Domestic battery companies are groaning under the unreasonable demands of global automotive brands. The automotive companies, both customers and joint venture (JV) partners of the battery industry, are intensifying their oppressive tactics as the demand for electric vehicles slows down. This trend of dominance in the automotive industry, often seen as “bullying,” is believed to be spurred on by China’s involvement.
According to industry sources on Dec. 10, the automotive companies’ abuse of their superior contractual position to exploit key component and equipment suppliers has been a long-standing malpractice within the industry. Initially, a few companies, leveraging proprietary engine technology, dominated the market, forcing suppliers to acquiesce to their unfair demands. In the electric vehicle market, where batteries, not engines, are the key to propulsion, this trend was expected to diminish but has instead taken an unexpected turn.
In the electrification market, automotive companies purchasing battery cells, modules, and packs hold the highest status. However, the partnership with battery suppliers, crucial for developing and selling new electric vehicles, has so far prevented any significant issues. The battery industry, aiming to expand the market, has faced challenging demands like lowering product prices or building battery facilities near automotive plants to cut logistics costs. These were considered legitimate discussions linked to the growth of the electric vehicle market and not seen as bullying.
The battery industry began voicing its struggles when these demands started to cross the line. A European automotive company, limiting domestic battery firms to local JVs for North American expansion, insisted on a 50-50 JV partnership while demanding the battery companies bear a greater share of establishment and investment costs. This approach aimed at investing less but reaping more profits. A similar situation was reported with an American automotive company demanding a larger share of profits despite an equal investment in a 50-50 JV.
Recent discussions have been marred by disputes over the Advanced Manufacturing Production Credit (AMPC) related to the implementation of the U.S.’ Inflation Reduction Act (IRA). Negotiations between JV partners over the distribution of AMPC continue, with some companies even demanding a share of the subsidies, arguing that the battery firms should return part of the grants received from electric vehicle sales.
Industry insiders unanimously agree that such practices in the automotive industry are encouraged by China. Major Chinese battery companies, facing barriers in entering the U.S. market, are reportedly lobbying intensively to break through trade barriers and gain an upper hand over domestic battery companies in Europe. This strategy of leveraging lobbying to relax U.S. regulations and secure substantial volumes in Europe has inadvertently increased the burden on domestic companies.
An industry official commented, “The slowdown in growth and the weakening of the seller’s market in the electrification sector play a significant role, but the core issue is China’s misguided lobbying approach. There’s a risk of accounting manipulation leading to embezzlement and misappropriation, and even if separate contracts mitigate this, it could still be detrimental to long-term corporate profitability. We have no intention of yielding to these excessive demands.” The official added, “As the demand and supply of batteries nears a reversal, these harmful practices in the automotive industry are also expected to weaken.”