Tencent and CATL caught in the US political crossfire

The US Department of Defense decided to add two major Chinese companies, Tencent and CATL, to its list of "Chinese military companies." This designation is not an outright ban, but it will create significant hurdles for these companies in the US market.

Tencent is known for its messaging app WeChat, and its prominent role in the gaming industry. It owns Riot Games, the developer of the popular game League of Legends. The company holds investments in numerous gaming outfits such as Epic Games, Ubisoft, and FromSoftware. On the other hand, CATL is the world's largest EV battery manufacturer. Its batteries power EVs from a wide range of manufacturers, including Tesla, Ford, Volkswagen, and BMW.

The "Chinese military company" designation is a result of the 2020 Trump executive order that restricts US companies from investing in entities with connections to the Chinese military. While the designation doesn't impose direct sanctions, it will have serious consequences. DJI serves as a great example. The drone manufacturer found itself in the same situation in 2022. The company claims the designation led to blocked imports, lost business deals, and reputational damage.

Interestingly, the listing isn't necessarily permanent. In 2021, Chinese phone maker Xiaomi was removed from the list just months after its inclusion. Both Tencent and CATL have expressed their intent to challenge the designation. Tencent spokesperson Danny Marti stated that the company is "not a military company or supplier" and said that the listing "has no impact on our business." CATL spokesperson Fred Zhang echoed this sentiment, calling the inclusion a "mistake" and asserting that CATL is not involved in any military-related activities.

Thanks to CATL's unchallenged dominance in the EV battery market, the implications for the EV industry are significant. The military designation can disrupt global supply chains, and in the worst-case scenario, it can slow down the EV transition. It looks like the EV tariffs imposed by the US were just a shot across the bow of the Chinese auto industry. This latest move is aimed at its midsection, and things can get ugly from here on.

Via