The Biden administration is working to kick-start the domestic supply chain for electric vehicles in the United States to support the production of cleaner cars. However, the experience of one Texas company, which had its plans to contribute to the production of an all-American electric vehicle disrupted by China, highlights the significance of the administration’s upcoming regulations.
Two years ago, Huntsman Corporation began work on a $50 million plant in Texas to produce ethylene carbonate, a key chemical used in electric vehicle batteries. The company intended to supply battery factories that would emerge to cater to the electric vehicle market. However, the entry of new facilities in China caused a drastic drop in the price of the chemical from $4,000 to $700 per ton. After investing $30 million in the project, the company halted work on it this year, stating that restarting the project would lead to significant financial losses, according to Peter R. Huntsman, the company’s CEO.
The Biden administration is in the process of finalizing rules that will determine whether companies like Huntsman will find it profitable to participate in America’s electric vehicle industry. These rules, slated to be proposed this week, will govern the extent to which foreign companies, particularly those from China, can supply parts and products for American-made vehicles that are set to receive billions of dollars in subsidies.
The administration is offering up to $7,500 in tax credits to Americans who purchase electric vehicles, aiming to accelerate the industry’s growth and reduce the nation’s carbon emissions. The regulations will determine whether electric vehicle manufacturers seeking to benefit from this program will have the flexibility to procure low-cost components from China or whether they will be required to purchase more expensive products from U.S.-based firms like Huntsman.
The lawmakers responsible for the climate bill, including Senator Joe Manchin III, included language that excludes an electric car from qualifying for tax breaks if the critical minerals or other components used in its battery were manufactured by “a foreign entity of concern.” This includes any firm owned by, controlled by, or subject to the jurisdiction of North Korea, China, Russia, or Iran. However, the administration has been tasked with providing details, including determining what constitutes a Chinese company and which products qualify as a “battery component.”
The administration faces a balancing act with the new rules. If it allows more companies to qualify for the benefits, there will be a wider selection of low-cost electric vehicles available to Americans, leading to increased adoption of clean cars and a positive impact on mitigating climate change. However, this may also help U.S. automakers struggling with losses in electric vehicle production. On the other hand, such a move could undermine the administration’s goal of building more secure supply chains for electric vehicles and reducing dependency on China, which currently dominates the global market for electric vehicles and their batteries.
The effort to balance these concerns has sparked a conflict between automakers and parts manufacturers, U.S. miners, and labor unions.
Automakers are anxiously awaiting the release of the guidelines.
Companies like General Motors and Hyundai, driven by the new climate law, are racing to establish factories in the United States to manufacture batteries and process materials such as lithium. However, they are still years away from being able to produce an electric vehicle without materials and components from China, according to industry representatives.
China dominates the production of essential materials such as graphite and processed lithium, crucial to the flow of electricity within a battery, as well as the cathodes and anodes, the fundamental building blocks of a battery. With substantial government subsidies and significant economies of scale, Chinese firms now sell some of the most advanced electric vehicles and their components at much lower prices compared to competitors in other countries.
Automakers are under pressure to keep costs down by procuring from the most cost-effective suppliers. Ford Motor reported a $1.3 billion loss on electric vehicles in the third quarter, equating to a loss of $36,000 on every vehicle sold.
In June, Tesla, which sources key parts from China, advocated for less restrictive regulations on foreign entities. It proposed confining the limits on foreign purchases to major battery parts, such as the cathode and anode, rather than the various minerals or other parts used in their production.
According to Albert Gore III, executive director of the Zero Emission Transportation Association, stringent regulations could disqualify U.S.-made vehicles from tax credits just because a single part originates from China. He expected the administration to strike a balance, considering both perspectives.
Conversely, miners and other manufacturers of battery materials and components argue that allowing China to supply low-cost parts could flood the U.S. market with foreign products, turning the United States into a mere assembly point for Chinese-made technology and products and leaving the economy highly vulnerable.
So far, the climate law seems to be driving investment in factories for electric vehicles and their batteries rather than in the mines and facilities that produce the minerals, chemicals, and smaller components used in batteries.
In fact, Jervois, the owner of the only planned cobalt mine in the United States, temporarily halted operations this year in Idaho, citing plummeting prices due to a surge in material produced by China. However, it resumed some exploratory drilling this fall, supported by new funding from the Defense Department.
Until the final rules are issued, some companies have put their plans for new U.S. investment on hold, recognizing that their business calculations could change significantly in the coming months.
“You’re seeing a bit of a holding pattern until the final guidance is released by the administration,” said Abigail Seadler Wulf, the vice president and director of critical minerals strategy at Securing America’s Future Energy, a nonprofit organization.
Mr. Huntsman stated that unless the government restricts the use of Chinese materials, there is no point in further investing in the company’s Texas project. He pointed out that the Chinese government heavily subsidizes the production of ethylene carbonate, allowing Chinese firms, which account for 90 percent of global production of the chemical, to sell it at extremely low prices.
“The question, really, is how does the United States want to respond to this?” he asked.
Alan Rappeport contributed reporting.
