The US may need to set up a new trade consortium to meet the anti-China demands of new electric-vehicle tax credits passed by Congress last year, the head of the group that lobbies for most major automakers said Tuesday. 

“We talk a lot about onshoring,” or moving production domestically, said John Bozzella, president of Washington-based trade group Alliance for Automotive Innovation, in an interview with Bloomberg News in Washington. “But you’re also hearing a term of art that people like to throw around now: friendshoring.” 

“Partnership with allied nations” will be required to create new supply chains “because China has such a significant share of critical minerals,” Bozzella said. 

John Bozzella, president of Alliance for Automotive Innovation

The US auto industry and its supply chains are undergoing a major shift after the Biden administration last year passed the Inflation Reduction Act, which seeks to boost domestic manufacturing and severely lessen America’s dependence on China for supplies of key materials, such as semiconductors and minerals needed for a green energy transition.

In the short term, there are not enough minerals outside of China for US automakers to meet the demands of the IRA, Bozzella said.

Washington has already started looking at trade treaties with certain countries, including the European Union and Japan, that are focused on so-called critical minerals for EV batteries. Automakers have also started looking further up their supply chains to secure materials that meet policy makers’ growing requirements for sources outside China. 

US Treasury Secretary Janet Yellen has for much of the last two years promoted the idea of friendshoring, or moving supply chains critical to the US economy away from China and other countries seen as politically unreliable.

Lawmakers from both parties have grown increasingly hawkish on automakers’ business in China. Ford Motor Co. recently came under fire for a planned partnership with Contemporary Amperex Technology Co. Ltd., also known as CATL, with Virginia Governor Glenn Youngkin calling it a “Trojan horse” for China. 

The comments also come as the US Treasury Department is in the midst of writing rules for who can take advantage of a lucrative $7,500 consumer tax credit under the Inflation Reduction Act.

The agency is expected to finalize requirements for EVs qualifying for the tax credit to be built with a certain value of their minerals extracted or processed in the US, or a country that has a free-trade agreement with the US in March. The Treasury Department is still defining what is considered a trade agreement under the IRA.

Bozella said he expects the number of EVs that qualify for tax credits to shrink from the 37 that are currently eligible when the rules are finalized. He expects the number to ramp back up as automakers bring more battery production in line with the IRA’s rules. 

Bozzella’s trade association represents major automakers such as Ford, General Motors Co., Stellantis NV, Honda Motor Co. and Toyota Motor Corp.