In 2024, US-China Trade Tensions Likely To Cast Shadow Over EV, PV Supply Chains

Short of an unprecedented rapprochement, the EV sector looks set to be headed into some potholes in 2024. The reason is heightening tensions between the US and China, as both countries ratchet up measures to assert control over their respective strengths. For China, it is its huge dominance of the EV supply chain, from batteries to rare earths, and the means to make and extract them respectively, that has become a tool to hit back at US measures.

Chinese Ownership Disqualifies Subsidies

The US measures of course include limiting tax credits or subsidies that can be as much as $7500 to $3750 on EV purchases only to manufacturers who can prove  that  they have avoided buying battery components made by companies under Chinese jurisdiction or with at least 25% Chinese government ownership.

As of now, just 13 EV models in the US qualify for a consumer tax credit of as much as $7,500 thanks to new Biden administration rules that took effect on January 1, according to Bloomberg.
This is a fall from 24 models earlier, but firms using higher sourcing from China, especially for battery components have been weeded out by the new regulations. The regulations, by targeting suppliers of Lithium as well as Cobalt, two critical materials where China has a strong grip, have forced investments to be redirected towards other sources for these on priority.

Currently, models that make the cut for full or partial credit include Tesla’s Model Y, Rivian’s R1T, Stellantis’s Jeep Wrangler 4xe, and Ford’s F-150 Lightning. But Tesla’s Cybertruck, certain Model 3 versions, Nissan’s Leaf, Ford’s E-Transit van, and GM’s electric Blazer and Silverado have all lost credit access, impacting their ability to compete.

China Responds With Strangle On Rare Earths

For China, these measures have not gone unanswered, as the country has clamped down on not just export of rare earths  where it has almost monopoly like status in cases, but even the machinery that cn be used to extract and refine these metals. In effect, doing its best to prevent others from developing their own discovered deposits further. Activated on December 21, the export ban on the covers both the crafting of rare earth magnets and the refining of rare earth metals, as well as technologies related to extracting, segregating, and manufacturing rare earth substances.

The same Chinese belligerence is becoming apparent in PV manufacturing as well, where rumblings are being heard about bans, formal or otherwise on export of manufacturing machinery from China that could support efforts in other countries to build their own solar supply chains, an area where China controls over 80% of the global market.  How long China continues down this path is a moot question, as the country has not only been the biggest beneficiary of globalisation, but also the biggest votary for it over the past few years,

However, unlike in the past, what all these moves may not achieve yet is a hike in prices, as China battles its own slowing economy and overcapacity that needs global markets. it is counting on the pragmatism of countries that faced with a choice of low Chinese prices versus high domestic subsidies and prices, might yet go for the former, at least in 2024.