The U.S. Congress has adopted new measures to prohibit the purchase of Chinese batteries, including those from BYD and CATL.

According to foreign media reports on the 20th, the U.S. Congress has passed new regulations prohibiting the Department of Defense from purchasing batteries produced by six Chinese companies. These companies include Contemporary Amperex Technology Co., Limited (CATL), BYD, Envision Energy, EVE Energy, Guoxuan High-Tech, and Sunwoda Energy Storage. This regulation, part of the "National Defense Authorization Act for Fiscal Year 2024" passed on December 22nd last year, will take effect in October 2027. The measure aims to advance Washington's efforts to decouple its supply chain from China. The Pentagon has yet to respond immediately.

The report states that China's leading position in the electric vehicle industry has drawn the attention of some American politicians. In December last year, Republican Senators Ted Cruz and Marco Rubio sent a letter to Defense Secretary Lloyd Austin, claiming that the use of Chinese-made batteries could increase the "security risks" faced by the United States.

This measure does not target commercial purchases; companies like Ford can still collaborate with CATL through technology licensing agreements to build electric vehicle batteries in Michigan. Tesla also sources some of its battery cells from BYD.

Previously, the United States attempted to eliminate subsidies for electric vehicle batteries made in China. The recently implemented Inflation Reduction Act (IRA) stipulates that electric vehicles eligible for tax credits must be produced in North America, and the battery materials must meet a certain percentage of major components and materials produced in North America. From 2025, electric vehicles containing metals mined by so-called "foreign entities of concern" (including China) will not be eligible for tax credits, and from 2024, electric vehicles with battery components produced by "excluded entities" will not be eligible for tax credits.

According to the above rules, electric vehicles using battery components made in China will no longer be eligible for tax incentives. U.S. news reports suggest that these measures could lead to increased costs for American consumers buying electric vehicles.

SMM analysis points out that China, the United States, and Europe together form the three pillars of the global lithium battery market, with China holding a significant lead in the global lithium battery industry. According to 2023 data, global lithium battery demand exceeded the 1,000 GWh milestone, a year-on-year increase of 37%, with the Chinese market's demand accounting for 56% of the global share. Looking into 2024, the market penetration rate of new energy vehicles in the China-Europe region is expected to remain high, while also entering a transition period of policy tapering. In contrast, under the guidance of new policies like the IRA, the U.S. market is stimulating the electric vehicle and electrochemical storage market with subsidies, aiming to achieve a return of manufacturing, strengthen supply chain autonomy, and also restrict the development of related industries in other countries like China. Currently, the market penetration rate of new energy vehicles in the U.S. remains low, and policy adjustments reflect the U.S.'s active support and defensive posture towards emerging industries.

This policy direction will have a certain impact on the international strategy of Chinese companies. Although the U.S. proposed policies are not officially effective until 2027, considering the variability of future markets and geopolitical landscapes, the announcement of the policy itself may have considerations for the immediate political environment. On one hand, although the ban currently specifically targets the purchasing behavior of the U.S. Department of Defense, industry experts closely monitor such policy trends and use them as a basis for formulating business strategies. On the other hand, in the short term, the U.S. cannot achieve a "hard decoupling" from China's industrial chain, and this message may be intended to attract more domestic capacity building investments. The policy sends a political signal, aiming to boost the confidence of domestic companies and promote positive expectations for "Made in America." As global dependence on the lithium battery supply chain increases, the long-term impact and international effect of such measures will continue to receive widespread attention.

If you have any questions regarding the industry data, or the news (e.g. how this can affect your business). Please feel free to reach out to me:

Robin He

SMM Li-ion Battery Materials Department

E: robinhe@smm.cn | T: +86-21-51595884