Chinese Companies Target Morocco to Leverage US Electric Vehicle Subsidies

After the United States introduced new subsidies to boost domestic electric vehicle (EV) production and reduce Beijing’s dominance in the supply chain, Chinese manufacturers have turned to an unexpected location: Morocco.

In the picturesque hills near Tangiers and industrial parks close to the Atlantic Ocean, plans for new factories have been announced. These factories aim to produce parts for EVs that may qualify for $7,500 credits for American buyers.

Similar investments have been seen in other nations with free trade agreements with the U.S., like South Korea and Mexico. However, Morocco has experienced a particularly significant boom.

Since President Joe Biden signed the Inflation Reduction Act—a $430 billion law aimed at combating climate change—at least eight Chinese battery makers have announced investments in Morocco, according to an Associated Press tally.

Kevin Shang, a senior battery analyst at Wood Mackenzie, explained that Chinese companies, which have long dominated the battery supply chain, are moving operations to U.S. trading partners like Morocco to tap into the increasing demand from American carmakers such as Tesla and General Motors.

“Chinese companies definitely don’t want to miss this big party,” he said.

Both the U.S. and European Union have imposed significant new tariffs on Chinese vehicle imports since May. In the same month, the U.S. finalized rules governing the tax credits, limiting companies with ties to U.S. adversaries. However, these rules give carmakers time to reduce their reliance on China. To qualify for the subsidies, carmakers cannot source critical minerals or battery parts from manufacturers controlled by “foreign entities of concern” like China.

Critics argue that the rules are a concession to China and will extend its EV dominance, while the Biden administration claims the rules will stimulate billions in investment in U.S. EV manufacturing.

– Between East and West –

Morocco, with its primarily agrarian economy and a median income of $2,150 a month, has seen large industrial parks full of American, European, and Chinese component makers spring up in rural areas around Tangiers, Kenitra, and El Jadida. Building on infrastructure that has turned Morocco into a car manufacturing hub, these parks aim to meet rising demand and navigate the restrictions posed by the Inflation Reduction Act.

The policy research firm Rhodium Group noted in a report that the new U.S. rules have driven Chinese producers to increase investments in countries like South Korea and Morocco to bypass some of the act’s barriers.

Some Chinese investments in Morocco explicitly cite the new U.S. subsidies as a motivator. Many of these are joint ventures designed to adjust board composition and governance to comply with U.S. rules. For instance, CNGR, one of China’s largest battery cathode producers, announced a $2 billion plan to build a “base in the world and pan-Atlantic region” in partnership with Morocco’s royal family’s investment group, Al Mada.

Although CNGR holds slightly more than a 50% stake in the project, Thorsten Lahrs, CEO of its Europe division, expressed confidence that the cathodes can qualify for tax credits and mentioned the ability to adjust the board if needed. If the project fails to meet U.S. regulations, the company plans to target other markets, such as Europe, which recently increased tariffs on Chinese EV imports.

Other significant investments include Gotion High-Tech’s $6.4 billion deal to construct Africa’s first EV battery factory and Youshan, a joint venture backed by LG Chem and China’s Huayou Cobalt. These ventures highlight Morocco’s strategic trade ties with the U.S. and Europe.

Abdelmonim Amachraa, a supply chain expert, pointed out that Morocco benefits from its ability to bridge gaps between China and the U.S. Morocco hosts over 250 companies that manufacture cars or components, exporting almost $14 billion in cars and parts annually.

Despite its success, Morocco faces challenges from anti-competitive policies like tariffs and subsidies, which could hinder attracting future investments. Ryad Mezzour, Morocco’s industry and trade minister, expressed concerns that these policies might obstruct new projects, despite the recent investment boom.

– A Giant Loophole –

While Morocco benefits from these investments, Chinese firms seeking U.S. subsidies have raised alarms in Washington. U.S. Rep. Jason Smith criticized the Biden administration’s EV regulations, arguing that they benefit Chinese businesses linked to the Chinese Communist Party.

The complexities of the EV supply chain and the Inflation Reduction Act highlight the challenges in reducing dependence on Chinese manufacturers while ensuring enough vehicles qualify for credits. The U.S. Energy and Treasury departments aim to balance reducing Chinese reliance with maintaining EV availability for American consumers.

China’s extensive subsidies for battery mineral extraction, cathode and anode manufacturing, and car production underscore the difficulty of disentangling Chinese influence from the supply chain. Chris Berry, a battery industry advisor, noted that it will take years, if not decades, to establish a lithium-ion battery supply chain independent of Chinese involvement.

“There is not going to be a lithium-ion battery supply chain that does not have Chinese influence for a long time,” Berry said.