Washington’s addition of CATL to a list of companies it says work with China’s military could put Tesla founder Elon Musk in a tight spot, challenging how he balances his role in the Trump administration with his ties to China. CATL, the world’s largest battery maker, is a major supplier of lithium iron phosphate batteries to Tesla for its Shanghai factory, with exports to other markets such as Europe and Canada.
The U.S. Department of Defense recently designated CATL and other Chinese companies, including tech giant Tencent Holdings, as linked to China’s military. While this designation does not involve any restrictions on CATL’s business, it can be a blow to the company’s reputation and serves as a warning to U.S. entities about the risks of doing business with them. It could also add pressure on the U.S. Treasury Department to sanction the companies.
Tesla and CATL are currently working on an agreement to license CATL technology for battery production in Nevada, with a launch expected in 2025. CATL is also set to supply battery cells and packs to Tesla’s Shanghai plant for its Megapack energy storage product.
Tesla’s partnership with CATL could be jeopardized by the designation, with one analyst noting that being excluded from military contracts could give potential partners pause. However, another analyst believes that Tesla’s relationships with the Chinese government will continue to be important and that upending these ties could have worse ramifications for the company.
The addition to the Pentagon’s Chinese Military Companies list follows a law passed in 2021 that requires the Pentagon to maintain a list of companies with ties to China’s military. The law also provides for the possibility of sanctions and restrictions on these companies.
CATL has called the designation a mistake, stating that it is not involved in any military-related activities. However, some experts believe that the company’s success in the battery sector could pose a strategic risk for national security. CATL’s deal with Tesla is similar to one it has with Ford Motor, which plans to produce low-cost lithium-iron batteries using CATL technology at a plant in Michigan.