The US presidential election outcome is poised to shake up the global auto supply chain. A Trump victory could reshape the industry by repealing the Inflation Reduction Act(IRA) and easing carbon emission rules for fuel vehicles. Thus creating an entry for Chinese manufacturers to build factories and create jobs in the US.
This approach contrasts sharply with the Democratic Party's more closed-off response, which incentivizes domestic manufacturing. As a result, many automotive-related companies have paused their strategies, waiting for the election outcome before making adjustments. Among them, EV giant Tesla's CEO Elon Musk has publicly supported Trump, causing delays in the construction of its EV factory in Mexico.
However, Tesla's plans for lithium battery production in the US appear to be ongoing, particularly as they recently began recruiting talent related to lithium iron phosphate (LFP). Earlier this year, they also acquired some second-hand equipment from CATL.
Sources within the supply chain indicate that Tesla will collaborate with South Korea's LG Energy Solution (LGES) for part of the LFP production process. The primary reason is the long lead times for key coating equipment, predominantly sourced from Japan and South Korea. Thus, the initial stages of this process will be completed by LGES, which had established its operations earlier. Given the current timeline, mass production is expected to begin around 2026.
In the scenario where Trump gets the White House, Tesla's LFP allies, including CATL and BYD, could enter the US market for production. This prompts the question: why would Tesla insist on producing LFP batteries domestically?
Several supply chain analysts privately suggest that regardless of whether the Democratic or Republican party wins the presidency, the direction towards domestic lithium battery production in the US is unlikely to change. This is primarily due to geopolitical considerations and the tense Sino-American relations, which may introduce numerous new policies and restrictions. Two significant factors complicate matters further, emphasizing the need for continued planning for domestic production.
The first factor involves stringent background checks. Under the leadership of Biden and Harris, the Democratic Party is expected to continue supporting the IRA's implementation. In 2024, the "foreign entities of concern" designation will involve thorough investigations into companies establishing themselves in the US. Even if Trump's Republican Party removes the IRA, similar scrutiny may still apply to foreign businesses entering the US market, posing difficult risks for these companies to manage.
The second factor relates to the challenges faced upon entry. While companies like China's EVE Energy and Gotion High-tech Power Energy have successfully entered the US market, a myriad of obstacles have come their way, including local protests, removal of introduced local government officials, and various lawsuits. Similarly, CATL, which has not yet established a presence in the US, has faced repeated questioning from American lawmakers despite its partnership with Ford.
These issues have made local governments more cautious regarding subsidies for domestic manufacturing. To some extent, China remains a bipartisan point of contention, albeit with different strategic responses. Even without support from Chinese firms, the gap could be filled by Korean manufacturers available to assist with production in the US, leaving the question of "why Tesla needs to exert such effort" dangling.
Industry experts analyze that developing manufacturing capabilities in the US and creating job opportunities has become a bipartisan consensus. Lithium batteries account for approximately 30-40% of the total cost of electric vehicles, making them a critical component. Initially, the domestic lithium battery production landscape was dominated by Korean manufacturers specializing in ternary batteries, such as LGES, SK On, and Samsung SDI, due to their friendly relationships with American automakers. However, Tesla's 4680 large-format battery showcases advancements in technology.
In the second phase of introducing LFP batteries to the US, Tesla can similarly adapt this technology for the 4680 format. For Tesla, the barrier to entering the LFP market is relatively low, allowing them to control various types of lithium batteries and maximize efficiency in their electric vehicle strategy.
