TANGIER, Morocco (AP) — After the United States rolled out new subsidies to boost domestic production of electric vehicles and reduce Beijing’s dominance in the supply chain, Chinese manufacturers began investing in an unlikely place: Morocco.
In the rolling hills of Tangier and in industrial parks along the Atlantic Ocean, plans have been announced for new factories to produce parts for electric cars. These parts could qualify for a $7,500 credit for car buyers in the United States.
Similar investments have been announced in other countries that have free trade agreements with the United States, including South Korea and Mexico.
But few countries have experienced such a boom as Morocco.
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. bill designed to combat climate change, according to an Associated Press count.
By shifting their operations to U.S. trading partners such as Morocco, Chinese players that have long dominated the battery supply chain are seeking to capitalize on rising demand from U.S. automakers such as Tesla and General Motors, said Kevin Shang, senior battery analyst at consultancy Wood Mackenzie.
“Chinese companies definitely don’t want to miss this big celebration,” he said.
The United States and the European Union have both imposed major new tariffs on Chinese vehicle imports since May. The United States also finalized eligibility rules for the tax breaks in May. The latter restrict companies with ties to U.S. adversaries but give automakers time to reduce their reliance on China. To qualify for the subsidies, automakers must not source critical minerals or battery components from manufacturers in which China and other “foreign entities of interest” control more than 25% of the company or board of directors.
Critics say the rules are a giveaway to China and will extend its dominance in electric vehicles. The Biden administration says the rules will pave the way for billions in investment in electric vehicle manufacturing in the United States.
Between East and West
In Morocco, a largely agricultural economy where the average income is $2,150 a month, vast industrial estates filled with American, European and Chinese component manufacturers have sprung up in the rural outskirts of Tangier, Kenitra and El Jadida.
By building on the infrastructure that has made Morocco a center for auto manufacturing, they hope to meet growing demand and sidestep rules that exclude them from the incentives the Inflation Reduction Act injects into the U.S. auto market, the world’s second largest.
The rules “have led Chinese producers to increase their investments in countries with which the U.S. has free trade agreements, namely South Korea and Morocco, to circumvent some of the IRA barriers,” policy research firm Rhodium Group said in a report earlier this year.
In a number of new Chinese investments in Morocco, the new US subsidies are explicitly mentioned as a reason.
Many of these companies are joint ventures that indicate they can adjust board seats and management to comply with U.S. rules.
That includes CNGR, one of China’s largest battery cathodes producers, which in September announced a $2 billion plan to build what it called a “base in the world and the pan-Atlantic region” in a joint venture with the Moroccan royal family’s investment group, Al Mada.
Although CNGR owns just over 50 percent of the project, Thorsten Lahrs, CEO of the Europe division, said he is confident the cathodes will qualify for the tax breaks and that he can change the composition of the board if necessary. If not, the company would focus on other markets, including Europe, which has just raised tariffs on electric vehicles imported from China.
“To ride the wave of the IRA, you have to move quickly and comply with the rules,” he said in an interview before the U.S. finalized the 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 projects that reference Morocco’s trade ties with the United States.
The largest among them is the Chinese-German battery manufacturer Gotion High-Tech, which last year signed a deal with Morocco for a $6.4 billion investment to build Africa’s first electric vehicle battery factory.
Investments also include Youshan, a joint venture backed by Korean giant LG Chem and China’s Huayou Cobalt. The company declined to provide details on the size of its investment, but said the Moroccan 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 its ownership stakes if necessary to comply with U.S. rules.
China’s BTR Group’s announcement of a cathode plant in April noted that Morocco’s trading status with the United States and Europe would ensure “seamless access for the majority of its manufactured products to these regions.”
Abdelmonim Amachraa, a supply chain expert who previously worked at Morocco’s Ministry of Industry and Trade, said Morocco benefits from its “ability to coexist when no connection can be found between China and the United States.”
Officials in Morocco have worked publicly and privately to promote supply chain ties in both the East and West for the automotive industry. The country is home to more than 250 companies that produce cars or parts, 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.
As the world transitions to electric vehicles, Morocco appears to be a surprise 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 ultimately make it harder to lure investment.
Ryad Mezzour, the country’s minister of industry and trade, said in an interview that all the new investments don’t tell the whole story. Morocco has also lost a number of projects because of what he called “a new era of protectionism.”
A gigantic loophole in the law
The investment has been a boon for countries like Morocco. But in Washington, Chinese companies have raised alarm by trying to access the American subsidies.
“Under the Biden administration’s electric vehicle regulations, American working families will watch 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 Republican from Missouri, said of the new guidelines.
But it’s about the complexity of both the electric vehicle supply chain and the Inflation Reduction Act, which aims to increase electric vehicle adoption and also boost domestic manufacturing.
The U.S. Departments of Energy and the Treasury have tried to strike a delicate balance, working to reduce reliance on Chinese manufacturers while ensuring that enough vehicles qualify for the credits. The Energy Department did not respond to questions about what the rules mean for Chinese investment 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 trend across the industry” and said the new policy “helps the U.S. strengthen its energy security and competitiveness, including outpacing China.”
China has for years subsidized companies that mine critical battery minerals, manufacturers of cathodes, anodes and electrolyzers, and automakers like BYD. The eagerness of those companies to invest in Morocco to take advantage of the Inflation Reduction Act shows how it will take years, if not decades, to disconnect Chinese manufacturers from the supply chain, said Chris Berry, an adviser to battery companies and investors.
“There won’t be a lithium-ion battery supply chain for long that doesn’t have Chinese influence,” Berry said.
___
Associated Press climate and environmental reporting receives funding from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded reporting areas at AP.org.
