Morocco: The Unexpected Beneficiary of China's Investment Boom

Morocco: The Unexpected Beneficiary of China's Investment BoomAmidst the USs new electric vehicle (EV) subsidies policy, Chinese companies have set their sights on an unexpected location Morocco. Situated south of the Strait of Gibraltar, this North African nation has become a hotbed for Chinese investment in recent years, particularly for companies focused on EV battery production

Morocco: The Unexpected Beneficiary of China's Investment Boom

Amidst the USs new electric vehicle (EV) subsidies policy, Chinese companies have set their sights on an unexpected location Morocco. Situated south of the Strait of Gibraltar, this North African nation has become a hotbed for Chinese investment in recent years, particularly for companies focused on EV battery production.

Since US President Joe Biden signed the Inflation Reduction Act (IRA) in 2022, at least eight Chinese battery manufacturers have announced new investment plans in Morocco. The IRA aims to address climate change and provides $430 billion in funding for the USs EV manufacturing sector. One key provision mandates that EVs purchased by consumers must satisfy sourcing requirements for critical minerals and battery components to qualify for a $7,500 tax credit. This provision has spurred massive investment in the US EV manufacturing sector and created new opportunities for Chinese companies.

For China, which has historically dominated the battery supply chain, Morocco has become an ideal choice to circumvent the limitations of the US subsidy policy. As a US trading partner, Morocco is not subject to US tariffs on Chinese-made vehicles, while also benefitting from the US subsidy policy. "Chinese companies definitely don't want to miss out on this feast," said Kevin Shang, senior battery analyst at Wood Mackenzie, a consulting firm.

Chinese investments in Morocco span the entire battery production process, from cathode materials to battery assembly. Almost all key areas have seen Chinese companies enter the scene. One of the largest investments is by Chinese-German battery manufacturer, Gotion High-Tech, which signed a deal last year with the Moroccan government to build Africas first EV battery factory for $64 billion. Additionally, E-S Energy, a joint venture between South Koreas LG Chem and Chinese company Huayou Cobalt, announced the construction of a production base in Morocco. The cathode products manufactured there will be supplied to the North American market and benefit from the US IRAs subsidies.

Another key driver of Chinese investments in Morocco is the supportive local government. Morocco boasts abundant mineral resources, including phosphate and cobalt, crucial raw materials for battery production. Furthermore, the Moroccan government provides a range of incentives, such as tax breaks and land concessions, attracting Chinese investments.

Similar investment surges have been observed in other nations, including South Korea and Mexico, which have free trade agreements with the US. However, Morocco's investment scale and speed far surpass other countries, thanks to its unique geographical location, resource advantages, and supportive government policies.

Morocco's automotive manufacturing sector has experienced rapid growth in recent years, establishing itself as a major global vehicle production hub. With the world transitioning to electric vehicles, Morocco is poised to become an unexpected beneficiary of the contest for market share between China, the United States, and Europe.

However, Moroccan officials have expressed some concerns. They believe that anti-competitive policies, such as tariffs and subsidies, could ultimately make it more difficult to attract investments. Morocco's Minister of Industry and Trade, Ryad Mezzour, has stated that Morocco has also lost some projects due to the so-called "new protectionist era."

Overall, the Chinese investment boom in Morocco underscores the intense competition in the global EV industry. Morocco, acting as a bridgehead for Chinese companies to circumvent the limitations of the US subsidy policy, offers a future worth watching. Chinese investments in Morocco will drive the growth of the local EV sector and generate new economic growth points for the country. Nevertheless, Morocco faces challenges in further developing its infrastructure and talent pool to seize the opportunities offered by the global EV industry.

A Closer Look at Specific Cases of Chinese Investment in Morocco

Here are specific examples of how Chinese companies are investing in Morocco:

1. CNGR:

As one of China's largest battery cathode material manufacturers, CNGR announced in September 2022 a joint venture with Al Mada, an investment group owned by the Moroccan Royal family, to establish a $2 billion "global and transatlantic" base in Morocco. Thorsten Lahrs, CEO of CNGR's European business, stated that the company is confident that its cathode materials will qualify for the US tax credit and will adjust its board composition if necessary.

2. Gotion High-Tech:

Last year, Gotion High-Tech signed a $64 billion deal with the Moroccan government to build Africa's first EV battery plant. This project is expected to create thousands of jobs and make significant contributions to Moroccos economic development.

3. E-S Energy:

E-S Energy, a joint venture between South Korea's LG Chem and China's Huayou Cobalt, has also announced a production base in Morocco. E-S Energy has stated that its cathode products will be supplied to the North American market and will benefit from the US IRAs subsidies. To comply with US regulations, E-S Energy will adjust its equity stake as needed.

4. BTR:

In April of this year, BTR announced the construction of a cathode factory in Morocco. The company pointed out that Morocco's trading position with the US and Europe will ensure "smooth access to these regions for most of its products."

The Current State and Future Development of Morocco's Automotive Industry

Morocco is home to over 250 companies manufacturing vehicles or automotive components, including traditional carmakers like Stellantis and Renault, as well as Chinese, Japanese, American, and Korean factories producing seats, engines, shock absorbers, and wheels. This sector generates nearly $14 billion in annual exports of vehicles and parts.

With the global transition to electric vehicles, Morocco's automotive industry faces new opportunities and challenges. Chinese investments in Morocco will boost the development of the local EV sector and create new economic growth points for the country.

However, Morocco also faces certain challenges. For instance, the country lacks a sufficient talent pool in the EV industry, necessitating enhanced talent development and recruitment. Additionally, the country needs to further improve its infrastructure to meet the needs of the EV industry.

Overall, Morocco has a solid foundation for EV industry development and boasts immense potential for growth. In the future, Morocco is poised to become a key player in the global EV industry.

Conclusion

The US's new EV subsidy policy has ignited competition in the global EV industry and opened up new investment opportunities for Chinese companies. Morocco, serving as a bridgehead for Chinese companies to circumvent the limitations of the US subsidy policy, presents a future worth monitoring. Chinese investments in Morocco will drive the growth of the local EV sector and generate new economic growth points for the country. However, Morocco needs to further develop its infrastructure and talent pool to seize the opportunities offered by the global EV industry.