Making cheap electric vehicles in America is getting even tougher.
Of the new tariffs announced by President Biden last week, the 100% rate on Chinese EVs caught much of the attention. But in reality it probably won't change much: Only a few EVs are currently shipped from China to the U.S., notably by Polestar.
More meaningful for the auto industry is a new 25% tariff on Chinese EV batteries and parts, up from 7.5% now. Many details aren't yet clear, but the news will likely affect Tesla. The company's cheapest model, the standard-range Model 3, is made in Fremont, Calif., using Chinese lithium iron phosphate, or LFP, batteries.
Based on a crude calculation, the tariff increase could theoretically add roughly $1,000 to costs per standard-range Model 3—not unaffordable, but inconvenient when Tesla is desperate to remove costs wherever possible. The company didn't respond to requests for comment.
Ford's standard-range Mustang Mach-E also uses Chinese LFP batteries. It is made in Mexico but could still be caught by the tariff.
LFP batteries are less expensive than the more powerful ones containing nickel and cobalt that are used by Tesla and others to make most EVs sold in the West. While Japanese and Korean firms such as Panasonic and LG Energy dominate nickel chemistries, LFP technology has been industrialized by the likes of CATL and BYD in China. This means EV makers will struggle to bypass Chinese companies if they want to use it to cut costs and diversify their supply chains away from cobalt, which is mostly mined in the Democratic Republic of Congo.
There might be creative ways around the problem. CATL appears to be planning factories in Thailand and Indonesia that could eventually supply the U.S. Tariffs on Chinese products introduced by former President Trump rerouted goods via Southeast Asia, so a new reshuffling of clean-energy trade routes would hardly be a surprise.
A response more in the spirit of U.S. government policy would be to bring LFP battery production onshore. This is what Ford wants to do with a new plant in Michigan that would license CATL's technology, but the Chinese link remains controversial. If Ford's project goes ahead as planned, it would be an obvious blueprint for Tesla.
The best solution from Washington's point of view would be for a new low-cost battery technology to emerge from outside the Chinese ecosystem. Tesla said last month that it expected its battery project in Texas, which is trying to mass-produce a new type of cell, to beat suppliers of nickel-based cells on cost by the end of this year. But that suggests it is still some way behind LFP. The game-changing "solid-state" batteries long promised by Toyota and others still appear to be years away from commercial reality.
Last week's tariff increases aren't the first U.S. assault on Chinese LFP technology. One of the strings attached to the $7,500 tax credit available for EV purchases as part of the Inflation Reduction Act is now that no battery materials can come from a "foreign entity of concern," a designation that includes China. This is why neither the standard-range Tesla Model 3 nor Ford's Mustang Mach-E are available with the subsidy unless they are leased, which has emerged as a loophole.
Trump has hinted that he might cut the EV tax credits if he wins the coming U.S. election, but he has promised to go even further than Biden on tariffs. Whoever is in the White House next year, the direction of travel is clear: China's supply chain is effectively off limits in the race to lower EV costs.
Even Tesla Chief Executive Elon Musk seems to be put off by the huge challenge this entails. This year he has talked much more enthusiastically about making Teslas autonomous than about making them cheap. A project to build a compact Tesla has been scaled back in ambition.
While four in 10 new vehicle purchases in China are now EVs, America will only adopt the new technology at the pace a new supply chain allows—which is to say, expensively and slowly.
arstechnica.com