The Flaws of US Industrial Policy China-Style
All of this is pushing the United States toward a greener future. But working to shut out the world’s largest electric vehicle battery market and maker is short-sighted. Indeed, almost every manufacturer operating in the United States or elsewhere relies on China, not only for raw materials, but also to refine them and ultimately manufacture the power supplies. In the value chain, the country dominates with 92% of processed materials, 71% of cell assembly and 65% of battery components.
Theoretically, the goal of the IRA is to build a national supply chain as soon as possible, while reducing dependence on China, creating jobs and gaining bipartisan support. It makes sense, but it’s not based on what’s possible over a realistic period of time. Cold turkey on essential processes means there will always be a cavernous gap between raw materials and the finished battery.
Removing China will increase costs by around $30 to $35 per kilowatt-hour and around $1,000 on other variable costs, according to analysts at Nomura Holdings Inc. Since the IRA subsidizes materials through credits tax, companies will have to make a profit. to start enjoying it. Yet companies will tell you from bitter experience that manufacturing batteries profitably and at scale doesn’t happen quickly for the most part. Meanwhile, capital expenditure is highest in the United States compared to Europe and China. Labor costs are rising across America, and major disputes over railroads and ports — key machinery in supply chains — are underway.
Most global manufacturers of electric vehicles and batteries have found themselves in a bind: their production, at some point, ends up going through China. South Korea, for example, has called on Biden administration officials to reconsider measures such as U.S. production requirements and quickly end reliance on China.
As it stands, the law doesn’t massively benefit companies that could actually help jump-start building an American supply chain, or those that have the technology and ability to create a robust system. for electric vehicles and their batteries. Instead, it is expected to boost America’s biggest automakers, as well as the maker of some of America’s most popular cars, Toyota Motor Corp., all far behind global makers in the electric rush. It would have been smarter to encourage rapid factory building, solve labor problems, and then wean ourselves off China.
Although Korean battery makers with various partnerships and joint ventures with US automakers seem to benefit, the reality is that their hold on processed materials is limited and still dependent on China. Meanwhile, the IRA inadvertently excludes Hyundai Motor Co. and its subsidiary, Kia Corp., which are second only to Tesla Inc. in terms of electric vehicle sales volume in the United States, because they do not are not made there. Also globally they are one of the largest in terms of shipments. Consumers clearly love their electric vehicles, but the IRA won’t subsidize them now.
Ensuring that incentives trickle down the value chain is key, and supporting suppliers – those who are integral to it, not just those who have their mark on the end product – is even more important.
A White House supply chain review in June 2021 called China’s practices to boost its domestic industry “aggressive” and “far outside of globally accepted fair trade practices.” But perhaps there is something to be learned from Beijing’s laser-focused policies. Instead of allowing national security and geopolitics to limit the IRA, lawmakers should try to understand how China has produced some of the most successful battery companies, including the world’s largest, Contemporary Amperex Technology Co. ., or CATL, and BYD Co. (1)No So I wonder if CATL will now supply batteries to Ford Motor Co. in a recently announced strategic cooperation, and not the other way around.
So far, China’s supply has weathered rising battery material costs, power outages, continued Covid lockdowns and regulatory pressure. Companies there have been successful in sustaining the increase in electric vehicle battery installations across the country. This is no small feat. But subsidies alone do not encourage this, nor do policies to keep others out.
If the United States really wants a share in this sector, it should take inspiration from the Beijing book. It means facing its industrial weaknesses and making them stronger.
More from Bloomberg Opinion:
• The United States is losing the race for electric vehicle batteries: Anjani Trivedi
• How Chinese car batteries conquered the world: Anjani Trivedi
• Manchin shock gives cleantech a welcome jolt: Liam Denning
(1) These companies have been major recipients of government largesse, but they are neither owned nor controlled by the government.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
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