Biden botches the dream of electric vehicles made in America
If the U.S. plays well, it could happen again — without the tariffs — as it tries to build the great U.S. EV supply chain independent of the global factory (and the biggest battery and cell maker). electric vehicles), China. This time, however, the South Koreans will join the Japanese.
As the electric vehicle hype intensifies and a battery shortage emerges, industrial giants like SK Innovation Co., Honda Motor Co., LG Energy Solution Ltd., Panasonic Holdings Corp. and Toyota announced billions of dollars of facilities across the United States to manufacture power packs. To ensure that much of it comes from North America, some are sourcing raw materials from Canada as the country deepens its ties with South Korea. Since the start of 2021, more than 15 new facilities or expansions, concentrated around the Midwest and the South, have been disclosed in the United States, a potential investment of at least $40 billion, according to an analysis by the Federal Reserve Bank from Dallas.
These companies fill a key technology gap that the United States is trying to bridge. State governments have welcomed them with open arms. With few U.S. companies capable of making South Korea-scale electric vehicles and batteries or that are commercially viable, there is a large market to tap into.
To drive the point home – perhaps a little too hard – and ensure that the entire supply chain shows up in the United States, the Joe Biden administration introduced the Cut Inflation Act to attract more Manufacturing. As a result, everyone seems to want to build a battery factory. The problem is, it hits those who actually strengthen the US supply chain the hardest.
For South Korea, the main concern is the best-selling electric vehicles made by Hyundai Motor Co. and Kia Corp. Electric vehicles that are not made in the United States will effectively be excluded under the American carrot-and-stick, Beijing-style industrial policy. Americans really liked to buy them. Meanwhile, national component requirements are hitting South Korean battery makers, as many of the critical and processed materials used to make the power packs come from China. Now Seoul is asking the United States for a reprieve on tax credits that disadvantage them.
If the idea is that these pressures will cause the tech champions of South Korea and Japan to push harder to enter the United States, much like in the 1980s, then that might be wrong. Although the United States is a huge market, it is not the largest as it was for Toyota and Honda decades ago. The cost advantage and efficiency that the Japanese could enjoy back then no longer exists today, especially in today’s inflationary environment where supply chain issues have become the norm. They also have large facilities in China with an extensive network of suppliers, paving the way for smoother operations and bigger markets where doing business is easier. If capital spending in the United States comes with too many strings attached, it just might not make sense.
Allowing South Korea and others to create the big manufacturing hub the US is vying for would be smart. But decades-old tactics don’t align with the new (especially post-Covid) world. Creating obstacles for South Korean companies that were doing well will only set back American ambitions. How are they going to source sufficient minerals from somewhere in North America? Where will the manufacturing equipment come from? And at what price? Ask companies that have promising technology and hope to qualify for EV policy credits, and they’ll tell you how shockingly long delivery times for machines are already.
Then there’s the scaling up of technology and battery volumes to break even or maybe turn a profit, and that takes years. In the industry, the big ones are only getting bigger due to their capital-intensive nature (think China-based Contemporary Amperex Technology Co., the world’s largest maker of electric vehicle batteries). This gives LG Energy and Panasonic an edge, but the political hurdles will be huge hurdles. And they are mostly just a waste of time.
The Biden administration could learn from China how to get the right incentives and the right players. South Korean companies are looking to expand their battery recycling facilities in China – a key next step to ensure a stable supply of raw materials. China welcomed Tesla Inc. and ensured that Elon Musk’s electric vehicle maker had just about everything to pull hundreds of thousands of electric vehicles off production lines. A vast supply chain grew around it, and power supply manufacturers flourished. And, this week, Musk’s Model S and Model X were on a list of vehicles eligible for tax exemptions on purchases. These are not made in China yet, like Model 3 and Model Y.
The measures taken to keep others out and the latest flea ban only serve to set the United States back, if only by creating uncertainty and tension on a global scale. If the United States is able to see past the geopolitical haze, then it has a chance of having a massive, smooth supply chain with the best technology. Without it, he’ll just sit on the edge of something big – for a long time. And few Made in America batteries and electric vehicles.
More from Bloomberg Opinion:
• China fires five-year warning shot at US: Anjani Trivedi
• Supply chains are not broken, at least not in Asia: Anjani Trivedi
• Holes in US policy on Chinese-style electric vehicles: Anjani Trivedi
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
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