Reuters is reporting that CATL, the largest battery manufacturer in the world, is reconsidering its plan to build a battery factory in North America, according to sources with knowledge of the situation. The company has been exploring possible sites for a factory in Mexico or in the US in either South Carolina or Kentucky.
While the Inflation Reduction Act is creating a tidal wave of investment in battery materials and manufacturing by several companies, it also requires half of those materials to come from sources in North America or countries with most favored nation trade status by 2024. That requirement rises to 80% by 2026. Senator Joe Manchin, who was a primary architect of the IRA, has said it was intended to drive companies to mine and process materials for batteries in North America and break the industry’s reliance on China.
CATL isn’t opposed to manufacturing batteries in the US (or Mexico), but those sources tell Reuters complying with the requirements of the IRA will make the cost of materials higher than the cost of producing them in China and shipping them to North America, even if CATL were to receive federal incentives to build a battery factory in the US.
CATL supplies the batteries for a third of all electric vehicles produced in the world and has built a vast supply and processing infrastructure in China that allows it to be very competitive on the price of its batteries. The planned battery factory in the US or Mexico would supply batteries to major customers like Ford and BMW, the sources said.
The provisions of the IRA have stirred a lot of push back from automakers in South Korea and Europe. Reuters reports that executives from Volkswagen, BMW, and Hyundai have urged US legislators to give automakers operating in the United States more time to meet the required battery sourcing targets that will qualify them for tax incentives. But the change in thinking by CATL represents the first known example of an automaker or major supplier rethinking an investment because of the new law.
CATL sees North America as a crucial market, the sources said, but the new US rules on sourcing battery materials have become a “banana peel” that has slowed the company’s investment plans. It was not immediately clear how much of a delay CATL was considering in any North American expansion or whether it could make other adjustments to its approach to narrow the cost gap.
The IRA giveth and it taketh away. On one hand, it has turbocharged investments in renewable energy and battery storage. On the other hand, it has put significant hurdles in the path of automakers who want their vehicles to qualify for the new tax incentives.
The Europeans are not happy. The South Koreans are not happy. There are rumblings of challenges via the World Trade Organization. And as a backdrop to all this drama, if control of either house of Congress changes as a result of the US election in a few weeks, the odds of making any significant changes to the IRA will be close to zero.
CATL could be a potent factor in the effort to bring more affordable electric cars to market in the US, but current policies may convince it to pass up participation in the EV battery market in North America. Politics is a delicate dance and a small disruption over here can lead to a large disruption over there. Stay tuned. The last chapter of this story has yet to be written.
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