BEIJING, March 20 (TMTPOST) – With the publication of the U.S. Inflation Reduction Act that includes subsidies to electric car purchases scheduled for the end of March, Chinese battery maker Contemporary Amperex Technology Co. Ltd (CATL)’ cooperation with Ford Motor has been serving as a weather vane for the U.S. business environment.
CATL (300750.SZ) said last Friday its cooperation project with Ford was in progress. On February 13, Ford announced its plan to invest $3.5 billion to build a lithium iron phosphate battery factory in Michigan, and it has forged a new form of cooperation with CATL. On March 15, the Michigan government approved a grant program to support battery plant projects, including a $210 million grant for Ford’s lithium iron phosphate plant and a $175 million grant for another Chinese battery company, Guoxuan High-tech Co. (002074.SZ).
However, amid mounting Sino-U.S. tensions, whether the cooperation between Ford and CATL will succeed has drawn much attention. On March 9, a U.S. senator proposed a ban on tax credits for batteries made with Chinese technology. A Ford spokesperson said the company would own 100 percent of its battery plants in the U.S. and that Ford would be better off producing batteries domestically than relying entirely on imports.
The Inflation Reduction Act was passed by Congress in August 2022 and one goal of the act was to encourage the development of electric vehicles. Under the bill, the government offers a tax credit of up to $7,500 to vehicles meeting various localized production conditions. Some countries opposed the bill after its publication, and the European Union negotiated with the U.S. on the relevant provisions. As a result, the promulgation of the details of the bill was delayed to the end of March 2023.
The main market for CATL was originally in China. In order to ensure global market share, it began to expand into the overseas market. Its financial reports show that its overseas business revenue in 2022 was 76.9 billion yuan, accounting for 23.41% of the total revenue. The overseas revenue grew by 176% year-on-year, which was higher than that of its domestic business. Its overseas projects are mainly located in Europe, where it ranks the second in terms of the market share. Based on the public information on orders, CATL and LG New Energy are both strong players in the European market in the next product cycle of the car companies.
The U.S. market is the focus of CATL’s new business, but the introduction of the Inflation Reduction Act has increased the uncertainty. The bill proposes that the proportion of battery components, including positive and negative battery materials, electrolytes, produced locally in North America should reach 50% before 2024, and 60% in 2024. The proportion will increase year by year thereafter, reaching 100% by 2029. The bill also proposes that the proportion of key mineral raw materials (lithium, nickel, cobalt, manganese, etc.) locally mined and processed in North America should reach 40% before 2024, 50% in 2024, and 80% by 2027.
The above requirements are not without discrimination, and Chinese companies may be regarded as “sensitive entities” and excluded. Thus, CATL has to change its strategies in the U.S market. It’s seen as a positive sign that two projects related to Chinese companies received support from the Michigan government on March 15.
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