Tariffs on electric-vehicle battery cells and materials imported from China more than tripled to 25 percent last year, pressuring Volvo Cars to find a domestic source for its U.S.-made EX90 crossover.

Volvo Cars CEO Jim Rowan said the higher tariff “takes a bite” out of the profit on the EX90, which is assembled in Ridgeville, S.C., with batteries from China’s Contemporary Amperex Technology Co.

“We’re looking to try and find if we can get a local battery manufacturer in the U.S. to help us minimize those costs,” Rowan said on a Feb. 6 analyst call. “That’s an ongoing project for us right now.”

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AutoForecast Solutions projects Volvo will produce up to 22,000 EX90s in the U.S. this year. It said the battery accounts for about 30 percent of an EV’s cost.

The tariff increase forced Volvo to hike the sticker price by $3,300 last summer — before the vehicle reached dealerships. The EX90 starts at $81,290 with shipping.

The crossover is the battery-powered counterpart of Volvo’s workhorse XC90.

Alleged ties to Chinese military

Last month, the U.S. Defense Department added CATL to its list of firms with alleged links to the Chinese military. The list doesn’t carry any specific sanctions but can deter U.S. companies from business dealings with those on it.

CATL has called the designation a mistake and said it “is not engaged in any military-related activities.”

“The U.S.’s practices violate the market competition principles and international economic and trade rules that it has always advocated, and undermine the confidence of foreign companies in investing and operating in the United States,” Liu Pengyu, a spokesperson for the Chinese embassy in Washington, told the BBC.

CATL accounted for more than a third of global battery shipments in the third quarter of 2024, according to SNE Research in Seoul, more than double that of runner-up BYD Co.

CATL supplies several major automakers, including Tesla, Stellantis and Volkswagen Group.

SK On, AESC as potential partners

Volvo has options for battery suppliers with production capacity in the region.

South Korea’s SK On operates a $2.6 billion factory in Commerce, Ga., about 250 miles northwest of Ridgeville. The operation can supply about 300,000 EVs annually.

SK On has U.S. battery supply agreements with Volkswagen, Ford Motor Co. and Hyundai Motors.

Meanwhile, Japan’s AESC is building cell factories in Bowling Green, Ky., and Florence, S.C.

The Florence factory will supply BMW’s U.S. assembly plant in Greer, S.C., which is to begin cranking out Neue Klasse EVs in late 2026.

SK On and AESC officials declined to comment on discussions with potential customers.

EV tax credit rules

AESC’s Chinese ownership could be a deal-breaker if the EX90 is to qualify for a $7,500 federal tax credit.

The Inflation Reduction Act ties federal incentives to where electric vehicles and key components such as batteries are sourced.

AESC, owned by Shanghai’s Envision Group, lost Nissan Motor Co.‘s U.S. business because it could not assure the Japanese automaker that its batteries would comply with the act’s sourcing rules, a person with knowledge of the matter said..

Globally, AESC continues to do business with Nissan, supplying assembly plants in Japan and England.

“Nissan requires [battery suppliers] to guarantee that there will be no FEOC issue,” the person told Automotive News, referring to the term “foreign entity of concern” for companies in — and, in some cases, subsidiaries owned or controlled by — China, Iran, North Korea or Russia.

EVs that contain battery components or critical minerals sourced from a foreign entity of concern are ineligible to receive the tax credit, which the Trump administration has proposed eliminating. The ban took effect in 2024 for components and in 2025 for minerals.