Gotion’s Battery Plant in the U.S.: Implications and Opportunities

On June 13^th 2023, Gotion was allowed to move forward with the construction of a facility in Michigan after receiving results from a federal review looking into potential national security risks. The Committee on Foreign Investment in the United States (CFIUS) concluded that Gotion’s proposed facility was not considered a covered real estate transaction or purchase under the Defense Production Act. However, the next potential risk comes from the Foreign Entity of Concern (FEOC), which the Treasury Department will determine.

According to Reuters news, Gotion would invest USD 2.36 billion in the Michigan factory, creating 2,350 jobs in Michigan.¹ The factory will have a total capacity of 150kt cathode and 50kt anode annually.² Gotion is also planning for another battery production factory in the US to supply LFP batteries to an undisclosed local original equipment manufacturer (OEM), as well as energy storage solution (ESS) providers. The company has been working on these projects for years on the back of Sino-US tensions. Should the projects be completed, we believe the new factories will enhance their competitiveness in the US electric vehicle (EV) and ESS supply chain and help the company meet the battery component requirement under the US Inflation Reduction Act (IRA) in the coming years.

The key concern widely spread amongst investors and Chinese battery players now is the FEOC. It was stated in the IRA that the Treasury Department anticipates moving to a more stringent test to certify compliance with FEOC requirements, which could be part of the so-called de-risking or de-coupling. Similarly, earlier in the partnership between Ford and CATL, investors were concerned about plans being blocked by FEOC. However, we believe the chance of this is low in the near term as the battery and EV industry differs from chips to the US.

Even if the Treasury Department adopts the same strict definition as the Commerce Department under the CHIPS Act where any entity, of which a Chinese person/company directly or indirectly holds at least 25% voting interest, would be deemed as a foreign entity of concern, Gotion still has the flexibility to change the stake it owns to meet the terms. It is seen as the bottom that Chinese battery and battery-related materials companies will enter the US market. Additionally, it is common sense that the US cannot get rid of the Chinese supply chain totally if they want cheap and efficient batteries, as China has proven its long-term competitiveness on efficiency, cost, and technologies. We expect subsidies may help with the US local supply chain for a while, but there could be many ways to ultimately achieve a safe and cost-efficient landscape.