TANGIER, Morocco (AP) — After the U.S. approved new subsidies designed to boost domestic production of electric vehicles and reduce Beijing’s dominance of the supply chain, Chinese manufacturers have begun investing in an unexpected place: Morocco.
In the hills near Tangier and in industrial parks close to the Atlantic Ocean, they have announced plans to build new factories to make parts for electric vehicles that could qualify for $7,500 credits for U.S. car buyers.
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 experienced a boom like Morocco’s.
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 operations to U.S. trading partners like Morocco, Chinese players that have long dominated the battery supply chain are seeking an avenue to cash in on rising demand from U.S. automakers like Tesla and General Motors, said Kevin Shang, a senior battery analyst at consultancy Wood Mackenzie.
“Chinese companies definitely don’t want to miss this big party,” he said.
Both the United States and the European Union have imposed significant new tariffs on Chinese vehicle imports since May. The United States also finalized eligibility rules governing tax credits in May. The latter limit companies with ties to U.S. adversaries but give automakers time to reduce their reliance on China. To qualify for the subsidies, automakers cannot source critical minerals or battery parts from manufacturers in which China and other “foreign entities of concern” control more than 25% of the company or its board.
Critics say the rules are a gift to China and will expand its dominance in the electric vehicle sector. The Biden administration says the rules pave the way for billions of dollars in investment in U.S. electric vehicle manufacturing.
Between East and West
In Morocco, a largely agrarian economy where the average income is $2,150 a month, giant industrial parks filled with American, European and Chinese component manufacturers have sprung up on the rural outskirts of Tangier, Kenitra and El Jadida.
By expanding the infrastructure that has made Morocco a hub for auto manufacturing, they hope to meet growing demand and overcome rules designed to exclude them from the incentives that the Inflation Reduction Act is pumping into the U.S. auto market, the world’s second-largest.
The rules “have led Chinese producers to increase investment in countries with which the United States has free trade agreements, namely South Korea and Morocco, to overcome 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 new US subsidies as a reason.
Many are joint ventures that have cited their ability to modify board positions and governance to comply with U.S. standards.
That includes CNGR, one of China’s largest producers of battery cathodes, which in September announced a $2 billion plan to build what it called a “base in the world and pan-Atlantic region” in a joint venture with the Moroccan royal family’s investment group, Al Mada.
Although CNGR owns just over a 50% stake in the project, Thorsten Lahrs, chief executive of its European division, said he is confident its cathodes can qualify for tax credits and change the makeup of its board if necessary. Otherwise, the company would move into other markets, including Europe, which just raised tariffs on electric vehicles imported from China.
“To ride the wave of the IRA, you have to act quickly and comply with their rules,” he said in an interview before the United States finalized its rules. “We have the flexibility to be able to comply with any changes in interpretation or rules.”
The Chinese battery projects include at least three joint ventures and several that reference Morocco’s business ties with the United States.
The largest of these is Chinese-German battery maker Gotion High-Tech, which last year signed a $6.4 billion deal with Morocco to build Africa’s first electric vehicle battery factory.
Among the investments is Youshan, a joint venture backed by Korean giant LG Chem and China’s Huayou Cobalt. It declined to provide details on the size of its investment, but said the Morocco base means its cathodes “will be supplied to the North American market and subsidized by the US Inflation Reduction Act, as Morocco is a signatory to the US Free Trade Agreement.”
LG Chem said the company would adjust ownership stakes as needed to comply with U.S. rules.
China’s BTR Group announced a cathode factory in April, saying Morocco’s trade status with the United States and Europe would ensure “smooth entry for most of its manufactured products in these regions.”
Abdelmonim Amachraa, a supply chain expert who previously worked at Morocco’s Ministry of Industry and Trade, said Morocco was benefiting from its “ability to coexist when no link can be found between China and the United States.”
Moroccan authorities have worked, both publicly and privately, to foster links throughout the automotive industry’s supply chain, both in the East and the West. The country is home to more than 250 companies that make cars or their components, 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.
In a transition to electric vehicles, Morocco may seem a surprising beneficiary as China, the United States and Europe vie for market share. But its officials worry that anti-competitive policies such as tariffs and subsidies could end up making it harder to attract investment.
Ryad Mezzour, the country’s minister of industry and trade, said in an interview that all the new investments do not reflect the full reality. Morocco has also lost some projects due to what he called “a new era of protectionism.”
A giant legal loophole
The investment has been a boon for countries like Morocco, but in Washington, Chinese companies have raised the alarm by trying to access US subsidies.
“With the Biden administration’s electric vehicle regulations, America’s working families will have to watch as their hard-earned tax dollars go to line the pockets of Chinese billionaires and companies with ties to the Chinese Communist Party,” U.S. Rep. Jason Smith, a Missouri Republican, said of the new guidelines.
But at stake are the complexities of both the EV supply chain and the Inflation Reduction Act, which seeks to increase EV adoption and boost domestic manufacturing as well.
The U.S. Departments of Energy and Treasury have tried to strike a delicate balance, working to reduce reliance on Chinese manufacturers while ensuring there are enough vehicles to qualify for the credits. The Energy Department 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 “a global, industry-wide trend” and said the new policies “help the United States strengthen its energy security and competitiveness, including the ability to outpace China.”
China has for years subsidized companies that extract minerals essential for batteries, cathode, anode and electrolyzer manufacturers and carmakers such as BYD. The eagerness of those companies to invest in Morocco to take advantage of the Inflation Reduction Law shows that weaning Chinese manufacturers from the supply chain will take years, if not decades, said Chris Berry, an adviser to battery companies and investors.
“There will not be a lithium-ion battery supply chain that is free of Chinese influence for a long time,” Berry said.
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