As of early 2024, China is far outpacing the U.S. in electric vehicle production and sales, selling some 6.7 million all-electric vehicles in 2023, compared to the American sales of only 1.2 million units. China’s automaker BYD became the world leader in EV sales in 2023, passing Tesla for the first time.
But perhaps more significant for global clean energy markets is the growing importance of Chinese EV battery makers. Both large and small battery manufacturers are using innovative strategies to expand to global markets, and embed their technologies in major vehicle production around the world. The U.S. government has reacted with caution and increasingly strict policies to curb Chinese battery maker participation in the American EV marketplace.
Over the past year, Chinese firms have increasingly begun investing in overseas facilities to sidestep American restrictions and incentives that favor domestic U.S. manufacture or production in free trade or America-friendly partners. For example, in September 2023 Chinese battery manufacturer Gotion High-tech picked Illinois as the site of a new $2 billion EV lithium-ion battery plant. Gotion also signed an exploratory agreement to build a $6.4 billion battery plant in Morocco, a U.S. free-trade partner. Contemporary Amperex Technology, or CATL, a leading Chinese battery maker and a major battery supplier to Tesla, invested in some 55 gigawatt-hours of overseas battery facilities in the first eight months of 2023. That was more than double the company’s total in 2022, and nearly equal to world-leading Korean company LG Energy Solution’s 56 gigawatt-hours of overseas capacity.
To take advantage of the U.S.-South Korea free trade agreement, Chinese firms also targeted investments in Korea’s cutting-edge battery industry. The trend included smaller Chinese battery supplier companies, such as Ningbo Ronbay New Energy Technology Company, which announced it would set up a facility in Korea to make key ingredients for EV battery cathodes. By August of 2023, Chinese companies had publicized investments of some $4 billion in five new battery factories in Korea. The batteries, installed in American-made electric cars, potentially qualified for tax breaks under the Biden Administration’s Inflation Reduction Act.
As of late 2023, Chinese companies had announced some $27 billion in overseas investments in batteries and materials, with more than 80 percent in Europe. Taken as a whole, this trend illustrated Chinese commercial strategies to become a dominant player in the global supply chains for electric batteries and related technologies, and to facilitate entry to international markets that feared growing reliance on “Made in China” products. Such significant investments presented a major challenge to the U.S. government, which saw an increasing dependence on Chinese corporations for a key part of the Biden Administration’s strategic support of environmentally friendly technologies.
As a reaction, in early December 2023, the U.S. Treasury Department announced that “to strengthen the security of America’s supply chains, beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured or assembled by a FEOC [Foreign Entity of Concern]… . ” China, along with Russia, Iran, and North Korea was on the FEOC list. While the Biden Administration was reportedly proposing a 25% ownership threshold for determining whether a company was controlled by a FEOC, China’s Ministry of Commerce protested that the new rules established “glass barriers,” and claimed that “the U.S. is doing more harm than good to the development of EV technologies.”
In light of the restrictions, James Oh, vice president of Seoul-based battery research firm SNE Research, asserted that “there are still unclear clauses in the guidelines … we can’t technically say whether private companies in China, like CATL, are under ‘effective control’ of the Chinese government or not.” Still, the news saw CATL’s stock price fall to a nearly three-year low, and Korean companies LG Chem Ltd. and Posco Holdings Inc., which had or were planning South Korea-based joint ventures with Chinese companies to manufacture battery materials, also saw their stock valuations decline.
Earlier, in November 2023, Ford Motor decided to scale back on a Michigan-based EV battery plant, forecasting creating 1700 jobs rather than 2500, with a planned opening in 2026. At the time, conservative U.S. lawmakers had criticized Ford for plans to license technology from CATL. The Chinese company produces lithium-iron-phosphate (LFP) batteries, which are not currently produced in the U.S., although some American EV makers, such as Tesla, import them from China.
American customers, including both Tesla and Ford, were becoming more important for CATL, as the company had been losing market share to BYD and lower-cost, smaller battery suppliers. However, it was not clear whether Ford’s planned licensing agreement would qualify for U.S. government clean energy incentives. But Ford spokesman T. R. Reid indicated his company was “confident about the technology licensing agreement for this plant.”
In particular, China’s LFP battery technologies stood to be a key ingredient for making electric vehicles more affordable for both the U.S. and global markets. In late 2023, LFP battery packs had the lowest global-weighted average prices, at $130/kWh, less than lithium ion (Li-ion) pack costs of $139/kWh; and LFP battery cell prices, at $95/kWh, were 32 percent cheaper than nickel manganese cobalt oxide (NMC) cells. In August 2023, CATL launched its new Shenxing battery, an LFP battery capable of running 248 miles with just a 10-minute charge. Mass production of the Shenxing was expected by the end of 2023, with EV cars using the new battery on the market by the first quarter of 2024.
In contrast to Chinese battery price and performance competitiveness, analytical firm BloombergNEF assessed that, going forward, battery manufacturing in the U.S. would have higher costs in energy, equipment, land, and labor than in Asia. To offset these costs, the Inflation Reduction Act included a $45/kWh tax credit for battery pack and cell production. However, the policy’s effect on pricing was not clear.
Despite American policies to encourage domestic battery production and limit Chinese participation in the sector, it is far from clear that the U.S. will be able to economically expand and increase sales of EVs while keeping Chinese firms and their technologies at arms length. Should Chinese attempts to circumvent American restrictions on overseas invested battery production succeed, the global EV battery supply chain could see greater reliance on technologies developed either in China or with Chinese overseas partners.
But excessive restrictions on technologies associated with China could end up working against the U.S. goal to rapidly scale up the use of affordable environmentally friendly electric vehicles. On the issue of China-Korea production of EV batteries in particular, James Oh of SNE Research had a terse summary: “The U.S. can’t exclude Chinese firms from EV supply chains … If they ban Korea-China partnerships, the U.S. will never be able to make EVs.”
