US Aims to Cut China Out of Electric Vehicle Supply Chain

People look at the Cadillac Lyriq electric vehicle at the Cadillac booth at the North American International Auto Show in Detroit, Mich. on Sept. 14, 2022. Geoff Robins/AFP via Getty Images

The U.S. government is paving a way forward to exclude communist China from the U.S. electric vehicle (EV) supply chain.

According to the proposed guidance on clean energy vehicle provisions of the Inflation Reduction Act, released on Dec. 1 by the U.S. Department of the Treasury and Internal Revenue Service, consumers can take a tax credit of up to $7,500 for purchasing a clean energy vehicle.

But the new guidelines clarify that starting in 2024, clean energy vehicles will not be eligible if they contain any battery components manufactured or assembled by a foreign entity of concern (FEOC), either from China, Russia, North Korea, or Iran. Beginning in 2025, clean energy vehicles will not be eligible if they contain any critical minerals mined, processed, or recovered by an FEOC.

These provisions are expected to gear toward “lowering costs for consumers, spurring a boom in U.S. manufacturing, and strengthening energy security by building resilient supply chains with allies and partners,” said the U.S. Department of the Treasury.

The act will be subject to a public comment period of several weeks and will ultimately take effect on Jan. 1 of next year.

The move is among the Biden administration’s attempts to “reverse the decades-long trend of letting jobs and factories go overseas to China,” according to John Podesta, senior advisor to the president for Clean Energy Innovation and Implementation.

“Thanks to the Investing in America agenda and today’s important guidance from Treasury and the Department of Energy, we’re helping ensure that the electric vehicle future will be made in America,” said Mr. Podesta in a press release on Dec. 1.

On Aug. 16, the Biden administration signed the Inflation Reduction Act with $369 billion worth of emissions-cutting measures for low-carbon energy and electric vehicles. Since the bill was enacted, the private sector has announced nearly $100 billion in investments in U.S. clean energy vehicles and the battery supply chain.

President Joe Biden arrives at the General Motors Factory ZERO electric vehicle assembly plant in Detroit, Mich., on Nov. 17, 2021. Nic Antaya/Getty Images

The Chinese embassy in Washington criticized the new U.S. rules as “another example of the U.S.’s practices of unilateralism and economic bullying.”

China is the world’s largest producer of batteries for electric vehicles. Chinese battery factories processed over half of the global lithium, cobalt, graphite, and minerals needed to make batteries for the past decade.

‘Foreign Entity of Concern’

Defining its criteria, the U.S. Department of Energy (DOE) stated in its Dec. 4 proposed rule that “a foreign entity is a FEOC if it is ‘owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.’” DOE specifies the “covered nations” as China, Russia, North Korea, and Iran.

As to what extent can be counted as being “controlled” by FEOC, the DOE has proposed detailed rules comprising those holding 25 percent or more of the board of directors, voting rights, or equity interest in the entity, or granting a license or contract to a person that gives equivalent rights.

The DOE’s proposal for defining FEOC awaits a 30-day consultation period before being finalized.

Yet, U.S. automakers need to confirm how to proceed with their investments or deals that may be related to the extent to which they can use parts from Chinese companies in their supply chains.

US-China Contest for Supply Chain

President Joe Biden declared on Nov. 27 the creation of the White House Council on Supply Chain Resilience and nearly 30 new initiatives in what he hopes to strengthen the supply chain, the most critical to the U.S. economy and national security.

President Biden’s executive order calls for a 100-day review of specific supply chains, including semiconductors, electric vehicle batteries, rare earth minerals, and pharmaceuticals, and a departmental supply chain assessment.

People try an electric vehicle at Geely's booth during the China International Supply Chain Expo (CISCE) in Beijing on Dec. 1, 2023. Jade Gao /AFP via Getty Images

The Chinese state convened the first China International Supply Chain Expo in Beijing from Nov. 28 to Dec. 2, where Chinese Premier Li Qiang said at the opening ceremony that he opposed protectionism and all forms of “decoupling” and hoped to deepen cooperative relationships with all countries in the supply chain.

On Nov. 30, the Chinese Ministry of National Security published an article that likened the irreplaceable essential minerals in new materials, new energy, information technology, artificial intelligence, biotechnology, high-end equipment manufacturing, and defense and military industry to “vitamins.”

The Chinese state’s top security body emphasized its global strategy in getting ahold of essential mineral resources, saying that mineral resources should be highly concentrated in a few countries as the more advanced technology is widely used in the industry, the higher the dependence the world has on minerals.

Of the key minerals listed in the article, 21 overlap with those of the United States.

Early in July, the communist regime banned the export of gallium and alumina, two minerals used in semiconductors, solar panels, and missile systems, raising further awareness among the West of approaching threats posed by China’s potential domination in the mineral resources sector.