TANGIERS, Morocco (AP) — After the United States passed new subsidies aimed at boosting domestic production of electric vehicles and reducing Beijing’s supply chain dominance, Chinese manufacturers began investing in an unlikely place: Morocco.
In the rolling hills near Tangier and in industrial parks near the Atlantic Ocean, they have announced plans for new factories to make parts for electric vehicles that could qualify for $7,500 credits for car buyers in the United States.
Similar investments have been announced in other countries that share free trade agreements with the United States, including South Korea and Mexico.
But few countries have seen the kind of boom that Morocco has.
At least eight Chinese battery makers have announced new investments in the North African kingdom since President Joe Biden signed the Inflation Reduction Act, the $430 billion U.S. law designed to combat climate change, according to an Associated Press tally.
By shifting their operations to U.S. trading partners like Morocco, Chinese players that have long dominated the battery supply chain are looking to capitalize on growing demand from U.S. automakers like Tesla and General Motors, said Kevin Shang, a senior battery analyst at the consultancy firm. sturdy Wood Mackenzie.
“Chinese companies definitely don’t want to miss this big celebration,” he said.
The United States and the European Union have both important new tariffs imposed on Chinese vehicle imports since May. The United States too the final eligibility rules for the tax credits in May. The latter restricts companies linked to US adversaries but gives automakers time to reduce their dependence on China. To qualify for the subsidies, automakers cannot source essential minerals or battery components from manufacturers in which China and other “foreign entities of concern” control more than 25% of the company or board of directors.
Critics say the rules are a giveaway to China and will increase its EV dominance. The Biden administration says the rules pave the way for billions in investments in electric vehicle production in the United States.
Between East and West
In Morocco, a largely agricultural economy where the average income is $2,150 a month, huge industrial parks full of American, European and Chinese parts manufacturers have sprung up in the rural suburbs of Tangier, Kenitra and El Jadida.
Expansion of the infrastructure that will make Morocco one car production centerthey hope to meet growing demand and overcome rules designed to exclude them from the incentives the Inflation Reduction Act is injecting into the US auto market, the world’s second largest.
The rules “have led Chinese manufacturers to increase investments in countries with which the US has free trade agreements, namely South Korea and Morocco, to get past some IRA barriers,” policy research firm Rhodium Group said in a report earlier this year.
Some of the new Chinese investments in Morocco explicitly cite the new US subsidies as the reason.
Many are joint ventures that have leveraged their ability to tinker with board seats and governance to comply with U.S. regulations.
That includes CNGR, one of China’s largest battery cathode makers, which in September announced a $2 billion plan to build a so-called “base in the world and pan-Atlantic region” in a joint venture with the investment group of the Moroccan royal family, Al Mada.
Although CNGR owns just over 50% of the shares in the project, Thorsten Lahrs, CEO of the European division, said he is confident that the cathodes can qualify for the tax benefits and, if necessary, the composition of the board of management can change. If not, the company would turn to other markets, including Europe, which just raised tariffs on electric vehicles imported from China.
“To ride the wave of the IRA, you have to move quickly and comply with the rules,” he said in an interview before the US finalized the rules. “We have the flexibility to comply with any changes in interpretation or rules.”
The Chinese battery projects include at least three joint ventures and several that point to Morocco’s trade ties with the United States.
The largest among them is Sino-German battery manufacturer Gotion High-Tech, which signed an agreement with Morocco last year for a $6.4 billion investment to build Africa’s first battery factory for electric vehicles.
Investments also include Youshan, a joint venture backed by Korean giant LG Chem and China’s Huayou Cobalt. It declined to provide details on the size of their investment, but said the base in Morocco means their cathodes “will be supplied to the North American market and will be subsidized by the US Inflation Reduction Act, as Morocco is a signatory to the American Free Trade Agreement.”
LG Chem said the company would adjust ownership shares if necessary to comply with U.S. regulations.
China’s BTR Group’s announcement of a cathode plant in April noted that Morocco’s trade status with the United States and Europe would ensure “seamless access for the majority of its manufactured products to these regions.”
Abdelmonim Amachraa, a supply chain expert who previously worked at Morocco’s Ministry of Industry and Trade, said Morocco benefited from its “ability to coexist if no link can be found between China and the United States.”
Officials in Morocco have worked publicly and privately to promote ties in the auto industry supply chain, both in the East and West. The country is home to more than 250 companies that manufacture cars or car parts, including Stellantis and Renault, as well as Chinese, Japanese, American and Korean factories that make seats, engines, shock absorbers and wheels. The industry exports nearly $14 billion worth of cars and parts annually.
As the world transitions to electric vehicles, Morocco may appear a surprise beneficiary as China, the United States and Europe compete for market share. But officials worry that anti-competitive policies such as tariffs and subsidies could ultimately make it harder to attract investment.
Ryad Mezzour, the country’s Minister of Industry and Trade, said in an interview that all new investments do not tell the full story. Morocco has also lost out on a number of projects due to what he called “a new era of protectionism.”
A gigantic loophole
The investment has been a boon for countries like Morocco. But in Washington, Chinese companies have sounded the alarm by gaining access to the US subsidies.
“Under the Biden administration’s electric vehicle regulations, America’s working families will have to watch as their hard-earned tax dollars line the pockets of Chinese billionaires and companies with ties to the Chinese Communist Party,” said U.S. Rep. Jason Smith, a Republican from Missouri. , said of the new guidelines.
But at issue is the complexity of both the electric vehicle supply chain and the Inflation Reduction Act, which aims to increase EV adoption and also boost domestic manufacturing.
The U.S. Departments of Energy and Treasury have tried to strike a delicate balance, reducing dependence on Chinese manufacturers while ensuring enough vehicles qualify for the credits. The Department of Energy did not respond to questions about what its rules meant for Chinese investments in countries that share free trade agreements with the United States. But in a statement, a spokesperson called the transition to electric vehicles “an industry-wide, global trend” and said new policies “help the US strengthen its energy security and competitiveness – including outcompeting China.”
For years, China has subsidized companies that extract critical battery minerals, manufacturers of cathodes, anodes and electrolyzers, and automakers such as BYD. The eagerness of these companies to invest in Morocco to cash in on the Inflation Reduction Act shows how decoupling Chinese manufacturers from the supply chain will take years, if not decades, said Chris Berry, an adviser to battery companies and investors.
“There won’t be a lithium-ion battery supply chain that doesn’t have Chinese influence for a long time,” Berry said.
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