In recent years, semiconductors have become a focus of the United States' efforts to hinder China's technological progress. Now, Washington has its sights on another hot tech area where China is making strides: electric vehicle batteries. Earlier this month, the U.S. Treasury and Energy Departments proposed rules that would restrict electric vehicle buyers from applying for tax credits if their battery materials come from China and other countries deemed "hostile" to the United States.
Under the climate bill President Joe Biden approved last year, consumers can receive up to $7,500 in subsidies for electric vehicles that are made in the United States and use mostly domestic materials.
China's Ministry of Commerce hit back last week, saying the U.S. regulations "discriminate against Chinese companies and violate WTO rules." China's Ministry of Commerce said excluding Chinese suppliers from U.S. tax incentives is a "typical non-market-oriented policy and practice."
The rules, aimed at reducing U.S. dependence on Chinese supply chains in a new era of decoupling, are likely to hamper Biden's efforts to boost electric vehicle sales as part of the president's plan to halve planet-warming greenhouse gas emissions by 2030.
Also at stake is the U.S. goal of curbing China's dominance of fast-growing industries spurred by countries' transition to electric vehicles. In the first ten months of this year, China's two largest battery manufacturers CATL and BYD accounted for about 53% of global electric vehicle battery usage, according to SNE Research.
On the demand side, data from research firm Counterpoint shows that as of the third quarter of this year, China has become the world's largest electric vehicle market with a 58% share, followed by the United States and Germany.
South Korean giants such as LG, Samsung and SKOn offer competitive alternatives to China's cheap, advanced batteries and are most likely to benefit from worsening relations between China and the United States. But even these South Korean companies are beset by new geopolitical complications.
Although SKOn has been selected by Ford and Hyundai Motor to develop battery plans in the United States, Chey Tae-won, president of its parent company SK Group, recently accused the United States of keeping battery costs high. The South Korean chaebol's battery unit now has to look elsewhere for non-Chinese materials. From rare ore mining and refining to battery production, China owns much of the global electric vehicle battery supply chain.
To keep costs attractive, Chinese battery companies have been scrambling to build factories in the United States to continue offering electric vehicle tax credits to their buyers. Industry giants such as TNB, BYD and CATL have formulated strategic plans to produce in the United States, but their journey has not been smooth sailing. For example, Ford temporarily suspended plans to build a $3.5 billion electric vehicle battery plant in Michigan with CATL amid U.S. political scrutiny of Ford's deals with Chinese companies.