Belt’

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Despite all the anti-China noise, policy barriers and trade spats, Contemporary Amperex Technology Co., the world’s largest battery maker, is partnering with one of America’s most storied auto companies to boost electric-vehicle adoption.

As EVs and their components become central to US industrial policy and rebuilding domestic manufacturing, Ford Motor Co. and CATL initially signed a cooperation agreement in July last year, including one to supply Chinese batteries for the electric version of the quintessentially American pickup truck and the Mustang Mach-E. The companies are now discussing building a plant in Virginia or Michigan to make lithium iron phosphate powerpacks, Bloomberg News reported in December. In one potential arrangement, Ford would own the manufacturing facility while the technology will be Chinese.

This stands to catapult Ford’s EV ambitions – much as CATL helped Tesla Inc. become one of the largest EV manufacturers. The car company is second only to Musk’s firm by EV sales in the US. While Ford said it made the best-selling electric pickup on the market, the numbers are small — it only sold 15,617 electric F-150 Lightnings since it went on sale in May. That could rise quickly with a steady supply of batteries from CATL: Ford’s EVs grew at “twice the rate of the overall EV segment,” it’s vice president of sales, distribution and trucks, Andrew Frick noted last week.

The coming together of these industrial giants to make the EV dream a reality stands in sharp contrast to the prevailing political rhetoric and the goals of the Inflation Reduction Act that seek to cut dependence on China as the US builds out domestic supply chains. So much for the much-hyped economic decoupling: Globally interdependent supply chains, technology and investments cannot just be severed to find greener pasture elsewhere. Firms like CATL and Ford will have to team up to leverage areas of expertise that are also of crucial industrial importance to make their profits a reality.

Ford’s timing is astute. To compete in the coming shift in industrial technologies, America’s federal climate package has set off a factory-building boom. Billions of dollars are being poured into domestic battery manufacturing, with almost $40 billion committed to new car factories last year. These facilities — many will be built by South Korean and Japanese firms — won’t be done for years. Some are already predicting a shortage of powerpacks in the US: General Motors Co. cut its EV sales target because of a looming supply shortfall. Others, like Tesla, have already turned to China, the global leader by market share. Just as money is being poured in, manufacturing is becoming more expensive because raw material prices are up and a scarcity of metals key to batteries, like cobalt and lithium, looms. Barriers to entry are rising.

It isn’t just about rising costs and prices. The growing financial burden of this transition needs hefty policy support. The IRA, for instance, is focused on easing some of these issues, providing subsidies to manufacturers and buyers to accelerate production and EV adoption. However, it also comes with caveats directed toward cutting out China-sourced or processed materials over the next five years, even though analysts have said this will raise costs. It has complicated companies’ plans and added layers of complexity.

In a recently released white paper, the US Treasury lays out proposed guidance(1)around how the vehicle tax credit will be calculated under the IRA. The department notes that manufacturers will be required to certify where critical minerals and components in their cars come from. It then puts out a labyrinthine formula, percentage bar and conditionality. Such bureaucracy and excessive rule-setting — focused on geopolitics rather than what the industry needs and can do — will only delay firms’ plans further. That’s if they are even able to get away from Chinese parts.

What’s more, US lawmakers aren’t making partnerships like CATL’s with Ford — necessary for mass EV adoption, commercially viable manufacturing and the energy transition — any easier. Last month, a ranking member of the House Science, Space and Technology Committee hit out at the US Energy Department over a $20 million award to Texas-based Microvast Holdings Inc. to build factories in the US because it has a significant chunk of assets and revenue in China. Such antics just create uncertainty, muddle firms in political wrangling, and scare off investors who would want to put in much-needed capital. Obstacles like these also have no real, beneficial outcomes and may potentially force businesses to sit out one of the biggest industrial shifts in decades.

Chinese companies — the leaders in battery manufacturing — barely stand a chance on American soil right now. The problem isn’t that they will be shut out of the market (they are tapping Europe and Asia, so they’ll be fine). It’s that US EV technology will be left behind and the market won’t be able to grow as fast. That’s bad for US consumers, who won’t get the safest EV out there, or for US firms that can’t tap these resources without ending up in the crosshairs. This is bound to be a setback for America’s great manufacturing ambitions. It’s worth noting, while Chinese industrial policy created the factory floor of the world, it also ensured multinationals took home big earnings.

For all those debating whether US-China frictions will redraw factory maps and supply chains, big businesses will eventually push through. However, it may mean lost opportunities, profits and time along the way. Some companies will find paths out of necessity, others will likely fail. Ford and CATL, for instance, may come up with a structure where the American manufacturer is still able to benefit from US tax credits, circumventing sourcing and domestic content issues, while CATL’s upside will be taking home fees and other royalties. But we will end up with fewer EVs on the road and slower adoption. Ultimately, that’s just a longer and bumpier road to cleaner air despite splashing out billions of dollars.