Bypassing entry into the U.S. market through joint ventures with foreign companies
LG, SK, etc. are also constructing joint venture factories with Hwayu and GEM.
Strike when FEOC is designated… Industry: “It is possible to control the proportion of joint ventures”
Chinese battery companies are increasing joint ventures with foreign companies, taking advantage of U.S. subsidies. A number of Korean battery companies were also included in the joint venture to avoid U.S. Inflation Reduction Act (IRA) regulations. However, as criticism in the United States grows about China’s circumvention strategy, it is predicted that Korean companies participating in joint ventures may suffer damage if future regulations are introduced.
◆Ford withdraws joint factory with China’s CATL… why?
According to the industry on the 30th, Ford, one of the top three American automakers, recently withdrew its plan to build a joint factory with Chinese battery company CATL. Ford said, “We will suspend construction of the battery factory being built in Marshall, Michigan, until we are confident that it can be operated competitively.”
However, it is rumored that this decision was made due to criticism in the United States over the establishment of a joint battery factory in the United States with Chinese technology and capital. In fact, it has recently been reported that the U.S. House of Representatives’ Ways and Means Committee and the U.S.-China Strategic Competition Special Committee have launched an investigation into the construction of a joint plant between Ford and CATL.
Chinese companies are eager to explore detours through joint ventures with foreign companies to take advantage of IRA tax deductions. IRA provides tax credits for the purchase of electric vehicles that meet the country of origin requirements for battery components and key minerals and have final assembly in North America. According to this, in the case of batteries, more than 50% of all parts must be manufactured in North America starting this year.
▲Increasing number of joint venture factories between Korea and China… FEOC regulatory uncertainty remains
Korean battery companies cannot be left out when looking for a detour for Chinese companies. Recently, LG Chem signed a comprehensive business agreement (MOU) with China’s Huayou Group and decided to build a joint LFP (lithium, phosphate, iron) cathode material plant in Morocco.
It is said that their interests are aligned in that LG Chem receives raw materials from Huayu Cobalt at a low price, and Huayu Group can meet IRA conditions through this joint venture. Currently, both companies are investing 1.2 trillion won in Saemangeum to build a precursor plant.
SK On and Eco Pro Materials also established a joint venture ‘GEM New Energy Materials’ with China’s Geolinmei (GEM). This joint venture decided to build a precursor joint venture factory in the Saemangeum National Industrial Complex. This factory, with a total investment of 1.2 trillion won, is scheduled to be completed next year. When completed, it will also have an annual precursor production capacity of 50,000 tons.
However, the IRA has a provision that prohibits tax deductions if the battery components are manufactured by a “foreign concern company” (FEOC). However, as there are no specific provisions for this, it has never been applied in practice.
One thing to note is that Chinese companies that have joint ventures with Korea are highly likely to be listed on the FEOC list in the future. In this case, products manufactured jointly with FEOC companies are excluded from subsidy benefits.
In response to this, the Korean battery industry’s stance is that if specific regulations on FEOC are established, they will prepare a response by adjusting the proportion of joint ventures. For example, according to the US government’s Semiconductor Assistance Act (CHIPs), the proportion of companies designated as groups of concern must be less than 24%, and assuming this, they will consider lowering the proportion of Chinese companies’ shares to 24%.
An industry official said, “Even in the United States, we are well aware that China controls the raw material supply chain, so it will be difficult to completely exclude Chinese companies. As the core of IRA is semiconductors, even assuming the worst-case scenario, the standards are as stringent as those for semiconductors.” “I don’t think it will apply to the battery industry,” he said.
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.