Chinese EV Investments in Morocco Surge Following U.S. Subsidies

Following the implementation of new U.S. subsidies aimed at enhancing domestic electric vehicle (EV) production and reducing China’s dominance in the supply chain, Chinese manufacturers have begun investing in an unexpected location: Morocco.

In the picturesque hills near Tangiers and the industrial zones close to the Atlantic Ocean, plans for new factories to produce EV components have been unveiled. These parts may qualify for $7,500 credits available to U.S. car buyers.

Similar investments have been made in other countries with free trade agreements with the U.S., including South Korea and Mexico. However, Morocco has experienced an unprecedented surge in such investments.

According to an Associated Press count, at least eight Chinese battery manufacturers have announced new ventures in Morocco since President Joe Biden signed the Inflation Reduction Act, a $430 billion law designed to combat climate change.

Chinese firms, which have long controlled the battery supply chain, are relocating operations to U.S. trade partners like Morocco to capitalize on the rising demand from American automakers such as Tesla and General Motors, explained Kevin Shang, a senior battery analyst at Wood Mackenzie.

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

Since May, the United States and the European Union have imposed significant new tariffs on Chinese vehicle imports. Additionally, the U.S. finalized tax credit eligibility rules in May. These rules limit companies with ties to U.S. adversaries, providing carmakers time to lessen their dependence on China. To qualify for subsidies, carmakers must avoid sourcing critical minerals or battery parts from manufacturers where China or other “foreign entities of concern” hold more than a 25% stake or board control.

Critics argue that these rules benefit China and will perpetuate its EV dominance. However, the Biden administration contends that the rules will spur billions in EV manufacturing investments within the U.S.

Morocco, a predominantly agrarian economy with a median income of $2,150 a month, has seen significant industrial development. Giant industrial parks filled with American, European, and Chinese component manufacturers have emerged in rural areas near Tangiers, Kenitra, and El Jadida.

Building on Morocco’s existing car manufacturing infrastructure, these parks aim to meet rising demand and navigate the barriers set by the Inflation Reduction Act’s incentives. The Rhodium Group, a policy research firm, noted that these rules have prompted Chinese producers to invest in countries like South Korea and Morocco, which have free trade agreements with the U.S.

Many new Chinese investments in Morocco explicitly cite the U.S. subsidies as a motivation. These ventures often adjust board seats and governance structures to comply with U.S. rules.

For instance, CNGR, a leading Chinese battery cathode producer, announced a $2 billion plan in September to establish a “base in the world and pan-Atlantic region” in collaboration with the Moroccan royal family’s investment group, Al Mada. Although CNGR holds a slight majority stake, Thorsten Lahrs, CEO of its Europe division, expressed confidence in meeting the tax credit requirements and adjusting board composition if needed. If not, the company plans to pivot to other markets, including Europe.

“To ride the wave of the IRA, you have to execute fast and comply with its regulations,” Lahrs said, highlighting the company’s flexibility in adapting to regulatory changes.

Strategic Partnerships and Investments

The new Chinese battery projects in Morocco include several joint ventures that highlight Morocco’s trade relationships with the U.S. The largest among them is Gotion High-Tech, a Chinese-German battery maker, which signed a $6.4 billion deal with Morocco last year to build Africa’s first EV battery factory.

Other notable investments include Youshan, a joint venture between LG Chem of Korea and China’s Huayou Cobalt. Although details about the investment size were not disclosed, the venture emphasizes that its Moroccan base will supply cathodes to the North American market, benefiting from the U.S. Inflation Reduction Act due to Morocco’s free trade agreement with the U.S.

LG Chem has indicated that it will adjust ownership shares as needed to comply with U.S. regulations.

China’s BTR Group also announced a cathode factory in April, noting that Morocco’s trade status with the U.S. and Europe would facilitate seamless entry of its products into these regions.

Morocco’s Strategic Position

Abdelmonim Amachraa, a supply chain expert and former official in Morocco’s Ministry of Industry and Trade, highlighted Morocco’s strategic advantage in bridging China and the U.S. The country has cultivated relationships across the automotive supply chain, hosting over 250 companies that manufacture cars or components, including major firms like Stellantis and Renault.

Morocco’s automotive industry exports nearly $14 billion in cars and parts annually. As the global shift towards EVs continues, Morocco’s role as a strategic beneficiary becomes evident amidst competition between China, the U.S., and Europe for market share.

However, Moroccan officials express concern that protectionist policies like tariffs and subsidies might ultimately hinder the country’s ability to attract investment.

Main Image: Tech Times