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Exclusive: China’s CATL slows battery investment plan for US and Mexico

  • CATL is the largest battery manufacturer in the world
  • Planned US factories part of expansion out of China
  • New US restrictions on EV battery materials imposed in August

Oct 21 (Reuters) – Chinese battery giant CATL (300750.SZ) has slowed its planning for investments in battery factories in North America over concerns that new U.S. rules on sourcing battery materials could increase costs, said two people with knowledge of the matter. .

The world’s largest battery maker, which supplies one in three electric vehicles, has been planning to open new factories in the United States and Mexico since the start of this year, Reuters previously reported.

The planned investment in northern Mexico, South Carolina or Kentucky would be part of CATL’s expansion beyond China, where it controls nearly half of the battery market, and serves major automakers. which its customers, including Ford (FN) and BMW (BMWG.DE), said people with knowledge of the process.

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But CATL executives have slowed the process of vetting sites for potential new factories in North America since late August, when the United States imposed tough new restrictions on the sourcing of materials used in electric vehicle batteries. , two people, who spoke on the condition of not being named, told Reuters.

CATL did not immediately respond to a request for comment.

Executives from Volkswagen (VOWG_p.DE), BMW and Hyundai (005380.KS) have urged U.S. lawmakers to give automakers operating in the U.S. more time to meet battery supply targets required to qualify for incentives tax.

But CATL’s change represents the first known example of a major automaker or supplier rethinking an investment because of the new law, known as the Inflation Reduction Act (IRA).

Democratic Sen. Joe Manchin, who played a pivotal role in drafting the legislation, said it was intended to incentivize companies to mine and process battery materials in North America and break dependence on electricity. industry vis-à-vis China.

The IRA requires automakers to source 50% of critical minerals used in electric vehicle batteries from North America or US allies by 2024, rising to 80% by the end of 2026.

CATL sees North America as a critical market, said the two people with knowledge of its planning. But new US rules on sourcing battery materials have become a “banana peel” that has slowed the company’s investment plans, one said.

The rules would raise the cost of making the batteries in the United States higher than shipping them from China, even though the US government offers subsidies to CATL to build the factories, said a third person, who also said. asked not to be identified.

It was not immediately clear what delay CATL was considering in any North American expansion or whether it could make any further adjustments to its approach to reduce the cost gap.

China, led by CATL, dominates the electric vehicle battery supply chain, producing around 70% of the battery cells manufactured globally. It also holds a dominant position in the refining of key materials, including cobalt and manganese.

On Wednesday, BMW announced a $1.7 billion investment to build electric vehicles and high-voltage batteries in South Carolina. At the event to announce the investment, Zipse criticized the new sourcing requirements, saying “the United States should have regulations that aren’t totally unrealistic.”

Envision AESC, a Chinese renewable energy group that has acquired battery supplier Nissan Motor Co Ltd (7201.T) already operating in the United States, will build a new battery plant in South Carolina to supply BMW, the companies said. companies.

“We are not unduly concerned,” Envision said in a statement when asked about the company’s views on battery supply requirements.

Hyundai Motor Co, which is set to open a $5.5 billion electric vehicle factory in Georgia next week, also wants U.S. lawmakers to offer companies investing in the U.S. some sort of waiver or longer transition period. .

Signed into law in August by US President Joe Biden, the IRA contains incentives designed to help meet his administration’s goals of halving US carbon emissions by 2030 and reaching net zero emissions by 2050.

Under the $430 billion law, rules governing the current $7,500 electric vehicle tax credit aimed at persuading consumers to buy the vehicles will be replaced with incentives designed to bring more manufacturing of batteries and electric vehicles in the United States.

The U.S. Treasury is currently collecting feedback on how to implement the electric vehicle tax credit rules.

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Reporting by Zhang Yan, Christoph Steitz; Editing by Kevin Krolicki, Stephen Coates, Elaine Hardcastle

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