Ford has decided to suspend the construction of an automotive battery plant in Michigan with Chinese battery maker CATL. Strong opposition from U.S. lawmakers to Chinese companies building battery production facilities in the United States to circumvent the U.S. Inflation Reduction Act (IRA) is the reason behind the suspension. The Korean battery industry, which is pursuing joint ventures with Chinese companies, is also concerned over facing a firestorm over the IRA.
“We will suspend work and limit spending on construction until we are confident that we will be able to run the plant with strong competitiveness,” Ford said with regard to CATL, according to the Associated Press and other media outlets on Sept. 25. The American automaker said that the decision was not final.
Earlier, in February, Ford announced a US$3.5 billion investment with CATL to build a battery plant in the city of Marshall, Michigan in the United States. The Marshall plant will produce lithium iron phosphate (LFP) batteries starting from 2026. Instead of directly equipping its EVs with Chinese batteries, the company is set to employ a strategy to take advantage of EV subsidies offered through the IRA by using American batteries produced with the help of Chinese capital and technology.
However, this is a way to bypass the IRA, which prohibits the procurement of batteries and key minerals and materials from foreign entities of concern (FEOCs) associated with China, Russia, Iran, and North Korea. This has been criticized by the Republican-majority U.S. House of Representatives. The House Ways and Means Committee and the House Select Committee on the Chinese Communist Party are currently investigating a joint venture between Ford and CATL.
Tesla was caught on the radar as well. Ways and Means Chairman Jason Smith (Republican) sent a letter to Tesla CEO Elon Musk on Sept. 20, demanding that Tesla disclose the details of its contract with CATL. Smith wanted to know in order to determine whether or not IRA subsidies are flowing through Ford or Tesla to CATL.
Automakers’ strategies to circumvent the IRA and a U.S. congressional backlash are likely to influence detailed FEOC guidelines that the Joe Biden administration will issue in the future. This also makes Korean battery companies nervous that have been planning to build precursor and cathode plants in Korea in partnership with Chinese companies and export them to the United States.
The IRA requires that battery materials, including precursors and cathodes, be produced in countries with free trade agreements (FTAs) with the United States to subsidize U.S.-made EVs powered by batteries made with such battery materials. In response, Chinese companies entered the battery material business for export to the United States by establishing joint ventures in Korea with LG Chem, POSCO FUTURE M, SK on, and Ecopro. If the United States bans this business model in the FEOC guidelines, Korean companies will have to take the risk of acquiring Chinese shares of their joint venture with Chinese companies.
Meanwhile, some analysts say Ford’s decision to shut down the Marshall plant is a bargaining chip with the striking United Auto Workers (UAW). “The management of Ford threatens us with job cuts by closing a plant that has not even opened its doors,” the UAW said in a statement. “Uncertainties about the regulatory environment such as regulations on FEOCs may have played a role in Ford’s decision to shut down the Marshall plant in the United States,” the New York Times reported. “Ford may be trying to pressure the labor union.”