In a rapidly evolving world, the need for sustainable lifestyle alternatives continues to rise. Within domestic borders, President Biden has been actively trying to expand the supply chain for electric vehicles in an attempt to boost the production of environmentally friendly cars. However, the situation of Huntsman Corporation, a Texas-based company, serves as a case in point by illuminating the challenges faced when ambitions to contribute to an all-American electric vehicle are thwarted by China.
Two years ago, Huntsman Corp initiated the construction of a $50 million plant in Texas dedicated to producing ethylene carbonate, a crucial chemical component in electric vehicle batteries. The initial objective was to establish the sole North American facility for this product, anticipating the demand from emerging battery manufacturers catering to the electric vehicle market. It was important to keep operations within the United States to limit American dependence on China.
However, the entry of new facilities in China led to market saturation—products or services are no longer in demand due to multiple offerings by competition or simply less demand—causing the price of ethylene carbonate, a chemical crucial to the production of EV batteries, to plummet from $4,000 to an astounding $700 per ton. Even despite the $30 million investment that was poured into the project, the Huntsman Corp. suspended construction this year. The company’s executive chair Peter R. Huntsman, expressed, “If we were to start the project up today, we would be hemorrhaging cash, I’d essentially be paying people to take the product.”
Currently, the Biden Administration remains in the process of finalizing rules that will play a fundamental role in determining the profitability of companies like Huntsman in the American electric vehicle industry. Expected to be proposed this week, these rules will outline the parameters governing the involvement of foreign companies, with a particular focus on China, in supplying parts and products for vehicles produced in the United States. This is especially significant as these American-made vehicles are slated to receive substantial subsidies, running into the billions of dollars readily available.
In a bid to propel the EV industry forward and curtail the nation’s carbon emissions, the administration is providing tax credits of up to $7,500 to American buyers of electric vehicles. The forthcoming rules will largely affect the decisions of EV manufacturers aiming to capitalize on this newly proposed incentive. The question of whether or not they can opt for cost-efficient components from China or are mandated to procure comparatively pricier products from U.S.-based companies such as Huntsman now remains as pressing as ever.
Moreover, these regulations will be instrumental in the Energy Department’s assessment of applicants competing for grants amounting to billions of dollars for battery factories. The evaluation will prioritize companies that shift away from outsourcing when it comes to needed materials, mitigating the risks associated with foreign entities.
The legislators responsible for drafting the climate bill, which includes Senator Joe Manchin III, the West Virginia Democrat, stated that an electric car would be withheld from eligibility for tax breaks if the crucial minerals or components in its battery were produced by a “foreign entity of concern.” The tax break incentivizes electric car manufacturers to use components sourced from within the country, thereby supporting domestic industries involved in the production of crucial minerals or battery components. The bill defines such entities as firms owned by, controlled by, or subject to the jurisdiction of North Korea, China, Russia, or Iran.
However, the criteria for identifying a Chinese company and the definition of a “battery component” remain a debate for the Biden administration. Key questions remain regarding clarifying these details and providing a framework for implementation.
The administration is confronted with a complex decision in shaping new rules. On one hand, if it broadens the eligibility criteria for tax cuts, more companies could access the benefits, leading to a greater variety of affordable electric vehicles for American consumers. This expansion could potentially contribute to an increased adoption of clean cars, aiding in the fight against climate change. On a financial level, it would prove beneficial to U.S. automakers grappling with substantial losses in EV production.
However, pursuing this course of action may pose a conflict with another key priority of the administration—to establish more resilient supply chains for EVs./ The government, leveraging the climate law, has been striving to enhance the production of electric vehicles and their components within the United States and allied nations. The overarching goal remains to decrease American dependence on China, a geopolitical rival in global electric vehicle and battery markets.
How will President Biden and his administration incentivize American manufacturers and investors to pour their efforts and resources into growing the domestic supply chain? Even General Motors believes in the U.S. government implementing a strict policy. Unless the practice of licensing Chinese technology is heavily discouraged through new subsidy regulations, there stands no reason for other automakers to refrain from partnering with Chinese chemical manufacturers.
As this debacle continues to unfold, one question from Huntsman prevails: how will the United States respond?