Ford’s China Problem

Ford’s soon-to-be-built $3.5 billion electric battery factory looks tailor-made to qualify for new electric-vehicle tax credits Congress passed last year. Yet Ford is getting plenty of blowback, particularly from Republicans, because of its partnership with a Chinese manufacturer for the “knowledge and services” to run the plant.

At the center of the debate is a new consumer tax credit established by the Inflation Reduction Act of 2022. The tax cuts are meant to get Americans buying more domestically produced electric vehicles—and to decouple the U.S. from China in the EV industry, which China has dominated. The Inflation Reduction Act’s tax credit applies to most types of EVs that meet a set of criteria: final assembly has to take place in North America; 50 percent of battery components are produced or manufactured in North America; and 40 percent of the minerals used in creating the vehicle come from the United States or a country with which the United States has a free trade agreement. Vehicles that meet the first criterion and one of the latter two qualify for a $3,750 credit to the EV buyer, while vehicles that meet all three criteria earn a $7,500 tax credit.

Starting next year, vehicles with any battery component from an “entity of concern”—a group, individual, or nation that the government deems to be harming national security or American foreign policy objectives—will not qualify for the credit. China and companies affiliated with the Chinese government would be considered such entities. 

The new Ford plant would satisfy the IRA’s requirements: Ford will own the plant, and it will be a Ford subsidiary that builds the batteries, not an “entity of concern” like a CCP-affiliated company.