According to people with knowledge of the matter, Reuters is reporting that CATL, the largest battery maker in the world, is rethinking its decision to construct a battery facility in North America. The company has been looking into potential locations for a manufacturing in Mexico as well as in South Carolina or Kentucky in the US.
The Inflation Reduction Act mandates that by 2024, 50% of the materials used in battery production must come from sources in North America or nations with most-favored nation trade status, which is causing a tidal wave of investment in battery materials and manufacturing by numerous enterprises. By 2026, that threshold will increase to 80%. The IRA’s major architect, Senator Joe Manchin, has stated that its goal was to encourage businesses to mine and manufacture battery-related minerals in North America and reduce the industry’s dependency on China.
Although CATL is not opposed to producing batteries in the US (or Mexico), according to those sources, even if CATL were to receive federal incentives to build a battery factory in the US, doing so would increase the cost of materials compared to the cost of producing them in China and shipping them to North America.
A large supply and processing infrastructure that CATL has established in China helps it to maintain very competitive pricing on its batteries, which are used in one-third of all electric vehicles produced worldwide. According to the sources, the envisioned battery factory in the US or Mexico would provide batteries to significant clients like Ford and BMW.
The IRA’s rules have drawn strong opposition from South Korean and European automakers. According to Reuters, officials from Volkswagen, BMW, and Hyundai have pleaded with US lawmakers to provide US-based manufacturers extra time to reach the necessary battery sourcing requirements in order to be eligible for tax benefits. However, CATL’s shift in perspective is the first recorded instance of an automaker or significant supplier reconsidering an investment as a result of the new regulation.
According to the sources, CATL views North America as a major market, but the company’s investment plans have been hindered by the new US laws on procuring battery materials, which have become a “banana peel.” It was unclear right away how big of a delay CATL was considering in any North American expansion or whether it could change its strategy in other ways to reduce the cost disparity.
THE CONCLUSION The IRA is a giver and a taker. On the one hand, it has accelerated investments in battery storage and renewable energy. However, it has created substantial obstacles for automakers that want their vehicles to be eligible for the new tax incentives.
The Europeans are dissatisfied. South Koreans are unsatisfied. Threats are being made through the World Trade Organization. In addition, the likelihood of making any significant modifications to the IRA will be quite low if either house of Congress changes control as a result of the US election in a few weeks.
Although existing policies may persuade CATL to forgo entering the North American market for EV batteries, the company might play a significant role in the push to make electric cars more accessible to consumers in the US. A minor interruption here might cause a major disruption there in the delicate ballet that is politics. Remain tuned. This narrative still has a last chapter to be completed.
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