Washington’s curbs on China’s battery industry may not go far enough, some Canadian companies are arguing.
The plan: The U.S. Internal Revenue Service is consulting on changes it plans to make to the country’s tax code to reflect tax credits the Biden administration is offering EV buyers under the Inflation Reduction Act. The proposed changes also attempt to limit the role that so-called foreign entities of concern (FEOC)—companies based in countries like China, Russia, Iran and North Korea—play in the North American battery supply chain.
The problem: The likes of Nano One and Novonix, as well as the Quebec government, are warning the proposed rules contain loopholes that could limit their effectiveness—and make it harder for Canadian players to compete.
“Quebec is worried,” says the province’s submission to the IRS consultations. It warns the tax agency’s proposal could actually encourage “over-subsidized operations by state-owned enterprises” in countries of concern, with the potential to “increase unfair trade practices, contributing to an uneven playing field and the resultant harmful effects on world markets.”
The backdrop: Concern about China’s role in North America’s battery supply chain is nearing a boiling point. This week, two U.S. House committees asked Ford to provide more detailed information on its plans to partner with CATL to build a gigafactory in Michigan that could employ workers from China, amid allegations about the Chinese battery giant’s past ties to forced labour.
“The overall political climate in the U.S. is increasingly aligned toward a hawkish perspective on China,” said Milo McBride, a Eurasia Group analyst who co-leads the firm’s critical-mineral practice. “That’s something that Canadian counterparts are demonstrating in their own ways.”
The details—and the debate: The Inflation Reduction Act’s EV tax credits currently exclude vehicles with batteries for which FEOCs have assembled components or extracted, processed or recycled the critical minerals used in them.
B.C.-based battery company Nano One argued in its submission that the IRS’s proposals do little to protect key materials like battery-grade iron or phosphorus, and appear to let FEOCs participate in the EV supply chain “by either extracting OR processing the critical mineral, so long as they don’t do both.”
Nano One CEO Dan Blondal said in an interview that companies like Ford are welcome to work with CATL, but he doesn’t think taxpayers should underwrite such partnerships.
“We have a cleaner, greener, faster way of making [battery materials]. … We can do it cost-competitively against China, even on North American soil,” said Blondal. “The risk is … it becomes harder for the newer players, the newer entrants in critical minerals, or midstream like ourselves, to build the business. They don’t have the protections to gain a foothold, and flourish and ultimately become cost-competitive.”
Not everyone agrees. Volkswagen’s submissions argue that without access to certain FEOCs, the market for new clean vehicles could “collapse.”
Novonix, a Nova Scotia-founded battery company, argued China’s control of the key battery ingredient graphite is “the biggest risk to the industry.” Lack of clarity about how the IRA’s battery tax credit will treat the battery mineral is hampering the firm’s ability to close deals at a “critical time for domestic industry.”
The takeaway: “Essentially doing everything in China is cheaper,” said Novonix CEO Chris Burns in an interview. “But from an environmental standpoint, at its simplest, you cannot copy a plant out of China and put it in the United States.
“We know it, we live and breathe it. … That’s one of the reasons that the U.S. and the Canadian government need to understand how they can support companies.”
Read Shift—The Logic’s authoritative weekly newsletter on automotive technology industry news—for more; and if you know someone who should be reading it, they can sign up here.
