TL/DR –
Chinese manufacturers are investing in Morocco to qualify for $7,500 credits to US car buyers after the US passed new electric vehicle (EV) subsidies. This comes as the US and the European Union have imposed new tariffs on Chinese vehicle imports. At least eight Chinese battery makers have announced investments in Morocco since the US passed the Inflation Reduction Act, a $430 billion law aimed at combating climate change.
Chinese manufacturers Target Morocco to Qualify for U.S. EV subsidies
Following new subsidies by the U.S. aimed at boosting domestic electric vehicle (EV) production and reducing Beijing’s supply chain dominance, Chinese manufacturers have shifted investment focus to Morocco. In regions near Tangiers and by the Atlantic Ocean, plans for new factories to manufacture EV parts have been announced. These parts might qualify for $7,500 credits to U.S. car buyers.
Other countries with free trade agreements with the U.S., such as South Korea and Mexico, have witnessed similar investments. However, Morocco’s boom has been more significant. Eight Chinese battery makers have announced fresh investments in Morocco since the $430 billion U.S. Inflation Reduction Act was signed by President Joe Biden to combat climate change.
By moving operations to U.S. trading partners like Morocco, these Chinese entities seek to profit from rising demand from American carmakers like Tesla and General Motors, said Kevin Shang, a senior battery analyst at consulting firm Wood Mackenzie. Major new tariffs have been levied on Chinese vehicle imports by the U.S. and the EU since May. The U.S. also finalized eligibility rules governing the tax credits in May.
Exploration of East and West
Morocco, primarily an agrarian economy, has seen the rise of industrial parks in the outskirts of Tangiers, Kenitra, and El Jadida, inhabited by American, European, and Chinese component makers. Leveraging existing infrastructure that has made Morocco a car manufacturing hub, these entities aim to meet the rising demand and navigate rules aimed at excluding them from the incentives provided by the Inflation Reduction Act.
The largest project is a $6.4 billion deal by Chinese-German battery-maker Gotion High-Tech to construct Africa’s first EV battery factory. Other investments include Youshan, a joint venture backed by Korean giant LG Chem and China’s Huayou Cobalt, which sees its Morocco base as a conduit to supplying the North American market and gaining U.S. subsidies.
A Beneficial Loophole
The investment has proven to be beneficial for countries like Morocco, but in Washington, there’s concern about Chinese firms seeking access to American subsidies. The complexities of both the EV supply chain and the Inflation Reduction Act have made the situation challenging. The act aims to increase EV adoption and boost domestic manufacturing, causing the U.S. Energy and Treasury departments to strike a delicate balance.
China has spent years subsidizing companies associated with the battery supply chain. Their eagerness to invest in Morocco to leverage the Inflation Reduction Act illustrates how challenging it could be to untangle Chinese manufacturers from the supply chain, according to Chris Berry, an advisor to battery companies and investors.
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