Counterintuitively, U.S. and global auto firms need to collaborate with Chinese suppliers to reduce strategic dependency. The model involves onshoring Chinese hardware and manufacturing expertise while maintaining national control over sensitive AI software and networks, creating a strategic "co-opetition."

Beyond typical trade issues like tariffs, Beijing's negotiating strategy with the U.S. has evolved. A key demand is securing the ability for Chinese national champions like BYD (EVs) and CATL (batteries) to build and operate manufacturing plants, either as joint ventures or wholly-owned entities, within the United States.

As Ford pivots away from pure electric vehicles due to weak demand, it is in talks to buy hybrid batteries from its major Chinese competitor, BYD. This move underscores BYD's battery manufacturing prowess and the complex realities of the automotive supply chain.

In its pivot to making batteries for AI data centers, Ford is licensing Chinese technology for its Kentucky plant. This strategic move, designed to compete in a market dominated by Chinese firms, ironically highlights the deep dependency on Chinese innovation even within American domestic manufacturing efforts.

A "Battery-as-a-Service" model is gaining traction in China, where consumers buy the car but subscribe to the battery. This lowers a vehicle's upfront cost and allows companies like CATL to create a recurring revenue stream, owning the asset's entire lifecycle from use to recycling.

Rather than a simple supplier relationship, CATL's early breakthrough came from embedding BMW engineers in its facilities. This deep, co-design partnership provided CATL with invaluable German engineering expertise and the credibility needed to win global automakers, long before its landmark deal with Tesla.

The bear case against CATL's licensing model is that it's a defensive move that trains competitors like Ford. By handing over technology blueprints, CATL risks "LRS leakage," where partners eventually replicate the tech and cut CATL out, a vulnerability US regulators could exploit with a stroke of a pen.

The credit's requirements for North American manufacturing and sourcing from trade partners were designed to counter China's dominance in the EV supply chain. Its elimination undermines this strategic goal, leaving tariffs as the primary, less effective tool.

After proving a new manufacturing platform with one profitable industrial facility, the fastest path to market-wide adoption is licensing the technology to established players. This trades maximum per-unit profit for speed and scale, leveraging partners' existing infrastructure.