China's power battery exports are once again hit by the US "black hand"

On August 16, local time, US President Biden officially signed the "2022 Inflation Reduction Act", which will come into effect on January 1, 2023. With this, this subsidy policy, which lasted 18 months and involved an amount of up to 369 billion US dollars, was officially implemented.

It is understood that the new bill involves subsidy projects in a number of new energy fields, including solar energy, wind power generation, electric vehicles and other industries.

Specifically for electric vehicles, not only are consumers who purchase electric vehicles given subsidies of up to US$7,500 per vehicle, but the subsidy sales limit for automakers has also been lifted.

However, in addition to these benefits, the bill also puts forward more requirements, especially for foreign companies, it can be said that it has set many restrictions.

In fact, the $7,500 electric vehicle subsidy has been extended since the Obama era. The difference is that the policy at that time had a sales limit, that is, each automaker was only entitled to a quota of 200,000 vehicles. When the cumulative sales of electric vehicles in the United States reached 200,000 vehicles, the automaker would no longer enjoy the subsidy.

Currently, Tesla, GM, and Toyota have already reached the upper limit of 200,000 vehicles, while Ford and Nissan are also about to hit the "limit line". So when the new bill removes the 200,000 sales limit, it is undoubtedly a good thing for these car companies.

But new restrictions also come with it: electric vehicles that enjoy subsidies must be "made in North America", and battery materials must come from the United States or countries that have a free trade agreement (FTA) with the United States. Most battery production and assembly are completed in North America. After 2023, electric vehicles with "batteries produced in other countries" will not be able to receive subsidies.

There are two types of companies that are more anxious about this. The first is car companies that have not built manufacturing plants in the United States, such as Korean companies such as Kia and Infiniti; the second is power battery companies that rely on the Chinese battery industry chain, and car companies that rely on Chinese power battery imports.

There is no doubt that the purpose of this measure, the "Inflation Reduction Act of 2022", is to protect domestic American companies and promote the establishment of a domestic electric vehicle industry chain, including complete vehicle manufacturing plants and power battery manufacturing plants.

At first glance, there seems to be no problem, and it may even be more beneficial for companies that come here to invest and build factories, and improve their competitiveness. However, behind this "overt conspiracy", the spearhead is directly aimed at China.

01 CATL, helpless and swaying

The United States is the world's second largest auto market, with annual sales of nearly 15 million vehicles. Currently, the penetration rate of new energy vehicles in the United States exceeds 5%, and it is in the early stages of a new energy explosion. Moreover, as an American company, Tesla's share of new energy vehicles in the United States exceeds 70%.

Faced with such a vast market, with Tesla and Ford acting as matchmakers, CATL certainly does not want to miss out.

In March this year, Zeng Yuqun, chairman of CATL, made a bold statement during an institutional investor research event, saying that "the US market will definitely be entered." Soon after, there were rumors that CATL executives went to Mexico for a "meeting," as if they were planning to conquer the US market.

Shortly thereafter, in July, foreign media further reported that CATL was considering investing US$5 billion in Mexico to build a battery manufacturing plant to supply Tesla and Ford.

Just when everything seemed to be set in stone, unexpectedly "Aunt Pei" jumped around and brought more uncertainty.

According to foreign media reports, the site selection and negotiations for CATL's North American battery factory have entered the advanced stage and are expected to be finalized in a few weeks. However, in order to avoid releasing news during a sensitive period, CATL changed its plan and postponed the disclosure of relevant information about the North American factory construction to September or October.

The logic is coherent and reasonable. However, there is another saying that the postponement of CATL's North American factory plan is related to the "2022 Inflation Reduction Act".

As mentioned above, the 2022 Inflation Reduction Act states that starting January 1, 2023, electric vehicles must be "Made in North America" ​​to enjoy subsidies. Directly importing batteries from abroad does not comply with the new law. In addition, key raw materials for power batteries must be supplied by the United States or countries with which the United States has a FTA, otherwise they will not enjoy subsidies.

However, relevant data show that about 90% of the main raw materials for power batteries, such as lithium and cobalt, are processed in China.

If CATL builds a factory in North America, it means that its domestic supply chain advantages will not be able to be brought into play, and it may even face the impact of various subjective negative factors such as high labor costs and marginal politics.

On the one hand, there is the vast North American market, a new source of profit growth; on the other hand, it is "firmly tied" to the United States, adding the possibility of many sunk costs. In this case, what will CATL choose?

A week ago, CATL’s announcement to build a battery factory in the eastern Hungarian city of Debrecen seemed to indicate something.

It is understood that the planned production capacity of CATL's Debrecen plant is 100GWh, with an investment of 7.34 billion euros (about 51.086 billion yuan). This is CATL's second plant in Europe after its German plant.

CATL officially stated that the Debrecen plant is close to the vehicle manufacturing plants of customers such as Mercedes-Benz, BMW, Stellantis, and Volkswagen, which will help CATL better respond to the needs of the European market, further improve its global strategic layout, and accelerate Europe's electrification and energy transformation.

It's fine to just listen to the official rhetoric, but judging from CATL's current situation, CATL's overseas strategy has begun to shift from the North American market to the European market.

02 Profits to the left, development to the right

In fact, just like the "dilemma" encountered by CATL, all power battery companies that set up factories in the United States are faced with such a choice: either to bow to the US market, develop in a disciplined manner, and obey its orders; or to seek better opportunities, find another way, and seek other incremental markets.

Envision Power is a little-known power battery company under the Envision Technology Group. Its predecessor was a joint venture between Nissan Motor and NEC. It was acquired by Envision Technology Group in 2018 and officially changed its name to Envision Power at the 2019 Shanghai Auto Show.

Although Envision Power has not appeared many times in the domestic power battery market, in the international environment excluding the Chinese market, in the first half of this year, Envision Power's battery installation volume ranked sixth, and its main partners include Nissan, Renault, Mercedes-Benz and many other international automakers.

In fact, compared with CATL, Envision Power started its layout in the United States earlier. In addition to the Tennessee factory that was put into production in 2012, the Kentucky factory that was confirmed four months ago is also being planned and built.

A person related to Envision Power said that because Envision has already laid out its plans, the supply chain is ready and will not be greatly affected by the "2022 Inflation Reduction Act". However, CATL is a newcomer and may be affected to a certain extent.

▲ Envision Power's global production capacity layout

You can't have your cake and eat it too. Just like BYD supplies blade batteries to Tesla, if it only supplies Tesla in the US market, the existence of the 2022 Inflation Reduction Act will inevitably have an impact on it. Teslas produced by Tesla's Shanghai Super Factory will not enjoy the special subsidy of $7,500 if they are exported to the US market.

In fact, the ideal design of the US government is that Korean battery manufacturers provide technology and production capacity, Japan provides upstream battery components, Australia, Canada and others provide upstream raw materials, and China is excluded from the supply chain.

There are many factors involved, especially the rapid development of Chinese battery manufacturers such as CATL, BYD, and Sinotruk, which makes it difficult for the relevant US parties not to be vigilant. After all, in their American dream, they don’t think that Chinese companies will come to "share the cake".

In fact, it doesn't matter whether it is a dilemma or not. For most battery manufacturers, the most important thing is to maintain their market share to prevent being eliminated by others in the tide of the times. There are only two roads ahead: go left and pursue a more profitable market; or go right and seek a longer-term development direction.

The road ahead is long, and the road ahead for Chinese power battery companies is also long.

Even though the US market has set up many barriers and requires foreign companies to "exchange technology for market", there is still room for negotiation. At least before 2023, Chinese power battery companies still have the right to choose.

Even if we take a step back, isn't the European power battery market also a blue ocean? Chinese companies don't have to hang themselves on a crooked tree. In addition to the US market, there is a broader world outside.