USA / China – Microvast Holdings Inc, a battery manufacturer based in Stafford, Texas, USA, has denied any ties to the Chinese Communist Party following the decision of the U.S. Department of Energy to withdraw a USD200m grant towards battery separator production in Kentucky. 

The Department of Energy took the decision to cancel the deal with Microvast in late May without offering any specific reason. The money was meant to support a total investment of USD504m in the production of polyaramid separators, insulating films which divide cathode and anode from each other in a battery cell. Microvast makes polyaramid fibres using a patented “wet-process” method. 

Over the last several months, Microvast has been the subject of allegations from two Republican senators, John Barrasso (for Wyoming) and Frank Lucas (for Oklahoma). Both addressed letters to Jennifer Granholm, the current Secretary of Energy, highlighting their concerns. They accuse Microvast of having close ties to the Chinese government, based partly on passages of a form which Microvast filed with the U.S. Securities and Exchange Commission last year. Furthermore, Lucas claims that, although Microvast is headquartered in the U.S., nearly 80% of its assets are currently located in China, while 61% of its 2021 revenues originated in China. 

Microvast was founded in 2006 and built up its business primarily in the Chinese and Asia-Pacific markets. It has a battery plant and R&D centre in Huzhou, Zhejiang and counts Foton, Higer, and Xuzhou Construction Machinery Group (XCMG) among its customers. The company has vehemently denied claims that it is owned or controlled, whether wholly or in part, by the Chinese Communist Party, the governing party of the People’s Republic. 

Allegations made by U.S. senators based on SEC filings 

Barrasso and Lucas picked up on several passages which Microvast composed in an amendment to its Form S-1, filed with the SEC on 29 April 2022. 

On page 17, Microvast states that its subsidiaries in China are “subject to extensive PRC government regulation” and could “become subject to regulations issued by the CAC¹ and requirements of the PRC’s Cyber Security Law or Data Security Law.” The U.S. Federal Bureau of Investigation has repeatedly warned that these laws could force any company doing business in China to submit to data surveillance and espionage. 

On the same page, Microvast admits that the Chinese government “exerts substantial influence over the manner in which we must conduct our business activities and may intervene, at any time and with no notice.” 

On page 18, Microvast states that it may not be able to protect its intellectual property rights in China. 

On page 21, Microvast states that, because its auditor is based in China, the Public Company Accounting Oversight Board is prevented from regularly evaluating the company’s independent registered public accounting firm’s audits and its quality control procedures. This puts Microvast in breach of auditing requirements for companies publicly listed in the USA. 

While the risks to its business are not unique and are faced by any company which operates in China, the two senators assert that Microvast’s investment in the Chinese market put U.S. government money at risk of being exploited by the Chinese government. Both said that granting money to the company through the Bipartisan Infrastructure Law was in breach of the spirit of that law, which was to bring offshored manufacturing back to the U.S. and prevent China from gaining a technological edge over the United States. 

Microvast CEO, Wu Yang’s response 

Wu Yang, founder, chairman and CEO of Microvast, expressed his disappointment over the decision and restated his commitment to manufacture EV batteries in the United States. He said: 

I’m proud to be a Chinese American […] Just like many American companies, we decided to develop and manufacture our products in China first because of the early adoption of electric vehicles there. Following the spur of America’s electrification, we decided to bring our innovative technology back to the United States.

¹ The Cyberspace Administration of China (CAC) is the national internet regulator and censor.