The United States Restricts China's Access to Electric Vehicle Subsidies

02 Dec, 2023

The United States Restricts China's Access to Electric Vehicle Subsidies

In a bid to fortify the burgeoning electric vehicle (EV) industry in the United States, the Biden administration has introduced fresh regulations aimed at reducing China's influence on the production of EV batteries and associated materials. These regulations, disclosed on Friday, are designed to curtail the involvement of Chinese firms in providing materials for electric vehicles qualifying for federal tax credits. Additionally, they discourage companies seeking federal funding for battery factories in the U.S. from sourcing materials from China or Russia.

These rules have the potential to reshape automotive supply chains, currently heavily reliant on China for EV materials and components. Automakers, grappling with the challenge of adapting factories for EV production, face intense cost pressures. China stands out for providing some of the world's most advanced and cost-effective battery technology.

The Biden administration is leveraging billions in new federal funding to transform this landscape, striving to establish a robust U.S. supply chain for electric vehicles. The 2022 climate law, signed by President Biden, offers up to $7,500 in tax credits to consumers purchasing domestically made electric vehicles using predominantly local materials. The legislation also imposes a general ban on products from China, Russia, North Korea, and Iran, preventing them from supplying certain materials to vehicles eligible for tax breaks.

However, the law left room for interpretation, particularly regarding what constitutes a Chinese or Russian company. According to administration officials, these definitions encompass any entity incorporated or headquartered in China or Russia and any firm in which 25 percent of board seats or equity interest is held by the Chinese or Russian governments.

A notable relief for Chinese companies operating outside China is apparent in the rules, as long as the Chinese government does not hold a significant share. This provision alleviates concerns among automakers, fearing restrictions on contracting with Chinese-owned mines or factories globally. The law also mandates battery makers with agreements involving Chinese firms to retain specific rights over their projects, ensuring effective control remains outside Chinese influence. This provision addresses challenges to Ford Motor's plans to collaborate with the Chinese battery giant, CATL, for a plant in Marshall, Mich., with some conservative lawmakers questioning its eligibility for federal tax credits.