Monday, March 4, 2024

The Biden administration has been trying to jump-start the domestic supply chain for electric vehicles so cleaner cars can be made in the United States. But the experience of one Texas company, whose plans to help make an all-American electric vehicle were upended by China, highlights the stakes involved as the administration finalizes rules governing the industry.

Huntsman Corporation started construction two years ago on a $50 million plant in Texas to make ethylene carbonate, a chemical that is used in electric vehicle batteries. It would have been the only site in North America making the product, with the goal of feeding battery factories that would crop up to serve the electric vehicle market.

But as new facilities in China came online and flooded the market, the price of the chemical plummeted to $700 a ton from $4,000. After pumping $30 million into the project, the company halted work on it this year. “If we were to start the project up today, we would be hemorrhaging cash,” said Peter R. Huntsman, the company’s chief executive. “I’d essentially be paying people to take the product.”

The Biden administration is now finalizing rules that will help determine whether companies like Huntsman will find it profitable enough to participate in America’s electric vehicle industry. The rules, which are expected to be proposed this week, will dictate the extent to which foreign companies, particularly in China, can supply parts and products for American-made vehicles that are set to receive billions of dollars in subsidies.

The administration is offering up to $7,500 in tax credits to Americans who buy electric vehicles, in an effort to supercharge the industry and reduce the country’s carbon emissions. The rules will determine whether electric vehicle makers seeking to benefit from that program will have the flexibility to get cheap components from China, or whether they will be required instead to buy more expensive products from U.S.-based firms like Huntsman.

The lawmakers who wrote the climate bill, including Senator Joe Manchin III, the West Virginia Democrat, included language that bars an electric car from qualifying for the tax breaks if the critical minerals or other components used in its battery were made by “a foreign entity of concern.” Lawmakers defined that as any firm that is owned by, controlled by or subject to the jurisdiction of North Korea, China, Russia or Iran.

But they left it up to the Biden administration to fill in the details, including important questions like what constitutes a Chinese company, and what product qualifies as a “battery component.”

The administration faces a tricky calculation with the new rules. If it allows more companies to qualify for the benefits, Americans will have a wider choice of low-cost electric vehicles to choose from. That would put more clean cars on the road and help to mitigate climate change. It could also help to shore up the finances of U.S. automakers that are losing heavily on electric vehicle production.

But such a path could undercut the administration’s other priority — to build more secure supply chains for electric vehicles. The government has been aiming to use the climate law to boost manufacturing of electric vehicles and their parts in the United States and in allied countries, and reduce dependency on China, which dominates global markets for electric vehicles and their batteries.

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