The U.S. is enjoying a boom in clean energy investment, but at least one state leader isn’t fully on board. Last month, Virginia’s Republican governor Glenn Youngkin turned down a major investment from carmaker Ford to build a battery factory in the state that was set to create thousands of jobs. 

The hitch? Chinese involvement.

Youngkin says he blocked the multi-billion dollar deal due to Ford’s partnership on the project with Chinese battery giant Contemporary Amperex Technology — usually known as CATL — telling reporters it was not right to let the storied U.S. company become a “front for China to America.” 

The decision demonstrates how the tense state of U.S.-China relations is spilling into business, and some experts warn it is the U.S.’s loss. CATL is the world’s largest electric vehicle battery maker, accounting for 37 percent of global manufacturing capacity in 2022, according to SNE, a market research firm. The U.S., by contrast, produces very little in the battery industry.

“The Trojan horse argument made by the Youngkin office misunderstands the state of competition in the [U.S. battery] industry,” says Jonas Nahm, an assistant professor of energy and resources at the Johns Hopkins School of Advanced International Studies. “They are still operating on the premise that the Chinese are trying to get in and steal the U.S.’s secrets, when really we have very little to offer.”

Negotiations between Ford and CATL to establish a plant in North America have been in the works since last July, when the two companies signed a strategic cooperation agreement. A month later, the Biden administration signed the Inflation Reduction Act (IRA) into law, which included a new $7,500 tax credit tied to ‘localized content requirements,’ which require that eligible cars and their batteries be produced in North America.

I don’t think a state governor needs to be trying to second guess U.S. intelligence agencies or the CFIUS [Committee on Foreign Investment in the United States] process.

Lee Branstetter, a professor of economics at Carnegie Mellon University

That condition spurred a wave of investment by battery and auto makers into building new factories in the United States. A majority of green energy projects announced since the IRA became law have gone to Republican districts, according to a report by American Clean Power, a business lobby. While congressional Republicans uniformly voted against the bill, many have since welcomed the influx of money and jobs. 

Even among the slew of announcements, Ford and CATL’s partnership deal stood out. Both brands are seen as national champions in their respective countries, meaning any deal between them is likely to attract significant political scrutiny. Beijing has previously discouraged CATL from investing in the U.S. — the battery maker delayed announcing plans for a multi-billion dollar North American plant last summer following then-House Speaker Nancy Pelosi’s visit to Taiwan, according to Bloomberg News. 

For Ford, there is a strong business case behind its partnership with the Chinese firm, which is a pioneer in making batteries that use a chemistry known as lithium iron phosphate, or LFP. 

“The issue for Ford and other manufacturers is they want to use the LFP battery chemistry, which is cheaper and less resource intensive,” says Henry Sanderson, author of Volt Rush: The Winners and Losers in the Race to Go Green. “And the Chinese are masters of this type of battery, but there’s very little production outside of China. Without Chinese expertise in LFP, the cost increases will delay the energy transition and defeat the purpose of the IRA in advancing decarbonization.”

The U.S. hasn’t always lagged in making EV batteries. In the past, American scientists have made several major advances in the development of LFP batteries, before going on to found promising battery startups. One such company, A123 Systems, received generous federal government subsidies in the late 2000s and early 2010s, but eventually fizzled out after losing key contracts and struggling to find investors. A123 was ultimately acquired by a Chinese firm.

Meanwhile, Chinese manufacturers, including CATL and BYD, have come to dominate the industry. In 2022, China was home to 60 percent of global lithium-ion battery production capacity, according to the International Energy Agency. (North America accounted for less than 8 percent.)

“Today, the U.S. is in a novel position, catching up with others in a way that it rarely does,” says Nahm at Johns Hopkins. 

Given its laggard status, some argue that the U.S. should capitalize on opportunities to partner with leading Chinese firms like CATL to gain manufacturing experience. “The battery business is really a know-how business, it’s not so much about patents or secret sauces,” says Jim Greenberger, executive director of NAATBatt International, a trade association. “Progress doesn’t come from earthshaking inventions, it arises from a hundred small engineering improvements that are made every year, and that’s where Chinese companies have a step up.”

The U.S. has been in a similar position before. In the 1980s, American automakers were losing market share to Japanese exporters, who were producing cars more efficiently and at lower cost. Despite tensions between the U.S. and Japan running high, Lamar Alexander, the then-governor of Tennessee, aggressively courted Japanese automakers to establish joint ventures in his state. Such partnerships allowed American companies to learn from and adopt superior Japanese manufacturing techniques, according to Lee Branstetter, a professor of economics at Carnegie Mellon University.

“U.S. firms were able to get better just by observing their Japanese competitors at close range,” he says. An initially unpopular move by the governor ended up bringing tens of thousands of jobs to the state and helped to secure Alexander two terms in office. 

A major difference between Japan and China, though, is that while Japan was and is a U.S. ally, Washington sees China as its only competitor with both the intent and means to reshape the international order. 

Youngkin’s office cited Beijing’s alleged influence over CATL’s overseas factory construction plans to explain his decision to reject the project: although CATL is privately owned, it has also benefited from billions of dollar’s worth of state subsidies since its founding.

“CATL has proven that it would act as an arm of the [CCP] after Speaker Pelosi’s trip to Taiwan,” said Macaulay Porter, Youngkin’s press secretary, in an email to The Wire. 

Even so, some argue that it isn’t the role of state governments to make decisions on the basis of national security. “If there is a threat, the federal government has mechanisms for assessing that,” says Branstetter. “I don’t think a state governor needs to be trying to second guess U.S. intelligence agencies or the CFIUS [Committee on Foreign Investment in the United States] process.”

Another concern is that a Chinese company may be less forthcoming than its Japanese forebears in sharing its know-how with local counterparts. 

“The danger here is that there are economies that revolve around mere assembly, which don’t really end up learning the know-how to start new, innovative businesses,” says NAATBatt’s Greenberger. “If CATL is going to be accessing the U.S. market, they should involve American workers and American executives, both in assemblage and management roles.” 

Youngkin’s move may have been a political stunt, but it shows that politically it’s really difficult to have an open mind in this country and develop a strategy that might work regardless of the origins of that technology…

Jonas Nahm, from the Johns Hopkins School of Advanced International Studies

Despite Virginia’s hostile reception, the Ford-CATL factory may still get built: Michigan, Ford’s home state, has emerged as a frontrunner location for the joint venture. Local officials in central Michigan have been buying up land in preparation for the construction of a large factory, according to The Detroit News. One possible arrangement would see Ford own the land while CATL would provide the technology and battery expertise.

A spokesperson for Ford said the company is limited in what it can share due to the confidential nature of business negotiations and site selection processes, but that Ford’s talks with CATL continue. CATL did not respond to requests for comment.

“Youngkin’s move may have been a political stunt, but it shows that politically it’s really difficult to have an open mind in this country and develop a strategy that might work regardless of the origins of that technology,” says Johns Hopkins’ Nahm. 

“There are broader, important questions here about how serious we are about acknowledging the actual competitive position we are in, where we can learn from and what it will take.”

---