GM eyes deal with CATL for US LFP battery production

News Analysis




GM eyes deal with CATL for US LFP battery production

In a recent report from Chinese media, General Motors (GM) and CATL have entered talks to explore options for a joint gigafactory in North America in which CATL would license its LFP battery technology to GM. 

This deal is along similar lines to Ford and CATL’s agreement to produce LFP cells, which was announced early last year. According to reports, the gigafactory would likely be located in either the US or Mexico and be at least as large as Ford and CATL’s 20GWh battery plant in Michigan. This type of licensing agreement is emerging as a key theme in the US as a way to increase projected domestic battery supply in as short a time as possible, whilst maintaining compliance with the Inflation Reduction Act (IRA).

Building gigafactories is a monumental challenge, especially for legacy automakers in the new world of electric vehicles (EVs). As a result, many have formed joint ventures to team up with well-established cell producers to take advantage of their extensive experience to bring high quality and reliable cells to market in a shorter space of time than would otherwise be possible. This is exemplified by GM’s Ultium joint venture with LG Energy Solution, which supplies its EV platform with nickel-based cells in in the US.

These partnerships appear successful with South Korean (and other) partners, but when it comes to partnerships with Chinese producers in the US there is often considerable resistance from local populations and government. Since the US IRA was announced in August 2022, the US has looked to move away from its reliance on China by incentivising domestic projects and production. This has been immensely successful to date, but undefined details within the legislation have left holes for companies to move through. One of these was the open door for Chinese investment into projects on US soil, which saw Chinese companies investing in the US rather than supplying to it. Since then, the US government updated the legislation so that any company with more than a 25% ownership by a Foreign Entity of Concern (FEOC) would be deemed non-compliant for tax credits when supplying battery cells or materials.

As a result of the this change, considerable attention has turned to manufacturing and technology licencing. This would mean that CATL would provide equipment, train staff and license the technology, rather than investing and building a gigafactory and subsequently supplying the cells to GM. With that, GM and CATL would be looking to satisfy IRA eligibility, as the licence holder (GM) would be the sole owner of the gigafactory. The initial investment by CATL would also be much lower than if it were to build a gigafactory in the US itself, making it an increasingly attractive model.

Many details of the IRA still remain grey, leading automakers and Chinese producers to seek alternative means of market entry. Licensing the manufacturing and battery technology looks to be an important route forward to comply with the IRA and scale up operations simultaneously, although new regulations about Chinese involvement may move to block this.