Tesla is in talks to build a battery plant in the U.S. in a partnership with a Chinese electric vehicle (EV) battery manufacturer.
The company described its plans to build a battery plant with Contemporary Amperex Technology Co. Ltd. (CATL), a Chinese company, according to Bloomberg.
Tesla has requested clarification from the Biden administration regarding the Inflation Reduction Act, which includes language about tax breaks for EV manufacturers who build their batteries domestically.
CATL makes lithium iron phosphate (LFP) batteries, a critical component of Tesla’s goal to increase production and lower costs as competition in the EV market heats up, according to Bloomberg.
Elon Musk has been exploring LFP batteries, a reportedly cheaper and safer alternative to nickel-based batteries made in the United States, for years.
EV manufacturing is expected to undergo a dramatic shift as a result of the decision, according to The Information.
Although these batteries offer less efficiency and a lower range, they have improved enough to become a viable option in lower-end EV models, according to Electrek.
Tesla is considering building its LFP battery plant in Texas to supply its established EV assembly plant.
Tesla’s plant would mirror the one Ford announced in February with the same Chinese company, a decision that did not sit well with U.S. lawmakers.
Republican Sen. Marco Rubio, who opposed the Inflation Reduction Act, introduced legislation blocking tax credits for producing EV batteries with Chinese technology and asked the Biden administration to review Ford’s new partnership, according to VOA News.
“Nine billion to help people buy tax credits,” Rubio said, per VOA News. “By the way, with a Chinese battery in it. … I imagine we’ll spend a bunch more money to buy solar panels which are also made in China.”
Ford CEO Jim Farley responded to Rubio’s legislation by saying, “No other entity will get U.S. tax dollars for this project.”
“We’re growing production of batteries here at home, reflecting the central purpose of the Inflation Reduction Act — that’s why it was passed, for this project,” the Ford CEO said, per VOA News.
Like Ford’s proposed battery plant, Tesla would own and operate the factory and license the technology from CATL, Bloomberg reported.
Jonathan Ward, the founder of the Atlas Organization, a New York-based consultancy focused on Chinese and Indian national strategy, said that decades of outsourcing left the United States behind in EV battery manufacturing, leaving EV companies little choice but to work with Chinese companies like CATL, according to VOA News.
“Essentially 60% of the battery market is made up of Chinese corporations,” Ward said, per VOA News.
“CATL, the battery maker in question here, is already 34% of global market share. The other companies are Japanese and South Korean, but they are smaller than the aggregate Chinese battery makers. So, we have this contest that we are going to have to deal with.”
By incentivizing a domestic supply chain through tax credits, the Inflation Reduction Act aims to shift EV manufacturing back to the U.S. from China.
However, automakers have been lobbying the U.S. Treasury Department regarding the interpretation of the law, Bloomberg reported, focusing in particular on clause 30D, which withholds consumer tax credits for electric vehicles whose batteries contain a certain percentage of Chinese materials.
According to the IRS website, if you take possession of a new clean vehicle on or after April 18, 2023, it must meet critical mineral and battery component requirements to qualify for the credit.