USA updates to 'foreign entity of concern' guidance will impact supply chains

News Analysis




USA updates to 'foreign entity of concern' guidance will impact supply chains

  • David Merriman

The US Department of Energy announced new foreign entity of concern ownership guidance for ‘Inflation Reduction Act’ and ‘Infrastructure and Jobs Act’ subsidy compliance

The US Department of Energy announced that companies with greater than 25% ownership by Chinese, North Korean, Iranian or Russian entities will not qualify for subsidies under the Inflation Reduction Act (IRA) or the Infrastructure and Jobs Act (IJA). This would limit access to the two supporting policies, which combined will provide subsidies totalling US$919Bn for the development of critical materials supply chains, green energy generation and creation of circular supply among other key targets. 

The introduction of the foreign entities of concern ownership limit is significant for critical raw materials, with Chinese ownership exceeding the 25% threshold at key producers of lithium, cobalt, manganese and nickel even though these companies are operating assets outside the jurisdictions of concern. 

The Greenbushes mine in Australia, the largest producer of lithium mineral concentrates in 2023 is 26% owned by Chinese-owned Tianqi Lithium, while the Mt Marion lithium mine also in Australia is 50% owned by China’s Ganfeng. Downstream, the 50% ownership of the Kwinana lithium refinery in Australia by Tianqi Lithium will also render the facility non-IRA compliant, While in Chile Tianqi Lithium’s 23.77% holding of the world’s largest lithium producer in 2023, SQM, sits dangerously close to the threshold. 

Nickel is expected to see the strongest impact, with a large number of Indonesian nickel assets in production and under development having greater than 25% Chinese ownership. Indonesia has been pushing for a free trade agreement with the USA to open up access to IRA subsidies for operations based there, though the new guidelines will significantly reduce the number of eligible companies if a free trade agreement is signed. A similar picture exists for cobalt and graphite supply, with Chinese ownership of mining and processing capacity exceeding 25% at several key producers. 

The tightening of foreign entity of concern ownership criteria could have numerous knock-on effects. It will provoke a reassessment of supply chains at major battery components and EV manufacturers, which base future plans on accessing IRA subsidies. It could precipitate new investment into projects with <25% ownership by FEOC parties throughout the Li-ion battery and other EV component supply chains. Another scenario is that by decreasing the pool of IRA-compliant companies for several critical raw materials, EV prices may stay higher for longer in the US market, slowing growth in market penetration. It may also push some (non-compliant) producers to target non-US markets, reshaping supply chains.