US-China: Are the Chinese EVs the next target of scrutiny by the Biden administration?

Tesla boss Elon Musk (L) walks with Shanghai Mayor Ying Yong during the ground-breaking ceremony for a Tesla factory in Shanghai on January 7, 2019. – Musk presided over the ground-breaking for a Shanghai factory that will allow the electric-car manufacturer to dodge the China-US tariff crossfire and sell directly to the world’s biggest market for “green” vehicles. (Photo by AFP) / China OUT

US-China: Are the Chinese EVs the next target of scrutiny by the Biden administration?

  • China is in the lead with nearly four million EVs sold last year — four times the US figure.
  • According to experts, the Biden Administration’s US EV tax credit announced last year is too late for the country to dominate the EV market.
  • Experts also expect China’s dominance over the battery supply chain will continue to hinder investment into US battery manufacturing for leading EV manufacturers.

More than any other nation, the US knows that the road to less reliance on China is a long and winding one. Of course, the right trade and industrial policies will help ensure that Washington, rather than Beijing, has its hands on the wheel. However, while we have seen the US try to stop depending on China “for the materials that power the products of today and tomorrow,” as President Joe Biden puts it, it’s apparent that their effort has not been entirely successful.

China holds the lion’s share of the electric vehicle industry. The US is far behind: in 2022, America passed the threshold of EVs accounting for 5% of new car sales — China passed that level in 2018. An analysis by BloombergNEF found that China holds an ever-growing portion of the global EV market. China’s global passenger EV sales share has gone from 26% in 2015 to 48% in 2021. It’s up to 56% in the first half of 2022, meaning it may hit 60% by the end of the year.

Last month, the China Passenger Car Association revealed that the country sold 5.67 million electric vehicles and plug-in hybrids in 2022. Of the new-energy vehicles that were sold, more than four million were all-electric vehicles, as state subsidies and high oil prices encouraged consumers to switch to greener models. In China, sales of new-energy vehicles were five times higher than in the US, cementing China at the top of the EV market.

What sets China apart from the rest, in EVs and batteries?

Despite the vast media hype in North America, only 31.6% of Tesla — America’s trophy child in the EV industry — sales occur on the continent. The EV market is predominantly distributed across China and Europe, and there are many factors contributing to why the US is falling behind. 

For starters, the US has been and is still grappling with dependence on battery materials processed overseas, especially in China. Chinese companies today control 80% of all critical minerals, including  80% of the world’s cobalt refining capacity, 82% of the world’s graphite production, and 93% of global manganese refining. Perhaps it is not a surprise that China has more than three-quarters of the world’s manufacturing capacity for EV batteries, and a single Chinese company, CATL, controls one-third of the entire global battery market.  

For carmakers in the US, it’s not as simple as ditching Chinese suppliers; matching their low prices is a task on its own. Initially, carmakers welcomed the new laws but gradually companies and their trade groups have begun pushing for a loosening of the rules around what counts as a Chinese-owned company. Some have advocated for a small amount of Chinese material to continue being allowed.

Many are making the change from Chinese suppliers to ensure they don’t lose customers to other companies who can sell US-made cars for US$7,500 less under new government rules. President Biden passed the Inflation Reduction Act to provide tax credit incentives for the sale of EVs manufactured in the US. As well as countering China’s rise in the industry, the move hopes to help meet the 2050 net-zero emissions target. The IRA includes requirements that all electric vehicles are assembled in the US.

Only vehicles with at least 50% of their battery components coming from the US (or countries with a free-trade agreement with the US) will be eligible for the full US$7,500 tax credit. The motivation of the Biden administration is clear; the nation has long been seeking to take advantage of the natural resources available on its borders. 

These caveats are undoubtedly aimed at driving investment in US raw material mining and battery production since legacy carmakers are actively following the market and expanding their EV production. However, industry experts indicate that the tax credit is unlikely to entice the more established companies, such as Tesla, who invested early in creating longer-term arrangements with Chinese-owned battery suppliers.

“Biden’s new US EV tax credit is too little too late when it comes to dominating the EV market,” GlobalData blatantly stated last year. The data and analytics company highlighted that China has a ten-year advantage in the electrification race, with the country set to constitute 60% of the global EV fleet by 2030 due to its dominant control over 70% of the global battery production supply chain.

All of this plays out against historical US-China tensions. Billy Wu, a battery engineer and senior lecturer at Imperial College London, the US policymakers are starting to realize when it comes to batteries, told Grid that “if you have no native producers, then you will ultimately be at the whim of China.”

Overall, the US federal push to keep battery production domestic is part of a broader reckoning about China’s ascendance. Still, experts say the US is unlikely to scale battery production fast enough to reach its high electric vehicle targets. Benchmark Mineral Intelligence forecasts that by 2025 the US’ share of battery manufacturing will rise, but only slightly — from 8 to 9%.

For now, it will take a long time for the US to catch up with China, which is about a decade ahead in the global EV race. With electric car sales in China and the US expected to keep rising and raw material supplies tightening, it remains to be seen whether either side will leverage its advantage in future trade disputes.