America, the Jobs Conundrum and Battery Wars

Part 2 of Crypto and the Value of Everything

Steve Jobs contended, as Apple developed the P.C, that sometimes it is the role of leadership and management to show the market what it needs.

WSJ: This Ford vs. GM Feud Could Shape the Future of EVs in America

Biden administration’s decision on $7,500 tax credit could determine China’s role in U.S. electric-vehicle industry

WSJ: In June, Ford Motor Chief Executive Jim Farley pitched visiting members of Congress on the company’s plans for a $3.5 billion battery factory. Using Chinese battery technology at the Michigan plant, he argued, was a smart way for the U.S. to catch up with China’s expertise.?

Later the same day at the General Motors headquarters, CEO Mary Barra and her team had a different message for the lawmakers: Ford’s plans could be the harbinger of Chinese domination of U.S. car manufacturing.

At stake in the meetings, described by people familiar with them, was more than just pride between the old crosstown rivals. It was also the price many Americans could pay for their electric vehicles in the next 10 years—and how the automakers would invest billions of dollars to sell EVs in the U.S.?

The pair are lobbying over the terms of a $7,500 tax credit for consumers who purchase new electric vehicles. Starting next year, buyers can’t use the credit on cars that contain battery components from any source that the U.S. deems a “foreign entity of concern,” a vague term meant to reduce American reliance on Chinese batteries and materials.

President Biden is expected to decide this fall how strictly to enforce that requirement. If the rules are too tough, few EVs—if any—will qualify for the tax credit, potentially leaving Americans without that incentive to switch from gasoline-powered cars. A loose read on the rules could invite blowback from Republicans and other China critics.

Ford, with its plans to license Chinese technology to make cheaper, iron-based batteries in Michigan, has lobbied for a more flexible interpretation of the “foreign entity” rule. If its planned batteries aren’t eligible for the car-buyer subsidy, Ford executives have indicated they could scale back the investment; on Monday, the company paused construction of the new battery plant.?

“It would be absurd to classify Ford or its fully owned subsidiary as a foreign entity, much less one of concern. We’re Ford, and we’re all-in on America,” Chris Smith, Ford’s chief government affairs officer, said.?

GM isn’t planning investments with Chinese battery firms—and could see Ford gain a critical technological and cost advantage in the EV race if its deal goes forward. GM executives and lobbyists have called for a strict “foreign entity of concern” rule that would prevent such licensing arrangements.

“This is not about GM vs. Ford,” a GM spokeswoman said. She said GM wants clarity and for the rules to follow the intent of the Inflation Reduction Act, which created the new tax-credit requirements.

Robbie Orvis, a senior director at Energy Innovation, a think tank on climate issues, said the tax credit—and the “foreign entity of concern” rule—will shape how many electric cars are sold in the U.S. in the next 10 years.

“This is the big missing piece that a lot of us are waiting to see,” he said.?

Ford’s big bet

The biggest American automakers see electric vehicles as the future of the industry. Striking United Auto Workers are demanding high wages and benefits, while Ford, GM and Stellantis say they need to keep labor costs down to invest in EV production.?

Higher costs remain a significant barrier to EV sales for many American buyers. The average price of a new electric vehicle was $53,469 in July, higher than the $48,334 average for gasoline-powered cars, according to Kelley Blue Book data. So automakers see the $7,500 EV tax credit as crucial to get more price-conscious consumers to make the switch.?

A Treasury spokeswoman said the Biden administration’s incentives would help U.S. automakers be global leaders.

“The Inflation Reduction Act is increasing our energy security by encouraging investments in America,” she said. “We will continue to assess and respond to any national security concerns associated with both international and domestic supply chains.”

Some automakers are holding off on investing in their EV supply chains until they see what Chinese materials or technology are allowed under the final rules of the tax credit, people familiar with their plans said.?

Ford hoped to get ahead by licensing technology from China’s Contemporary Amperex Technology Co. Ltd., known as CATL, to make lithium-iron-phosphate batteries at an industrial scale in the U.S. for the first time. They are much cheaper than other alternatives, reducing the production cost of the car. Ford has planned to use them in versions of the Mustang Mach-E:

and the F-150 Lightning:

Ford structured the deal with CATL, the largest battery maker in the world, as a licensing agreement, rather than a joint venture. The U.S. company will fully control the subsidiary that owns the Michigan-based factory, paying royalties to CATL for the use of their manufacturing technology. CATL declined to comment.

The hot seat

But licensing Chinese technology has drawn political blowback, including from Michigan Republicans. Several House committees have opened probes or held hearings on the deal.?

“We should be using taxpayers’ dollars to fund American innovation and ingenuity to be leading in these areas, not lagging behind by decades and subsidizing the [Chinese Communist Party],” said Rep. John Moolenaar (R., Mich.).

Ford has defended the plan by pointing to the jobs and advanced technology it will bring to the U.S.?

GM executives have told the Biden administration that if consumers can use the tax credit to buy cars that CATL helps Ford make, GM and other automakers would be at a competitive disadvantage, people familiar with the conversations said. They would feel pressure to strike their own deals with Chinese firms, undercutting Washington’s goal of distancing the auto industry from China, the GM executives have warned.?

During a trip to Washington in July, Ford’s Farley tried to contain the furor. At what an attendee said was a “tense” meeting in a Capitol Hill office, Farley faced a barrage of questions from Michigan Republicans. The lawmakers wanted to know how many CATL employees would work in the plant and whether Ford employees would learn to understand the CATL technology, people familiar with the meeting said.

Farley’s answers didn’t satisfy many of the Republican attendees. Rep. John James (R., Mich.) has proposed legislation that would prevent Ford’s deal and others like it from meeting the requirements for federal car-buying subsidies.?

Biden’s conundrum

Ford’s planned Michigan battery factory, which would create jobs in a swing state, is in many ways the type of investment the Biden administration is hoping to facilitate in the U.S. White House officials considered having Biden attend the announcement of the factory in February.?

But as White House officials learned more about Ford’s intention to work with CATL, they opted against sending the president to the event, people familiar with the plans said.?

Some Biden administration officials worry that allowing intellectual property-sharing, as Ford is planning, would open a backdoor for Chinese firms to dominate the U.S. battery industry, which they see as a potential national-security risk, according to people familiar with their thinking.

White House officials also are wary of upsetting Sen. Joe Manchin (D., W.Va.), who has blasted the Ford deal and the administration’s handling of the tax subsidies he helped write into law. Manchin said in an interview he would support any automakers who sued the administration if the new rules for the EV tax credit allowed deals such as Ford’s.?

“There will be lawsuits if there are companies being damaged by how they’re interpreting and they’re making investments here in the country,” he said.?

Other administration officials think barring any EV with Chinese ties from qualifying for the tax credit could backfire, causing automakers to quit trying to follow the rules for the credit entirely. These officials also think the U.S. can best catch up by learning from Chinese firms, an argument Ford executives have made in meetings with the White House.

??All sides want to rid the U.S. of excess reliance on China,” said Jennifer Harris, who worked on clean-energy supply chains at the White House until March. “In some areas, the shortest, surest path may take some Chinese know-how up front, confined and cabined.”

My question:

Are we not buying iPhones and iPads from Foxconn, a company based in China, owned by Taiwanese and sourcing them from a country of origin now designated as a “foreign entity of concern?"

Next: The Outrage du Jour and the Peaceful Resistance

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