Chinese companies seeking to invest in U.S. battery supply chain projects face an increasing number of legal and regulatory barriers, forcing dealmakers to become creative.

Successive presidential administrations and Congresses led by both major parties have passed new laws blocking China from taking a direct hand in U.S. supply chains, including a rapidly expanding mineral-dependent electric vehicle market. Major legislation has focused on federal authority to review foreign investments and incentives for domestic production, as included in the Inflation Reduction Act that was signed into law in August.

As a result, U.S.-based Ford Motor Co. and China's Contemporary Amperex Technology Co. Ltd. have gotten creative in contemplating a joint project in the U.S. The companies are planning to construct an EV battery manufacturing plant in the U.S. with an ownership structure specifically designed to ensure the batteries are eligible for production tax credits under the Inflation Reduction Act, Bloomberg News reported Dec. 14.

The deal under consideration by Ford and Contemporary Amperex Technology would see the carmaker wholly owning the plant and infrastructure, with the battery-maker owning the battery cell technology and operating the factory, according to the report.

U.S. demand for lithium for EVs is expected to increase by 167% between 2022 and 2026 to about 137,000 tonnes, or 12.5% of global lithium demand for EVs, according to S&P Global Market Intelligence data. The cobalt outlook is much the same, with U.S. demand expected to spike 104% by 2026 compared to 2022, constituting 17% of the world's EV cobalt appetite in 2026.

"It is undeniable that the U.S. government is highly motivated to move critical minerals supply chains away from dependence on China or other nations that represent national security concerns," Daniel Pickard said in an email. Pickard is the chair of the International Trade Administration's Industry Trade Advisory Committee on Critical Minerals and Nonferrous Metals, as well as chair of the international trade and national security practice at law firm Buchanan Ingersoll & Rooney.

"In light of recent efforts to protect our supply chain, future investments by China in U.S. mining interests will likely face an uphill battle," Pickard said.

Ford and Contemporary Amperex Technology did not respond to requests for comment.

The invisible hand

Future U.S. efforts to limit Chinese investment will be determined by the Committee on Foreign Investment in the United States, or CFIUS, Pickard said. The multiagency committee is authorized to review transactions involving foreign investment in the U.S., although it is prohibited from disclosing most information filed for review.

"CFIUS publishes a public report every year and which clearly indicates that mining has been an area of significant and growing interest for the Committee," Pickard said. "CFIUS has taken action on several occasions over the past decade to protect U.S. mining operations, especially when the Chinese entity at issue is a state-owned enterprise."

CFIUS' review authority was significantly expanded in 2018, when the Foreign Investment Risk Review Modernization Act added four categories of transactions by foreign investors to the committee's purview. The 2018 law was an effort to specifically target Chinese investments, said Laura Fraedrich, senior counsel with law firm Lowenstein Sandler's global trade and national security practice.

"The whole 2018 law was about China," Fraedrich said. "If you go and look at the news stories about where CFIUS has required a foreign buyer to divest itself, it's always China."

In September, President Biden signed an executive order directing CFIUS to consider a transaction's "effect on the resilience of critical U.S. supply chains that may have national security implications," seemingly targeting the mining sector. While Canada recently grabbed headlines by directing multiple Chinese companies to divest their mining interests, the end effect in the U.S. of an emboldened CFIUS with a clear supply chain directive is harsher than Canada's approach, Fraedrich said.

"Canada is far less aggressive and conservative than CFIUS [and] the U.S. are," said Fraedrich. "For them to go and kick the Chinese out of a mine, that's fairly unusual in Canada, but absolutely that would happen [in the U.S.]."

CFIUS, the Commerce Department, and the White House did not reply to requests for comment.

Removal from Canada or the U.S. mining sectors could be a significant blow for Chinese investors in the long term as the two North American countries attract significant interest from groups exploring for key energy metals such as lithium.

However, the market potential does little to soften the impact of government scrutiny of Chinese investments.

"You're not going to see a Chinese company come in and try to buy a lithium mine [in the U.S.]," said Fraedrich.

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