Some companies argue that a law designed to promote electric vehicles poses the risk of transforming the United States into a manufacturing facility for Chinese-made technology.
Huntsman Corporation, a chemical company, initiated construction in Texas for the production of ethylene carbonate two years ago, but the project was paused due to declining prices and increased competition from China.
The Biden administration aims to revitalize the U.S. electric vehicle supply chain to promote the production of environmentally friendly cars within the country. However, the situation faced by a Texas company, whose efforts to contribute to an entirely American-made electric vehicle were disrupted by China, underscores the significance of the challenges as the administration completes regulations for the industry.
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Two years ago, Huntsman Corporation initiated the construction of a $50 million plant in Texas dedicated to producing ethylene carbonate, a vital chemical used in electric vehicle batteries. Initially set to be the exclusive North American site for this product, the plant aimed to support emerging battery factories catering to the growing electric vehicle market.
However, the market dynamics shifted as new Chinese facilities entered the scene, causing the price of the chemical to plunge from $4,000 to $700 per ton. Faced with this challenge, and having invested $30 million in the project, Huntsman Corporation halted construction this year. Peter R. Huntsman, the company’s CEO, expressed the financial impracticality of continuing the project, stating, “If we were to start the project up today, we would be hemorrhaging cash. I’d essentially be paying people to take the product.”
The Biden administration is now in the final stages of crafting rules that will influence the profitability of companies like Huntsman in the American electric vehicle industry. Expected to be proposed this week, these rules will determine the extent to which foreign companies, particularly those in China, can supply components for U.S.-made electric vehicles slated to receive substantial subsidies.
To incentivize the adoption of electric vehicles and curb carbon emissions, the administration is offering tax credits of up to $7,500 to American buyers of electric vehicles. The forthcoming rules will play a pivotal role in deciding whether electric vehicle manufacturers can opt for cost-effective components from China or if they will be obliged to invest in pricier products from U.S.-based companies like Huntsman.
Having invested $30 million in the venture, Huntsman suspended its progress. “Commencing the project now would result in significant financial losses,” explained Peter R. Huntsman, the CEO of the company.
Lawmakers, including Senator Joe Manchin III, crafted the climate bill, stipulating that electric cars wouldn’t qualify for tax breaks if their batteries used critical minerals or components from a “foreign entity of concern.” This encompasses firms owned or controlled by North Korea, China, Russia, or Iran. The Biden administration is tasked with defining specifics, such as what constitutes a Chinese company and which components qualify as “battery components.”
The administration faces a delicate balance with these rules. If more companies qualify, there’d be a broader range of affordable electric vehicles, promoting cleaner transportation and aiding U.S. automakers. However, this could conflict with the goal of securing supply chains for electric vehicles and reducing reliance on China, a dominant force in this market.
This balancing act has sparked a conflict between automakers, parts manufacturers, U.S. miners, and labor unions. Carmakers, like GM and Hyundai, are rushing to build battery and processing plants in the U.S., spurred by the climate law. Still, they depend on Chinese materials and components, creating challenges for compliance. China’s dominance in materials crucial to batteries poses a significant obstacle to self-sufficiency.
Tesla, reliant on Chinese parts, suggested limiting restrictions to major battery components rather than various minerals or other parts. Striking the right balance is crucial, ensuring vehicles made in the U.S. with mostly domestic parts aren’t disqualified from tax credits due to a single Chinese component. However, allowing cheap Chinese parts raises concerns about flooding the U.S. with foreign products, undermining the nation’s autonomy in electric vehicle production.
The climate law, at present, seems to be more effective in encouraging investments in electric vehicle and battery manufacturing plants than in the mines and facilities responsible for producing the minerals, chemicals, and smaller components required for the batteries.
As of now, the sole planned cobalt mine in the United States, owned by Jervois in Idaho, temporarily closed this year. The decline in prices, attributed to a surge in material from China, was cited as the reason. Jervois resumed some exploratory drilling this fall, thanks to new funding from the Defense Department.
Given the pending issuance of final rules, some companies have paused their plans for new investments in the U.S., mindful that their business calculations might undergo significant changes in the coming months.
Abigail Seadler Wulf, the vice president and director of critical minerals strategy at Securing America’s Future Energy, a nonprofit organization, noted, “You’re seeing a bit of a holding pattern until the final guidance is released by the administration.”
Mr. Huntsman expressed that unless the government imposes restrictions on the use of Chinese materials, further investment in the company’s Texas project would be pointless. He highlighted that the Chinese government heavily subsidizes the production of ethylene carbonate, enabling Chinese firms, accounting for 90 percent of global production, to sell it at a low cost.
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