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© Reuters. FILE PHOTO: A Tesla logo on a Model S is photographed inside of a Tesla dealership in New York, U.S., April 29, 2016. REUTERS/Lucas Jackson/File Photo
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By David Shepardson
WASHINGTON (Reuters) -A senior Republican in Congress asked Tesla (NASDAQ:TSLA) Tuesday to detail its relationship with Chinese battery manufacturer CATL amid concerns U.S. electric vehicle subsidies were improperly flowing to foreign entities.
The chair of the House Ways and Means Committee, Representative Jason Smith, asked Tesla CEO Elon Musk in a letter if the electric vehicle (EV) maker has contracts with CATL or is considering contracts.
Smith said the committee is concerned CATL "may be trying to negotiate other agreements like the agreement with Ford." Reuters previously reported Tesla was CATL's biggest client.
Republicans in Congress have been probing Ford Motor (NYSE:F)'s planned $3.5 billion investment to build a battery plant in Michigan using technology from CATL, the world's largest battery maker.
The auto industry is watching how new rules around future EV tax credits will be implemented as they make investment decisions on producing batteries for their transition to EVs.
In 2022, Congress passed the $430 billion Inflation Reduction Act (IRA) which will bar future EV tax credits if any battery components are manufactured or assembled by a "foreign entity of concern."
The foreign entity of concern rules are aimed at weaning the United States from Chinese supply chains and come into effect in 2024 for completed batteries and 2025 for critical minerals used to produce them. The question is what precisely constitutes a "foreign entity of concern", and so far no foreign battery supplier has been labeled as such.
Smith asked Musk whether, aside from boosting North American manufacturing, his company had "taken any actions to increase production of the number of vehicles that will qualify for the clean vehicle credit?"
Smith also wrote Nissan (OTC:NSANY) on Tuesday asking for details about its battery suppliers and whether its U.S. manufacturing plans "include the production of batteries or battery components for EVs?"
Tesla, CATL and Nissan did not immediately respond to requests for comment.
In July, Smith and Mike Gallagher, Republican chair of the Select Committee on China, demanded Ford answer questions about the CATL deal.
"We are concerned that the deal could simply facilitate the partial onshoring of PRC-controlled battery technology, raw materials, and employees while collecting tax credits and flowing funds back to CATL through the licensing agreement," the letter to Ford said.
Ford told Reuters Tuesday it agrees that "U.S. taxpayer dollars should support American manufacturers, not foreign entities of concern." It defended its planned battery plant as "one owned and controlled solely by Ford, a proud American company."
Ford is awaiting guidance from the U.S. Treasury to ensure the partnership does not run afoul of the Act.
Smith wrote Treasury Secretary Janet Yellen Tuesday saying she should immediately issue the guidance and "make clear in the most comprehensive way possible that taxpayer subsidies cannot flow to foreign entities of concern through any structuring mechanism conceivable."
Treasury said the IRA is "encouraging investments in America and building secure supply chains rather than outsourcing to places like China" and it "will continue to assess and respond to any national security concerns associated with both international and domestic supply chains."
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