The US government’s addition of CATL to the list of companies collaborating with the Chinese military could put Tesla founder Elon Musk in a predicament, as he struggles to balance his role in the Trump administration with his relationship with China. The question is what should be done.
CATL, the world’s largest battery manufacturer, is a major supplier of lithium iron phosphate (LFP) batteries to the Shanghai factory of Tesla, the largest U.S. automaker. Tesla is exporting these cars with CATL batteries to other markets such as Europe and Canada.
Lawmakers have denounced some of CATL’s battery storage projects across the country as potential national security threats. Citi estimates that in 2023, CATL’s share of the U.S. market for electric vehicle (EV) batteries and energy storage system (ESS) batteries will be 4% and 35%, respectively.
The Pentagon on Monday designated CATL and other Chinese companies, including tech giant Tencent Holdings, as having ties to China’s military. Although the designation does not include any restrictions on CATL’s operations, it could deal damage to the reputations of affected companies and is a stark warning to U.S. companies about the risks of doing business with the company. It could also increase pressure on the U.S. Treasury to impose sanctions on companies.
Tesla and CATL are working on an agreement to license CATL technology for battery production in Nevada. The deal is expected to begin in 2025, the people said.
Also read: Best cars and technology at CES 2025
CATL will also supply battery cells and packs for Tesla’s Megapack energy storage product to Tesla’s Shanghai factory, the people said. The companies are also discussing how CATL can increase supply as the Megapack business grows.
Tesla and Musk did not respond to requests for comment.
Although no near-term impact is expected for Tesla, Morningstar analyst Seth Goldstein said, “Anyone considering partnering with CATL will likely be excluded from military contracts. It might give people pause.”
Last February, under pressure from lawmakers, U.S. utility Duke Energy retired energy storage batteries produced by CATL at one of the nation’s largest Marine Corps bases and stopped using CATL products in civilian projects. announced that it would be phased out.
Goldstein added that he expects Tesla to continue its partnership with CATL because Tesla’s relationship with the Chinese government is important. Upsetting those relationships “could be worse than any political fallout in the United States,” he said.
Also read: Tesla faces new investigation in US, focuses on technology to remotely return car to driver
Since the 2021 law that created the Department of Defense’s Chinese military company listing requirements, Congress has passed measures that could prevent the federal government from contracting with designated companies.
For example, the sweeping National Defense Authorization Act of 2024 would require the Department of Defense to contract with or procure goods and services, including products, from companies on the CMC list. , which contained provisions banning them from 2026 and 2027, respectively.
The company’s inclusion on the US CMC list is also a blow to the company as it pursues international expansion and seeks further business in the US. CATL said Tuesday that the designation was a mistake and that it “does not conduct any military-related activities.”
“CATL’s role in the battery space mirrors Huawei’s role in the communications space,” said Craig Singleton, a senior fellow at the Foundation for Defense of Democracies. This is a strategic attempt to aim at
The CATL-Tesla deal is modeled after the existing CATL partnership with Ford Motor Co., Ltd., which will use technology licensed from CATL at its Michigan plant to produce low-cost lithium by 2026. The company plans to start producing iron batteries.
Goldstein said he wouldn’t be surprised if Tesla was granted some exemption from potential future restrictions because of Musk’s good relationship with President-elect Donald Trump. Musk, the world’s richest man, was tapped by President Trump to co-head the newly created Office of Government Efficiency, which Trump has indicated will operate outside the government.
CATL Chairman Robin Zeng told Reuters in November that the company would consider building a U.S. factory if President Trump opens the door to Chinese investment in the electric vehicle supply chain.
Gain insight into upcoming cars in India, electric vehicles, upcoming bikes in India, and cutting-edge technologies that are transforming the automotive industry.
First edition publication date: January 9, 2025, 8:57am IST
