General Motors is reportedly in talks to purchase electric vehicle batteries from China’s Contemporary Amperex Technology (CATL) with the twist being that the cells would technically be assembled inside the United States as part of an operation funded and overseen by the Japanese multinational TDK Corporation.
According to Bloomberg, the talks are said to be provisional and could hinge heavily on how U.S. politics progress this year. However, all parties seem keen on limiting Chinese influence at the moment.
Despite both the Trump and Biden administration having taken steps to restrict China from accessing the North American market in the past, the nation had already made a staggering amount of headway. Chinese suppliers are already commonplace in regard to home appliances, personal electronic devices, textiles, furniture, and automotive parts.
The Asian nation is also the world leader in battery manufacturing. In fact, many have claimed that China has the most to gain from pivoting the world toward all-electric vehicles. While the United States has taken steps to prevent the nation from selling vehicles directly, the Lincoln Nautilus, Buick Envision, Volvo S90, and all Polestar models are technically Chinese-made products. However, Chinese brands are now making inroads within Mexico and are setting themselves up to grow sales in our hemisphere by establishing factories within the North American market.
A lot of noise has been made about the above by the requisite political actors. But everyone seems to ignore the relevance of EV batteries. As the world’s largest purveyor of EV batteries, CATL has a client list that includes names like Audi, BMW, Volkswagen, Mercedes-Benz, Ford, Tesla, Volvo, Kia, Hyundai, and Lucid. The above creates a problem for automakers hoping to take advantage of government subsidies tied to domestic manufacturing quotas. With both Republicans and Democrats likewise trying to minimize Chinese involvement in business sectors considered relevant to national security, working directly with CATL creates additional problems without a go-between.
General Motors tapping Japan’s TDK to handle the manufacturing establishes a buffer zone most people won’t bother investigating further. It creates some plausible deniability for everyone involved.
From Bloomberg:
Such a technology licensing arrangement may help avoid scrutiny by US lawmakers and the Biden administration, who are wary of collaboration with China on key strategic technologies including EV batteries. Last month, for example, Florida Senator Marco Rubio and Michigan Representative John Moolenaar, both Republicans, asked the Pentagon to put CATL on a restricted list of firms allegedly working with China’s military.
“Our EV strategy is focused on designing products that continue to lower cost, improve performance and localize production. Battery technology is a key enabler of that strategy,” GM said in a statement. The company declined to comment on “speculation.”
Representatives for TDK and CATL declined to comment.
Under the terms of the supply contract, GM and other automakers could buy LFP cells from the TDK plant at a fixed price over the life of a long-term contract, the people said.
Bloomberg also suggested that the GM-TDK-CATL scheme would “serve as a hedge against political uncertainty” should Donald Trump win the 2024 presidential election.
Kamala Harris is presumed to retain most of Biden’s policies. But Trump has said he would rescind any unspent funding linked to the Biden admin’s Inflation Reduction Act — which allocated billions of dollars to subsidize electric vehicles and EV charging — should he win the presidency.
The claim is that a Trump victory would cripple EV sales, as he has vowed to deregulate the market in service of varied, affordable vehicle lineups. But electric cars are already not seeing the kind of demand the industry and government had anticipated. Frankly, it’s not overly apparent that negotiating fixed pricing with TDK would be better when the Biden administration claims to have wanted more localized battery production to begin with. We suppose it would be cheaper for GM to run with TDK than trying to build its own batteries, while also protecting the automaker from pricing volatility, regardless of the kind of demand all-electric vehicles see over the next decade. But if EV demand totally evaporates, it’s not clear how much value the deal would have been in the first place.
The sunk cost fallacy may also be coming into play here. Automakers have spent a staggering amount of money to pivot their entire business model toward electrified vehicles and data management. While government influence played a significant role (see: Financial incentives and emission rules), industry leaders likewise seem convinced that every auto brand becoming a tech company would be more lucrative in the long term. But automakers are presently having trouble making money off EVs and are getting worried that building massive battery plants could backfire.
They’ve all spent too much money and realigned their development programs to abandon electrification outright. But the industry is also hesitant to continue investing at scale when there’s not a lot of evidence to suggest that all-electric vehicles are going to outpace traditional internal combustion models in popularity. Outsourcing to TDK alleviates some of the risk while also creating a gray zone that could potentially allow General Motors to continue taking advantage of government subsidies. The battery would technically be Chinese. But it would be assembled inside the United States by a Japanese company the government would be more forgiving of.
[Image: General Motors]
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