TANGIER, Morocco (AP) — After the United States passed new subsidies aimed at boosting domestic production of electric vehicles and reducing Beijing’s dominance over the supply chain, Chinese manufacturers have begun investing in an unlikely place: Morocco.
In the hills near Tangier and in industrial parks near the Atlantic Ocean, they announced plans for 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 comparable to that of Morocco.
At least eight Chinese battery makers have announced new investments in the North African kingdom since President Joe Biden signed the $430 billion U.S. Inflation Reduction Act, according to an Associated Press tally.
By shifting their operations to U.S. trading partners like Morocco, Chinese players that have long dominated the battery supply chain are looking for a way to capitalize on growing demand from U.S. automakers like Tesla and General Motors, said Kevin Shang, senior battery analyst at consultancy Wood Mackenzie.
“Chinese companies certainly do not want to miss this big celebration,” he said.
Both the United States and the European Union have imposed significant new customs tariffs on Chinese vehicle imports since May. The United States has also finalization of eligibility rules governing tax credits In May, the subsidies restrict 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 of directors.
Critics say the rules are a gift to China and will extend its dominance in electric vehicles. The Biden administration says the rules pave the way for billions in investment in electric vehicle manufacturing in the United States.
Between East and West
In Morocco, a largely agrarian economy where the median income is $2,150 a month, giant industrial parks filled with American, European and Chinese component makers have sprung up in the rural suburbs of Tangier, Kenitra and El Jadida.
Developing the infrastructure that has made Morocco a automobile manufacturing hubThey hope to meet growing demand and overcome rules designed to exclude them from the incentives that the inflation-reduction law is injecting into the U.S. auto market, the world’s second-largest.
These rules “have led Chinese producers to increase their investments in countries with which the United States 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.
Some of the new Chinese investments in Morocco explicitly cite new US subsidies as a reason.
Many of these are joint ventures that have asserted their ability to change board seats and governance to comply with U.S. rules.
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 global and pan-Atlantic region” in a joint venture with the Moroccan royal family’s investment group, Al Mada.
Although CNGR holds just over 50% of the project, Thorsten Lahrs, CEO of its European division, said he was confident its cathodes could benefit from the tax credits and would change the composition of its board if necessary. Otherwise, the company would look to other markets, including Europe, which just raised tariffs on electric vehicles imported from China.
“To ride the IRA wave, you have to act quickly and comply with its regulations,” 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.”
Chinese battery projects include at least three joint ventures and several that reference Morocco’s trade ties with the United States.
The largest of these is Sino-German battery maker Gotion High-Tech, which last year signed a $6.4 billion investment deal with Morocco to build Africa’s first electric vehicle battery factory.
The investments also include Youshan, a joint venture backed by Korean giant LG Chem and China’s Huayou Cobalt. She declined to provide details on the size of their investment, but said the Moroccan base means their 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 shares if necessary to comply with U.S. rules.
The announcement by China’s BTR Group of the construction of a cathode plant in April underscored that Morocco’s trade status with the United States and Europe would ensure “smooth entry for the majority of its manufactured products into 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 a link cannot be found between China and the United States.”
Moroccan officials have worked publicly and privately to strengthen ties along the auto supply chain, both east and 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 each year.
As the world shifts to electric vehicles, Morocco could surprise by being a beneficiary, as China, the United States and Europe vie for market share. But Moroccan leaders worry that anti-competitive policies such as tariffs and subsidies will make it harder to attract investment.
Ryad Mezzour, Morocco’s minister of industry and trade, said in an interview that not all new investments tell the whole story. Morocco has also lost some projects because of what he called “a new era of protectionism.”
A giant fault
Chinese investment has been a boon for countries like Morocco. But in Washington, Chinese companies have raised alarms by seeking American subsidies.
“Under the Biden administration’s electric vehicle regulations, working American families will have to watch their hard-earned tax dollars go to line the pockets of Chinese billionaires and companies tied to the Chinese Communist Party,” U.S. Rep. Jason Smith, a Missouri Republican, said of the new guidelines.
But what’s at stake are the complexities of the electric vehicle supply chain and the Inflation Reduction Act, which aims to increase adoption of electric vehicles and also boost domestic production.
The U.S. Departments of Energy and Treasury have been trying to strike a delicate balance, working to reduce reliance on Chinese automakers while ensuring enough vehicles are eligible for the credits. The Department of Energy did not respond to questions about what its rules mean for Chinese investment in countries that have free trade agreements with the U.S. But in a statement, a spokesperson called the shift to electric vehicles “a global, industry-wide trend” and said the new policies “help the United States strengthen its energy security and competitiveness, including by leapfrogging China.”
China has for years subsidized companies that extract minerals critical to batteries, makers of cathodes, anodes and electrolyzers, and automakers like BYD. The eagerness of these companies to invest in Morocco to take advantage of the inflation-reducing law shows that decoupling Chinese manufacturers from the supply chain will take years, if not decades, said Chris Berry, an adviser to battery makers and investors.
“There won’t be a lithium-ion battery supply chain that isn’t influenced by China for a long time,” Berry said.
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