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Plugged In: An EV Newsletter - Vol. 1, No. 3

March 2023
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    EV Newsletter Vol. 1 No. 3

    How Will the Industry’s ESG Polices Impact the EV Transition?

    In our last publication, the Firm’s East Asia Practice Group took a critical look at the tension between U.S. policy makers and the realities of the EV industry in the U.S., and more specifically, East Asia’s importance in the U.S.’s plans to electrify. When it comes to lithium batteries, it is evident to those in the industry that the U.S. will only achieve its short term goals by sourcing from companies in East Asia; however, what about further up the supply chain?  Where will the industry turn and how will the U.S. and European Union policies impact the sourcing decisions of major OEMs in the U.S.?

    One of the hottest topics in today’s marketplace is “ESG.” An acronym for the lesser understood concept of “Environment, Social and Governance.” Every major OEM has an ESG policy [GM, Ford, Stellantis, Toyota, Tesla], and presumably all of these companies intend for their policies to affect their sourcing decisions.  The invention of ESG policies is not novel, but their importance in the industry has never been greater. With recent legislation in the U.S. and Europe demanding the industry take a critical look at their supply chains, ESG is no longer just aspirational, it is front and center as companies weigh their sourcing decisions. One notable law in the U.S. that has recently tied together both the relevance of ESG policies and U.S. politics is the Uyghur Forced Labor Prevention Act (UFLPA). Originally introduced by the House in February 2021, it quickly passed through both chambers of Congress and was signed into law by President Biden in December 2021, with an effective date of June 21, 2022. The law, at its core, empowers the U.S. Customs and Border Patrol (CBP) to detain goods imported into the U.S. that were made wholly or in part from Xinjiang Uyghur Autonomous Region in western China.

    Xinjiang Province, mostly known for its cotton production, would seemingly have little to do with the EV supply chain. But, caught in the cross-hairs of the U.S.’s pressure on Chinese sourced goods, and the U.S.’s need to source large quantities of raw materials that support lithium batteries, regardless who the producer of those batteries are, the UFLPA will pose another hurdle for the industry to navigate.  On the eve of the UFLPA coming into law, the New York Times published an article on one of the largest companies in Xinjiang, Xinjiang Nonferrous Metal Industry, which produces minerals and metals, including lithium, nickel and copper. It has exported metals to the United States, Germany, U.K., Japan and India, the Times reported. 

    Having a presence in Xinjiang, even one as substantial as Xinjiang Nonferrous Metal Industry, is not synonymous with engaging in forced labor; however, this distinction is little recognized by CBP because the UFLPA establishes a rebuttable presumption that “importation of any goods … produced or manufactured wholly or in part in the Xinjiang is prohibited and that such goods … are not entitled to entry to the United States.”  Given that almost all of the processing required to turn essential raw materials into batteries takes place in China, it is not surprising that the UFLPA may become the main focus in the EV transition. China processes between 50 to 100% of the world’s lithium, nickel, cobalt, manganese and graphite, and makes 80 percent of the cells that power lithium ion batteries, according to Benchmark Mineral Intelligence, a research firm.  Even battery makers outside of China rely on Chinese sourced materials to support their products. This market dominance alone is reason to believe that U.S. policy makers will grapple with whether zealous enforcement of the UFLPA should be front and center in Washington’s pressure on Beijing. For its part, China continues to deny U.S. allegations of forced labor and calls the condemnation of forced labor as the biggest lie of the century. 

    On February 23, 2023, the CBP issued new guidance for importers on the agency’s enforcement website. This includes additional guidance in the form of frequently asked questions (FAQs), guidance setting forth best practices for submitting documentation to prove that detained goods are not subject to the UFLPA, and guidance on executive summaries and sample tables of content for importer applicability review submissions. 

    While enforcement of the UFLPA is expected to be ratcheted up in the coming months, the industry is readying to assure that its supply lines will not be disrupted and that its entire supply chain avoids unnecessary entanglements in troubled hot spots throughout the world.

    —Mark Heusel | Member and East Asia Practice Group Chair – 
    China, Taiwan, Japan, Korea, ASEAN Region

    EV Manufacturing Underscores Need for Skilled Workers, Requiring Employers to Seek Talent Globally

    While the shift to electric vehicles represents a reformation of the automotive industry in terms of new technologies, infrastructure requirements, and supply chain considerations, often overlooked is the challenge of developing a workforce equipped with the skills to adapt to the associated changes in traditional manufacturing. Production of battery-electric vehicles will require a workforce that has both traditional skills, such as vehicle assembly, as well as new skills like electrical equipment assembly. According to the Bureau of Labor Statistics, vehicle electrification is expected to generate demand for labor in three main areas: the design and development of electric vehicle models, the production of batteries that power them, and the installation and maintenance of charging infrastructure.

    The CHIPS and Science Act of 2022 will provide $52.7 billion for American semiconductor research, development, and manufacturing, but also earmarked are funds for workforce development. The Inflation Reduction Act of 2022 will invest $369 billion to promote a clean energy economy, in part by offering generous incentives for U.S.-made electric cars. The need to train a new group of skilled workers explains why funds in the CHIPS Act are set aside for workforce development, and the push to rev up production within the U.S. to take advantage of financial incentives requires building up a manufacturing industry that is already facing a massive shortage of labor. 

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