Chinese firms eye Morocco as solution to money in on US electric vehicle subsidies

TANGIERS, Morocco (AP) — After the US passed latest subsidies designed to spice up domestic electric vehicle production and cut into Beijing’s supply chain dominance, Chinese manufacturers began investing in an unlikely place: Morocco.

Within the rolling hills near Tangiers and in industrial parks near the Atlantic Ocean, they’ve announced plans for brand spanking new factories to make parts for EVs which will qualify for $7,500 credits to automobile buyers in the US.

Similar investments have been announced in other countries that share free trade agreements with the US, including South Korea and Mexico.

But few countries have seen the sort of boom that Morocco has.

At the least eight Chinese battery makers have announced latest investments within the North African kingdom since President Joe Biden signed the Inflation Reduction Act, the $430 billion U.S. law designed to fight climate change, in accordance with an Associated Press tally.

By moving operations to U.S. trading partners like Morocco, Chinese players which have long dominated the battery supply chain are searching for a pathway to money in on increasing demand from American carmakers like Tesla and General Motors, said Kevin Shang, a senior battery analyst on the consulting firm Wood Mackenzie.

“Chinese firms definitely don’t need to miss this big party,” he said.

The US and European Union have each imposed major latest tariffs on Chinese vehicle imports since May. The US also finalized eligibility rules governing the tax credits in May. The latter limit firms with ties to U.S. adversaries, but give carmakers time to scale back their reliance on China. To qualify for the subsidies, carmakers cannot source critical minerals or battery parts from manufacturers by which China and other “foreign entities of concern” control greater than 25% of the corporate or its board.

Critics say the principles are a giveaway to China and can extend its EV dominance. The Biden administration says the principles pave the way in which for billions in investment in EV manufacturing in the US.

Between East and West

In Morocco, a largely agrarian economy where the median income is $2,150 a month, giant industrial parks filled with American, European and Chinese component makers have sprung up in the agricultural outskirts of Tangiers, Kenitra and El Jadida.

Expanding on infrastructure that has made Morocco a automobile manufacturing hub, they hope to fulfill growing demand and overcome rules designed to exclude them from the incentives the Inflation Reduction Act is injecting into the U.S. automobile market, the world’s second-largest.

The foundations “have led Chinese producers to extend investment in countries with whom the US has free trade agreements, namely South Korea and Morocco, to get past some IRA barriers,” the policy research firm Rhodium Group said in a report earlier this 12 months.

Among the latest China investments in Morocco explicitly cite the brand new U.S. subsidies as a reason.

Many are joint ventures which have cited their ability to tinker with board seats and governance to comply with U.S. rules.

That features CNGR, one in all China’s largest battery cathode producers, which in September announced a $2 billion plan to construct what it called a “base on the planet and pan-Atlantic region” in a three way partnership with the Moroccan royal family’s investment group, Al Mada.

Though CNGR owns barely greater than a 50% stake within the project, Thorsten Lahrs, CEO of its Europe division, said he’s confident its cathodes can qualify for the tax credits and alter its board composition if obligatory. If not, the corporate would pivot to other markets, including Europe, which just hiked tariffs on electric vehicles imported from China.

“To ride the wave of the IRA, you have got to execute fast and comply with its regulations,” he said in an interview before the U.S. finalized its rules. “Now we have flexibility to give you the option to comply with all of the changes in interpretation or rules.”

The Chinese battery projects include not less than three joint ventures and several other that reference Morocco’s trade ties with the US.

The biggest amongst them is Chinese-German battery-maker Gotion High-Tech, which signed a cope with Morocco last 12 months for $6.4 billion investment to construct Africa’s first electric vehicle battery factory.

Investments also include Youshan, a three way partnership backed by Korean giant LG Chem and China’s Huayou Cobalt. It declined to supply details concerning the size of their investment but said the Morocco base means their cathodes “will likely be supplied to the North American market and subsidized by the U.S. Inflation Reduction Act as Morocco is a signatory to the U.S. Free Trade Agreement.”

LG Chem said the enterprise would adjust ownership shares as obligatory to comply with U.S. rules.

China’s BTR Group’s announcement of a cathode factory in April noted that Morocco’s trade status with the US and Europe would ensure “a seamless entry for nearly all of its manufactured products into these regions.”

Abdelmonim Amachraa, a supply chain expert who previously worked in Morocco’s Ministry of Industry and Trade, said Morocco was making the most of its “ability to coexist when a link can’t be found between China and the US.”

Officials in Morocco have publicly and privately worked to foster ties up and down the automotive supply chain in each the East and the West. The country hosts greater than 250 firms that manufacture cars or their components, including Stellantis and Renault in addition to Chinese, Japanese, American and Korean factories that make seats, engines, shock absorbers and wheels. The industry exports almost $14 billion in cars and parts annually.

Because the world transitions to electric vehicles, Morocco may look like a surprising beneficiary as China, the US and Europe compete for market share. But its officials worry that anti-competitive policies like tariffs and subsidies could ultimately make it tougher to lure investment.

Ryad Mezzour, the country’s minister of industry and trade, said in an interview that every one the brand new investment doesn’t tell the total story. Morocco has also lost out on some projects as a consequence of what he called “a latest age of protectionism.”

A large loophole

The investment has been a boon to countries like Morocco. But in Washington, Chinese firms have raised alarm by angling to access the American subsidies.

“Under the Biden administration’s electric vehicle regulations, America’s working families could have to observe their hard-earned tax dollars go to line the pockets of Chinese billionaires and businesses with links to the Chinese Communist Party,” U.S. Rep. Jason Smith, a Missouri Republican, said of the brand new guidelines.

But at issue are the complexities of each the electrical vehicle supply chain and the Inflation Reduction Act, which seeks to grow adoption of EVs and boost domestic manufacturing, too.

The U.S. Energy and Treasury departments have tried to strike a fragile balance, working to scale back reliance on Chinese manufacturers while also ensuring enough vehicles qualify for the credits. The Department of Energy didn’t reply to questions on what its rules meant for Chinese investments in countries that share free trade agreements with the US. But in a press release, a spokesperson called the transition to electric vehicles “an industry-wide, global trend” and said latest policies “help the US strengthen its energy security and competitiveness—including outcompeting China.”

China has spent years subsidizing firms that extract critical battery minerals, manufacturers of cathodes, anodes and electrolyzers and carmakers like BYD. Those firms’ eagerness to take a position in Morocco to money in on the Inflation Reduction Act shows how decoupling Chinese manufacturers from the availability chain will take years, if not many years, said Chris Berry, an adviser to battery firms and investors.

“There is just not going to be a lithium ion battery supply chain that doesn’t have Chinese influence for a very long time,” Berry said.


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