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Business News/ Auto News / Biden to Limit Chinese Role in U.S. EV Market
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Biden to Limit Chinese Role in U.S. EV Market

wsj

The Biden administration is expected to release tax credit rules on Friday that could shape the American market for electric vehicles.

How the government defines battery materials from a ‘foreign entity of concern’ could have sales implications for Ford Motor and other makers of electric vehicles. Premium
How the government defines battery materials from a ‘foreign entity of concern’ could have sales implications for Ford Motor and other makers of electric vehicles.

The Biden administration is expected to release tax-credit rules on Friday that could shape the American market for electric vehicles, people familiar with the matter said.

The U.S. last year revamped a $7,500 tax subsidy for people who buy new EVs. One of the changes says consumers won’t be able to claim the credit if they purchase cars containing battery materials from a “foreign entity of concern." Lawmakers included the rule in the Inflation Reduction Act to push automakers to rely less on dominant Chinese suppliers.

Defining the vague phrase has emerged as a challenge for the Biden administration. How it addresses the term in the proposed rules, expected Friday, could help determine how much Americans will pay for many EVs in the coming years.

The White House hopes the new tax-credit rules will encourage the development of auto-supply chains in the U.S. and distance the industry from China, the most important source of clean-energy technology and a geopolitical rival. At the same time, disqualifying vehicle batteries with even minor contributions from Chinese firms could mean that few, if any, EVs would be eligible for the $7,500 credit, potentially slowing the transition away from gasoline-powered cars.

“A lot rides on how exactly the Treasury Department defines this rule insofar as it applies to the ability of car manufacturers to use parts from Chinese corporations in their supply chains," analysts at Beacon Policy Advisors, a policy-research firm, wrote in a note.

A Treasury spokeswoman declined to comment.

The tax-credit rule comes as demand for electric vehicles has shown signs of cooling, prompting several automakers to adjust their plans for EV investment. While sales of EVs have still grown significantly, the rate of growth has slowed compared with last year.

The Biden administration’s guidance will likely block the subsidy for cars containing batteries, components or minerals made by state-owned Chinese companies. Officials have been weighing how to address companies based in the U.S. or in a third country that are partially owned by private Chinese firms. Whether batteries built with technology licensed from a Chinese company can qualify for the subsidy has been another area of debate.

The prohibition will come into effect in 2024 for manufactured battery components and in 2025 for the minerals that go into them. Regardless of how the Biden administration enforces the rule, auto industry experts expect the requirement will reduce the number of cars eligible for the credit in the near term.

Several automakers have waited for a more precise definition of “foreign entity of concern" before moving forward with investment or licensing deals to build EV batteries and acquire critical minerals, people familiar with the matter say.

Ford Motor took a risk on the rules this year, announcing that it was building a battery factory in Michigan that would license technology from Contemporary Amperex Technology, a Chinese company and the world’s largest battery maker. Ford’s deal with CATL became a political lightning rod, with lawmakers in Washington calling on the Biden administration to adopt a “foreign entity of concern" definition that would disqualify cars with batteries made at the plant from the subsidy.

General Motors, which doesn’t have such deals with Chinese companies, has lobbied the Biden administration to take a strict approach. That could set back Ford’s plans for building more electric vehicles. GM lobbyists have warned that other automakers will move forward with licensing Chinese technology unless the practice is discouraged through the subsidy rules.

Ford this fall paused construction of the plant. Last week, the automaker said it would still move forward with construction, though it downsized the amount of its investment.

Chinese companies have been striking deals with Korean and Moroccan companies in hopes those arrangements will be allowed under the subsidy rules. Some firms have made plans to adjust their ownership structures to comply with the “foreign entity of concern" provision if necessary, The Wall Street Journal has reported.

Write to Andrew Duehren at andrew.duehren@wsj.com

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