Listen to this articleTANGIER, Morocco — After the United States passed new subsidies aimed at boosting domestic electric vehicle production and curtailing Beijing’s supply chain dominance, Chinese manufacturers are investing in an unexpected place: Morocco.
In the rolling hills and industrial park near Tangier and the Atlantic Ocean, plans have been announced for new factories making parts for electric vehicles that could qualify for a $7,500 credit for U.S. car buyers.
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 the economic boom that Morocco has.
At least eight Chinese battery makers have announced new investments in the North African kingdom since President Joe Biden signed the Stop Inflation Act, a $430 billion U.S. law aimed at combating climate change, according to a tally by The Associated Press.
Chinese companies, which have long dominated the battery supply chain, are looking to benefit from rising demand from U.S. automakers such as Tesla Inc. and General Motors Co. by relocating operations to U.S. trading partners such as Morocco, said Kevin Shan, senior battery analyst at consulting firm Wood Mackenzie.
“Chinese companies definitely don’t want to miss this big party,” he said.
Both the United States and the European Union have imposed significant tariffs on auto imports from China since May. The United States also finalized eligibility requirements for tax credits in May. The requirements limit companies with ties to U.S. adversaries but give automakers time to reduce their reliance on China. To be eligible for the subsidies, automakers cannot source critical minerals or battery parts from China or other manufacturers where “foreign entities of concern” control more than 25% of the company or board of directors.
Critics say the rules are a concession to China and will expand its lead in electric vehicles. The Biden administration argues the rules will pave the way for billions of dollars of investment in EV manufacturing in the United States.
Between East and West
In Morocco, a mainly agrarian economy where the average income is $2,150 a month, huge industrial parks housing American, European and Chinese parts makers are popping up in the rural areas on the outskirts of Tangier, Kenitra and El Jadida.
By expanding the infrastructure that has made Morocco a hub for auto-making, they hope to meet growing demand and overcome rules designed to exclude Morocco from preferential treatment that the Anti-Inflation Act has pumped into the U.S. auto market, the world’s second-largest.
The rules have “encouraged Chinese manufacturers to increase investments in countries with free trade agreements with the U.S., such as South Korea and Morocco, to overcome 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 U.S. subsidies as the reason.
Many are joint ventures and claim the ability to adjust their board composition and governance to comply with U.S. rules.
That includes CNGR, one of China’s largest makers of battery cathodes, which in September announced $2 billion plans to build what it called a “global and transatlantic base” in a joint venture with Moroccan royal investment group Almada.
CNGR owns just over 50% of the project, but European CEO Torsten Lars said he was confident the company’s cathodes would meet the requirements for tax credits and could change the composition of its board if necessary.If they didn’t, the company would pivot to other markets, including Europe, which has already raised tariffs on electric-vehicle imports from China.
“To ride the IRA wave, we need to move quickly and comply with the regulations,” he said in an interview before the U.S. finalized IRA rules. “We have the flexibility to comply with any changes in interpretation or rules.”
China’s battery projects include at least three joint ventures and several projects that reference Morocco’s trade ties with the United States.
The largest of these is Guoxuan High-Tech, a Sino-German joint venture battery maker that last year signed a $6.4 billion investment deal with Morocco to build Africa’s first electric vehicle battery factory.
The investments include Youshan, a joint venture between South Korean giant LG Chem and China’s Huayou Cobalt. The company declined to provide details on the size of its investment but said being based in Morocco means its cathodes “will be supplied to the North American market and will be subsidized by the U.S. Anti-Inflation Act as Morocco is a signatory to the U.S. Free Trade Agreement.”
LG Chem said it would adjust its ownership in the joint venture as necessary to comply with U.S. rules.
When China’s BTR Group announced the construction of the cathode factory in April, it noted that Morocco’s trade ties with the United States and Europe would ensure “a large portion of Moroccan manufactured goods can flow seamlessly into these regions.”
Abdelmonim Amakra, a supply chain expert who previously worked at Morocco’s Ministry of Industry and Trade, said Morocco benefits from “the ability to coexist when no link can be found between China and the United States.”
Moroccan officials have worked publicly and privately to foster a hierarchical automotive supply chain between the east and west of the country. The country is home to more than 250 companies that make cars and their parts, including Stellantis, Renault and factories in China, Japan, the United States and South Korea that make seats, engines, shock absorbers and wheels. The industry exports about $14 billion a year in cars and parts.
As the world moves toward electric vehicles, with China, the United States and Europe competing for market share, Morocco may seem like an unlikely beneficiary, but Moroccan officials worry that tariffs, subsidies and other anti-competitive policies will ultimately make it harder to attract investment.
The country’s Industry and Trade Minister, Riad Mezour, said in an interview that the new investments do not tell the whole story, adding that Morocco has lost some projects to what he called a “new era of protectionism.”
A huge loophole
The investment has been a boon to countries such as Morocco, but Washington has grown wary of Chinese companies seeking to take advantage of U.S. subsidies.
“Under the Biden Administration’s electric vehicle restrictions, working American families will have to watch as their hard-earned tax dollars are used to line the pockets of Chinese billionaires and companies with ties to the Chinese Communist Party,” Rep. Jason Smith, R-Missouri, said of the new guidelines.
But at issue is the complexity of the electric vehicle supply chain and the inflation-fighting law, which also aims to encourage the widespread adoption of electric vehicles and boost domestic manufacturing.
The U.S. Energy and Treasury departments have been trying to strike a delicate balance between reducing reliance on Chinese manufacturers while ensuring enough vehicles qualify for the credits. The Energy Department 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 spokesman called the shift to electric vehicles “a global trend across industries” and said the new policy will “help the United States strengthen its energy security and competitiveness and outperform China.”
China has long subsidized companies that mine minerals essential to batteries, manufacturers of cathodes, anodes and electrolyzers, and automakers such as BYD. Their eagerness to invest in Morocco to benefit from the anti-inflation law suggests it could take years, if not decades, to cut Chinese manufacturers out of the supply chain, said Chris Berry, an adviser to battery companies and investors.
“There won’t be a lithium-ion battery supply chain that’s free from China’s influence for a long time to come,” Berry said.
