Chinese firms producing and processing battery materials see new US rules aimed at limiting Beijing’s grip on the electric-vehicle industry as less stringent than feared, allowing them to preserve a key role in the global supply chain.
Washington’s move, which seeks to cut China out of US tax credits and curb the country’s control over joint ventures, created uncertainty at the end of last week, with questions swirling around the status of Chinese-owned battery-material operations outside the mainland, and over the impact on the wider car and battery industry.
Ford Motor Co. was among the automakers that said its ability to benefit from federal tax credits could be affected, potentially hurting the government’s ability to ultimately boost EV sales.
China dominates global metal processing and its domestic industry and state-owned entities will be cut out under the regulation. But significant projects in places like Indonesia and Australia, key for nickel and lithium extraction, are privately held — and so, under current guidance, should not qualify as “foreign entities of concern”, or FEOC.
“The US wants their own supply chain and to get rid of China,” said Dani Widjaja, Jakarta-based vice president at Chinese company CNGR Advanced Material Co., which produces nickel in Indonesia. “But they also realize they cannot proceed with the electrification of automobile industry if they are not flexible in terms of including the Chinese.”
“Right now for the critical minerals like graphite, lithium, nickel and cobalt, they are dominated by the Chinese. The announcement from last week was kind of a compromise,” he said, adding he was speaking in a personal capacity.
Others welcomed a path for China to continue to participate in the market.
Still, company officials who asked not to be named as the discussions are not public said teams were still studying the regulations. Washington retains significant room for interpretation, especially in cases where there are ties to senior political figures or institutions, and a US presidential election looms next year, potentially bringing further upheaval.
Rules for battery components should apply from 2024, while critical minerals will be covered from 2025.
“It is worth noting that the definition of the government of a covered country not only includes a government or a ruling party but also senior foreign political officials and the immediate family members of senior officials,” said Susan Zou, an analyst at Rystad Energy, pointing out that individual shareholders of significant private companies in China are current members of the Chinese People’s Political Consultative Conference, a political advisory body.
“The ambiguity is a double-edged sword.”
Daiwa Capital Markets analysts also urged caution. Under Daiwa’s interpretation, the Chinese’ overseas projects they cover are not FEOCs — but could be given links to senior political figures.
“Our interpretations yield non-FEOC results for all of our coverage, but the ‘spirit of the law’ is subject to changes/modifications by the US,” they said in a note.
(By Annie Lee and Martin Ritchie)
