Unintended Consequences of Technology Neutrality: A Comparative Analysis of US and Chinese Industrial Policy in the EV and Battery Sectors

Abstract:

Recent industrial policies in advanced economies have been increasingly shaped by the climate-security nexus. Geopolitical interests and green industrial policies increase the need for policy alignment, while at the same time, they can increase the risk of contradicting policy targets.
In this paper, we seek to analyse the unintended consequences of supply and demand-side industrial policy in the US and Chinese electric vehicle (EV) and battery sectors. The US has largely maintained a technology-agnostic stance when it comes to ‘picking technologies’. Given pre-existing capabilities and established supplier networks, US OEMs naturally chose nickel-based cathodes (NMC or NCA) for early EV models. However, recent geopolitical restrictions have sought to limit the reliance on supply chains with so-called Foreign Entities of Concern (FEOCs), thereby implicitly favouring lithium iron phosphate (LFP).
We argue that this has led to unintended consequences where policies effectively favoured battery chemistries where the US does not have capabilities, and without providing specific (LFP) supply side policies. In contrast, China, through its NEV credit subsidy and the 863 program, took a much more targeted approach by specifying performance metrics such as safety, costs, or manufacturing scale to influence the choice of battery technologies. To compare the two cases, we created a novel database that allows us to map supply and demand-side policies in each country. We conclude that governments should, where appropriate, consider making explicit technology choices, as otherwise the private sector will choose what is readily available or cost-effective, but which might undermine the government’s industrial policy goals.