Chinese manufacturers are setting their sights on Morocco as a strategic investment hub after the US introduced new subsidies aimed at bolstering domestic electric vehicle (EV) production and undermining China’s control over supply chains.
Nestled in the hills near Tangiers and within industrial zones by the Atlantic, these firms are unveiling plans for factories to produce EV components that could be eligible for $7,500 credits for American car buyers. Other nations with free trade pacts with the US, like South Korea and Mexico, have also seen similar investment announcements.
However, Morocco is experiencing an unprecedented surge. Since President Joe Biden enacted the Inflation Reduction Acta $430billion legislation targeting climate change at least eight Chinese battery companies have declared investments in the North African country.
Chinese industry giants, who have long held sway over the battery supply chain, are looking to capitalize on the growing demand from US automakers such as Tesla and General Motors by shifting operations to US trade allies like Morocco, explains Kevin Shang, a top battery analyst at consultancy Wood Mackenzie. “Chinese companies definitely don’t want to miss this big party,” he commented.
The US and EU have slapped new tariffs on Chinese vehicle imports since May, with the States also rolling out rules for tax credits in the same month. The latter limit companies with ties to US adversaries, but give carmakers time to reduce their reliance on China.
To qualify for the subsidies, carmakers cannot source critical minerals or battery parts from manufacturers in which China and other “foreign entities of concern” control more than 25% of the company or its board. Detractors argue that these policies are a boon for China, potentially bolstering its grip on the EV market. However, the Biden administration insists these measures will trigger a multi-billion-dollar surge in American EV production.
Amid this tug-of-war between global powers, Morocco’s economy, still deeply rooted in agriculture and boasting a median monthly income of $2,150, is witnessing a boom in its industrial zones. In the rural fringes of Tangiers, Kenitra, and El Jadida, vast parks teeming with suppliers from the US, Europe, and China have emerged.
Building upon its established automotive industry foundations, Morocco is eyeing the burgeoning demand and strategizing to sidestep the barriers set by the Inflation Reduction Act, aiming to carve out a slice of the lucrative US car market, the world’s second-biggest. According to a report published earlier this year by policy research firm Rhodium Group, the rules “have led Chinese producers to increase investment in countries with whom the US has free trade agreements, namely South Korea and Morocco, to get past some IRA barriers,”.
Several of these fresh investments from China into Morocco have singled out the new US subsidies for their decision. Many of these business ventures are partnerships known for their knack to adjust issues like governance and board seats to meet US regulations. Among these is CNGR – one of China’s largest battery cathode manufacturers. In September, they revealed a $2billion plan in partnership with Al Mada, the Moroccan Royal family’s investment group, to establish what it termed as a “base in the world and pan-Atlantic region”.
Despite CNGR slightly owning more than half of the stake in this project, Thorsten Lahrs, chief executive of its Europe division, expressed his confidence in potentially modifying its board structure to qualify for tax incentives. If unsuccessful, alternative markets such as Europe – which recently increased tariffs on EVs from China – will be explored.
“To ride the wave of the IRA, you have to execute fast and comply with its regulations,” Lahrs mentioned during an interview before the US finalized its regulations. “We have flexibility to be able to comply with all the changes in interpretation or rules.” The recent wave of Chinese battery projects have constituted at least three joint partnerships and multiple venture that have remarked upon Morocco’s trade relationships with the United States.
The largest player, Chinese-German firm Gotion High-Tech, hammered out a deal with Morocco last year to invest $6.4billion in building Africa’s first electric vehicle battery factory. Among the investments is Youshan, a joint enterprise between Korean heavyweight LG Chem and China’s Huayou Cobalt.
It refused to disclose the size of their investment, but stated that their Moroccan base would supply cathodes to the North American market, courtesy of subsidies from the US Inflation Reduction Act. Notably, Morocco has signed up to the US Free Trade Agreement. LG Chem indicated that adjustments would be made to ownership stakes as necessary to meet US regulations.
BTR Group from China announced a cathode factory back in April. They stated that Morocco’s trade ties with the United States and Europe will facilitate “a seamless entry for the majority of its manufactured products into these regions.” Abdelmonim Amachraa, an expert in Supply Chain and former employee of Morocco’s Ministry of Industry and Trade, noted that Morocco was cashing in on its “ability to coexist when a link can’t be found between China and the United States.”
Moroccan officials have been actively fostering relationships throughout the automotive supply chain, both in the East and West. The country is home to over 250 companies that produce cars or their components, including big names like Stellantis and Renault, as well as factories from China, Japan, America, and Korea that manufacture seats, engines, shock absorbers, and wheels.
The industry exports nearly $14billion in cars and parts each year. As the global shift towards electric vehicles takes place, Morocco might seem an unexpected beneficiary amidst the competition between China, the US, and Europe for market share.
However, Moroccan officials are concerned that anti-competitive policies such as tariffs and subsidies could hinder their ability to attract investment. Ryad Mezzour, Morocco’s Minister of Industry and Trade, said that the influx of new investment doesn’t paint the whole picture. He revealed that Morocco has missed out on some projects due to what he termed “a new age of protectionism.”
The investment has proven beneficial for countries like Morocco. However, in Washington, there’s concern as Chinese firms aim to tap into American subsidies. “Under the Biden administration’s electric vehicle regulations, America’s working families will have to watch their hard-earned tax dollars go to line the pockets of Chinese billionaires and businesses with links to the Chinese Communist Party,” warned US Rep. Jason Smith, a Republican from Missouri, regarding the new guidelines.
The complexities of the electric vehicle supply chain and the Inflation Reduction Act, which aims to increase EV adoption and stimulate domestic manufacturing, are currently under scrutiny. The US Energy and Treasury departments have been attempting to find a middle ground, striving to decrease dependence on Chinese manufacturers while also ensuring an adequate number of vehicles qualify for credits.
The Department of Energy did not respond to queries about what its regulations meant for Chinese investments in countries that have free trade agreements with the United States. However, a spokesperson stated that the shift towards electric vehicles is “an industry-wide, global trend” and that new policies “help the US strengthen its energy security and competitiveness-including outcompeting China.”
China has invested years subsidising companies involved in extracting essential battery minerals, manufacturing cathodes, anodes and electrolyzers, and car manufacturers like BYD. The eagerness of these companies to invest in Morocco to capitalise on the Inflation Reduction Act demonstrates how long it may take to separate Chinese manufacturers from the supply chain, possibly years or even decades, according to Chris Berry, an adviser to battery companies and investors. Berry stated: “There is not going to be a lithium ion battery supply chain that does not have Chinese influence for a long time,”.
