The Biden administration has been trying to revive the domestic supply chain for electric vehicles so that cleaner cars can be made in the United States. But the experience of a Texas company, whose plans to help make an all-American electric vehicle were upended by China, highlights what is at stake as the administration finalizes rules governing the industry.
Huntsman Corporation broke ground two years ago on a $50 million plant in Texas to make ethylene carbonate, a chemical used in electric vehicle batteries. It would have been the only site in North America that would manufacture the product, with the goal of powering the battery factories that would spring up to serve the electric vehicle market.
But as new facilities in China came online and flooded the market, the price of the chemical plummeted from $4,000 to $700 a ton. After pumping $30 million into the project, the company stopped work this year. “If we could start the project today, we would be losing money,” said Peter R. Huntsman, the company’s chief executive. “You would basically be paying people to take the product.”
The Biden administration is now finalizing rules that will help determine whether companies like Huntsman will find it profitable enough to participate in the U.S. electric vehicle industry. The rules, expected to be proposed this week, will dictate the extent to which foreign companies, particularly in China, can supply parts and products for American-made vehicles that will receive billions of dollars in subsidies.
The administration is offering up to $7,500 in tax credits to Americans who buy electric vehicles, in an effort to boost the industry and reduce the country’s carbon emissions. The rules will determine whether electric vehicle makers who want to benefit from that program will have the flexibility to source cheap components from China or whether they will instead be required to buy more expensive products from U.S.-based companies like Huntsman.
Lawmakers who drafted the climate bill, including Sen. Joe Manchin III, D-W.Va., included language prohibiting an electric car from qualifying for tax breaks if critical minerals or other components used in its battery were manufactured by “a foreign entity.” of concern.” Lawmakers defined it as any company that is owned, controlled or subject to the jurisdiction of North Korea, China, Russia or Iran.
But they left it to the Biden administration to fill in the details, including important questions like what constitutes a Chinese company and what product qualifies as a “battery component.”
The administration faces a complicated calculation with the new rules. By allowing more companies to qualify for the benefits, Americans will have a broader choice of low-cost electric vehicles to choose from. That would put more clean cars on the roads and help mitigate climate change. It could also help shore up the finances of U.S. automakers that are losing big on electric vehicle production.
But that path could undermine the administration’s other priority: building safer supply chains for electric vehicles. The government has sought to use the climate law to boost manufacturing of electric vehicles and parts in the United States and allied countries, and reduce dependence on China, which dominates global markets for electric vehicles and their batteries.
The effort to balance these concerns has sparked a fight between auto and parts manufacturers, American miners and unions.
Automakers have been awaiting the guidelines with trepidation.
Automakers like General Motors and Hyundai, spurred by the new climate law, are racing to build factories in the United States to produce batteries and process materials like lithium. But we are still years away from being able to produce an electric vehicle without materials or components from China, say representatives of the automobile industry.
China dominates the production of materials, such as graphite and processed lithium, which are essential for the flow of electricity within a battery, and for cathodes and anodes, the basic components of a battery. Thanks to formidable government subsidies and huge economies of scale, Chinese companies now sell some of the world’s most advanced electric vehicles and the components used to make them at prices much lower than competitors in other countries.
Automakers are also under intense pressure to keep costs down by buying from the cheapest suppliers. Ford Motor lost $1.3 billion on electric vehicles in the third quarter, the company said last month, equivalent to a loss of $36,000 for every vehicle it sold.
In June, Tesla, which sources key parts from China, submitted comments to the government arguing that upcoming restrictions on foreign entities should be less restrictive. Limits on foreign purchases should be limited to the main parts of the battery, such as the cathode and anode, not the various minerals or other parts used to make them, Tesla proposed.
In the worst-case scenario, said Albert Gore III, executive director of the Zero Emission Transportation Association, “you could have vehicles made in the United States, with the vast majority of parts coming from the United States, that could be disqualified from the credit.” fiscal because only one part comes from China.” Gore, whose organization counts Tesla and battery makers among its members, said he hoped the administration would strike a balance.
In contrast, miners and other makers of battery materials and components say allowing China to supply cheap parts could open the United States to a flood of foreign products. That would ensure that the United States was simply a rallying point for technology and products made in China, and would leave the American economy very vulnerable, they say.
So far, the climate law appears to have done more to spur investment in factories to make electric vehicles and their batteries than in the mines and facilities that produce the minerals, chemicals and smaller components that go into the battery itself.
In fact, the only planned cobalt mine in the United States, owned by Jervois in Idaho, temporarily closed this year. The company blames the drop in prices, caused by a new avalanche of material. produced by china. Jervois restarted some exploratory drilling this fall, thanks to new funding from the Department of Defense.
Until final rules are issued, some companies have suspended plans for new investments in the United States, aware that their business calculations could change significantly in the coming months.
“You’re seeing a holding pattern until the administration releases final guidance,” said Abigail Seadler Wulf, vice president and director of critical minerals strategy at nonprofit Securing America’s Future Energy.
Huntsman said that unless the government restricted the use of Chinese materials, it made no sense to invest further in the company’s Texas project. He said the Chinese government was heavily subsidizing the production of ethylene carbonate, allowing Chinese companies that account for 90 percent of global production of the chemical to sell it at such a low price.
“The question, really, is how does the United States want to respond to this?” she asked.
Alan Rappeport contributed reports.
