When Joe Biden and Xi Jinping met in San Francisco a few weeks back, they stressed cooperation and a dialing back of the hostility between the United States and China. It seems clear now that all the happy talk was just that—talk.
The White House has just announced plans to keep Chinese ownership and products out of its efforts to promote the use of electric vehicles (EVs) in this country. Beijing has yet to respond. But if reports from manufacturers are accurate, the whole effort may prove to be moot.
The administration defines such excluded producers as any company headquartered in, owned by, or controlled by China, Russia, Iran, or North Korea. It is defined specifically as any firm in which any of these countries holds one-quarter of its board seats, voting rights, or equity. The new rules will tighten in 2025 to include cars that contain critical materials extracted, processed, or recycled by any of these countries. This provision clearly refers to rare earth elements. Given the nonexistence of battery and EV production in Iran, North Korea, or Russia, there can be little doubt that the rules are aimed at China. Beijing cannot miss this fact.
While designed to hurt China, these new rules impose a tall order on the American effort. China, after all, commands 74 percent of the world’s current cathode production, 92 percent of its anode production, and 76 percent of its lithium-ion battery cell production. Substituting for these now dominant sources, even for just North American sales, will require a huge domestic investment. As of today, the Alliance for Automotive Innovation (AAI), a lobbying group for all automotive companies, notes that only one-fifth of the 100 models for sale in the United States would qualify for the tax credits.
The White House brags that the effort is, in fact, well underway, claiming that the 2022 legislation has already induced some $100 billion of private investment in EV production. No independent verification of this figure is available, but the new rules raise questions of how much of any of this commitment will actually qualify for subsidies.
Ford, for instance, is now unsure of the status of the licensing agreement for its new Michigan battery plant it entered into with Chinese battery maker CATL. The new rules do make allowances for certain ownership governance structures, but Ford has indicated that it cannot be sure. The uncertainty alone will slow Ford’s forward momentum and certainly any future commitments of time and money. Doubtless, it will do the same for others.
Meanwhile, other news from the automotive industry suggests that all this anxiety and positioning may be pointless in the final analysis. Manufacturers and dealer retail outlets report that even given the generous tax incentives on EVs, the cars are not selling well.
From General Motors (GM) to Tesla to Japanese giants, all contend that the American public is much less interested in EVs than Washington. At Tesla’s recent earnings call, Elon Musk noted the waning demand. Mercedes Benz has begun to discount EVs just to move them off the lot. Mercedes CEO Harald Wilhelm has described EV production and sales as a “pretty brutal space.” Ford has commented that its dealers are turning away from the company’s electric Mach-E allocations. Most telling, GM has entirely scrapped plans to co-develop a sub-$30,000 EV with Honda. The business is just “too difficult,” said Honda CEO Toshihiro Mibe.
Washington has launched its latest strike on Chinese economics just weeks after President Biden and Xi spoke of moving away from the growing hostility between the two economies. Beijing undoubtedly will respond with its own effort to disadvantage the American economy. This has been the pattern for the last four years—a tit-for-tat exchange in which each nation strikes at the other in turn. The practice will no doubt persist into the future, but if the auto manufacturers and dealers are correct, it might mean little for EVs.
