New US Bill Bans on Pentagon Purchase of China Batteries, Hitting CATL and BYD

BEIJING, January 22 (TMTPost)-- A new U.S. bill is going to ban the Defense Department from purchases of batteries made major Chinese companies including top two electric vehicle (EV) battery makers--Contemporary Amperex Technology Co. Ltd. (CATL) and BYD Co.

Credit：Visual China

U. S. Congress has given the green light to the abovementioned ban as part of the latest National Defense Authorization Act that passed on December 22, which will come into effect in October, 2027, Bloomberg reported. The ban was said to prevent procuring batteries from Chinese manufacturers to decouple Pentagons’s supply chain from China. The new rule is set to affect six Chinese firms including CATL, BYD, Envision Energy Ltd., EVE Energy Co., Gotion High Tech Co. and Hithium Energy Storage Technology Co., TMTPost App confirmed from multiple sources. CATL, BYD, EVE Energy and Gotion High Tech are among top ten global EV battery companies in terms of EV battery installation, according to estimates from various institutions.

China strongly deplores and firmly opposes the the National Defense Authorization Act for Fiscal Year 2024 that passed and signed into law in December, and has made serious démarches to the US side. Beijing urges the U.S. to work with China to deliver on the important outcome and common understandings of the San Francisco summit and not implement the negative China-related content in the Act, Mao Ning, the spokesperson of China’s Foreign Ministry, said at a regular press on December 26. The Act pictures China as a threat, suppresses Chinese companies and limits normal economic, trade and people-to-people exchanges between China and the US, which serves no one’s interest, according to Mao. The spokesperson cautioned China will take resolute and strong measures to firmly safeguard its sovereignty, security and development rights and interests if the US insists on going ahead with it.

While the ban doesn’t extend to commercial purchase from American companies such as Ford Motor Co., and Tesla Inc., the reported law did pose negative impact on CATL’s overseas expansion.

The Inflation Reduction Act (IRA) was passed by U.S. Congress in August 2022. One goal of the act was to encourage the development of electric vehicles in the United States. Under the bill, the U.S. government offers a tax credit of up to $7,500 to vehicles meeting various localized production conditions. Introduction of IRA has increased the uncertainty of CATL and other Chinese battery companies’ expansion in U.S. as the law proposes the proportion of battery components, including positive and negatiitdve battery materials, electrolytes, produced locally in North America should reach 50% before 2024, and 60% in 2024. The proportion will increase year by year thereafter, reaching 100% by 2029. The bill also proposes that the proportion of key mineral raw materials, including lithium, nickel, cobalt, manganese, etc., locally mined and processed in North America should reach 40% before 2024, 50% in 2024, and 80% by 2027. These requirements are not without discrimination, and Chinese companies may be regarded as “sensitive entities” and excluded. Thus, CATL and its domestic peers have to change its strategies in the U.S market.

Ford announced in February 2023 that it will invest $3.5 billion to build a lithium iron phosphate cells (LFP) factory in Michigan, and CATL will serve as its partner that provides technology and expertise. Ford was reported in September that it halted construction of its plant in Marshall, Michigan as several House committees launched investigations into CATL and Ford’s cooperation and the project, arguing it would enable Chinese domination of the U.S. auto industry. A Ford spokesperson later confirmed the U.S. auto giant paused work and limited spending on construction on the Marshall project “until we’re confident about our ability to competitively operate the plant”.

The Wall Street Journal reported last December that a review, launched by the Office of the United States Trade Representative (USTR) more than a year ago, could end up hiking tariff on some of Chinese clean-energy products, like EV, EV batteries and solar products, while lowering those on China-made consumer products.

Washington has suggested it would impose new limits on EV tax credits, which is deemed as a new curb targeting Chinese firms. In the beginning of this month, the U.S. Department of Energy (DOE) proposed interpretive rule and request for public comment on its interpretation of the statutory definition of “foreign entity of concern” (FEOC) in the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law (BIL). FEOC refers to companies based in China and other countries, or with at least 25% voting interest, board membership or ownership by a government of these countries. The FEOC rules will come into effect in 2024. And the U.S. Treasury Department could not treat a clean vehicle containing any critical minerals that were extracted, processed, or recycled by a FEOC qualified for EV purchase incentive beginning in 2025.