Chinese EV Suppliers Look to Tap US Market With a Little Help From Friends

China may have found itself a side road for entering the US electric vehicle market.

Chinese raw materials companies are cozying up with battery makers in Morocco and South Korea as a way of bypassing restrictions that would otherwise leave them out of the American EV supply sector, The Wall Street Journal reported.

Who Do You Know Here?

The US is the world’s second-largest market, right after China. American drivers are on track to buy 1 million EVs by the end of 2023, and several carmakers, including Ford and GM, plan to ditch combustion engines and produce only EVs in the next two decades. But EVs also are more expensive to make, especially the batteries, which account for 40% of the cost and require highly sought-after raw materials, including lithium, cobalt, and nickel. Lucky for auto companies, Washington opened up its checkbook to subsidize some of those costs.

Last summer, President Biden signed the Inflation Reduction Act, which includes billions of dollars in incentives to EV makers and the companies that supply them with raw materials. But the framework contained a few somewhat fuzzy requirements, like vehicles must contain a certain percentage of minerals extracted or processed in the US — or in a country with which the US has a free trade agreement. The aim is to exclude “foreign entities of concern.” China, that means you.

All that said, there is potential for wiggle room:

• Chinese firms Huayou Cobalt and CNGR Advanced Materials have announced at least nine joint ventures worth more than $4.5 billion in South Korea this year, and at least four Chinese firms intend to build plants in Morocco — home to more than 70% of the world’s known phosphate reserve — the WSJ reported.
• The hope is that by working with companies from nations the US likes and trusts, their Chinese partners can still gain entry into the American EV battery market. But it’s a bit of a guessing game for now: South Korean chemical company Posco Future M said it would reduce the stake of Chinese partners if arrangements don’t meet IRA guidelines, according to the WSJ. Plus, it’s sourcing materials from countries like Indonesia and Australia as to not be fully reliant on China.

Breaking Ties: Some analysts believe the US can have a successful EV market without any direct or indirect involvement from China. In a recent essay, MIT fellow Brian Deese and Columbia Climate School Dean Jason Bordoff said raw materials, though often described as “rare,” can be found outside of China. And because China’s role is mainly as a refiner, that job can easily shift to businesses from friendlier nations.