The Chemistry the Compliance Regime Wasn't Built For

The MACR threshold for 45X-eligible battery components reaches 60% non-PFEin 2026. An NCM manufacturer can clear that threshold through known sourcing solutions. An LFP manufacturer faces an arithmetic problem with no commercially available answer. The two largest material inputs by cost — LFP cathode and graphite anode material — have effectively zero verified non-PFE supply at commercial scale as of May 2026. Combined, they can consume 45–60% of direct material costs (standard industry cost-structure estimates; no single authoritative source) before a single electrolyte solvent or separator is counted.

At least five major US facilities have converted or are converting production lines from NCM to LFP: LGES Holland, Ultium Spring Hill, LGES Lansing, Samsung SDI's StarPlus facility, and the Samsung SDI/GM Indiana plant. Samsung SDI has publicly confirmed its US LFP pivot at its Indiana operations; LGES's Michigan conversions and the StarPlus shift have been reported in trade press and industry trackers, though no single public registry aggregates all conversion filings. The commercial logic is sound. LFP is cheaper per kWh, safer in stationary storage, and better matched to the ESS demand that is actually materializing. All of which deepens Chinese supply chain exposure. By every compliance metric that matters under the current FEOC/PFE architecture, LFP is worse. The collision between the chemistry pivot and the compliance regime is structural. Most coverage misses it because facility conversions and policy implementation get covered on separate desks.

The cathode asymmetry

NCM cathode has non-Chinese producers at commercial scale. L&F, Umicore, Sumitomo Metal Mining, and POSCO Future M all operate cathode active material lines producing tens of thousands of tonnes annually across South Korea, Japan, Belgium, and Finland. A US cell manufacturer sourcing NCM 811 or NCM 622 can construct a cathode supply chain that passes FEOC and PFE scrutiny without heroic assumptions about alternative suppliers reaching nameplate.

LFP cathode cannot. Chinese producers account for approximately 90% of global LFP cathode output and hold a majority of LFP-related patents (industry estimates range from 55–65%; no single authoritative source provides a precise figure). Non-Chinese LFP cathode supply at commercial scale, as of this date, is zero.

Mitra Chem has produced multi-ton samples of both LFP and LMFP cathode and received Bechtel's FEED award for its planned Muskegon, Michigan facility, but has not begun commercial production. Its $100 million DOE MESC grant from September 2024 predates the current administration's clean energy funding review; no public confirmation of disbursement status as of May 2026. The company describes its process as proprietary, using in-house talent and machine learning algorithms. No Chinese equity or technology licensing arrangement has been publicly disclosed. L&F's US LFP strategy runs through a $10 million equity stake in Mitra Chem, not an independent production line. No other non-Chinese LFP cathode producer with verified commercial-scale output has been identified in public filings or trade press. Most non-Chinese cathode projects are not expected to reach volume production until 2027 or 2028.

The one facility that could change this arithmetic is LG Chem's Morocco joint venture with Huayou Group, targeting 50,000 tonnes per year with mass production planned for 2026. Morocco's FTA status would satisfy sourcing geography requirements. But Huayou is Shanghai-listed, making it a specified foreign entity under OBBBA's expanded definitions. LG Chem has acknowledged the need to adjust equity for IRA compliance, and a September 2025 restructuring of a separate LG Chem/Huayou entity (the Gumi plant in Korea) explicitly cited the OBBBA's new PFE criteria. Whether the Morocco JV's equity was similarly restructured, whether it has started production, and whether the restructured entity satisfies the more stringent SFE/FIE rules: none of this has been publicly confirmed as of May 2026. These questions determine whether the single largest planned source of non-Chinese LFP cathode for the US market is compliance-eligible or compliance-disqualifying. Nothing peripheral about them.

The graphite bottleneck compounds LFP specifically

The graphite anode problem applies to both chemistries, but its compliance severity is asymmetric. An NCM facility with compliant cathode sourcing has material-cost headroom to absorb PFE graphite exposure within the 40% allowance. An LFP facility with no compliant cathode source has already consumed most or all of that allowance before graphite enters the calculation.

BTR New Material Group was designated as an FEOC by the DOE in January 2025, with the designation extended to its overseas subsidiaries after the Commerce Department determined that BTR's parent, China Baoan Group (66.86% ownership), is CCP-controlled. No reversal or successful appeal has been publicly reported. BTR is not only a graphite/anode supplier; it also produces LFP cathode precursors and LFP cathode materials, giving the designation dual exposure across both major LFP inputs. The cascading effect is severe because BTR's Indonesian and Moroccan operations were the industry's planned workaround for the graphite FEOC exemption expiry at end-2026. That pathway is closed. No public disclosures identify which specific US manufacturers had formal BTR supply agreements, but the industry-wide reliance on BTR as the intended compliant source is well documented.

What remains is thin, and the distinction between natural and synthetic graphite matters here. Syrah Resources' Vidalia facility in Louisiana is the only commercial-scale vertically integrated natural graphite active anode material plant outside China, processing feedstock from its Balama mine in Mozambique. Installed capacity: 11,250 tonnes per year. But its primary offtake with Tesla is in dispute. Tesla issued a default notice in July 2025 over product qualification, and the cure deadline has been extended four times, most recently to June 1, 2026. A separate three-year agreement with Lucid for approximately 7,000 tonnes is contingent on battery supplier qualification by January 2027.

On the synthetic graphite side, NOVONIX's Chattanooga facility has delivered industrial-grade samples but does not expect battery-grade anode material production until H2 2027, per its own updated guidance. Its $754 million conditional DOE loan commitment has not been publicly confirmed or denied under the current administration's loan review.

The MACR math that no facility has disclosed

Return to the math. The asymmetry between NCM and LFP under the 60% non-PFE threshold becomes visible when the cost structures are placed side by side:

Input	NCM cell (% of material cost)	PFE-free source available?	LFP cell (% of material cost)	PFE-free source available?
Cathode	40–50%	Yes — L&F, POSCO Future M, Umicore, SMM	35–45%	No — zero commercial-scale non-PFE supply
Graphite anode	10–15%	Limited — Syrah (11,250 t/yr)	10–15%	Limited — same constraint
Electrolyte, separator, other	Balance	Mixed	Balance	Mixed
Estimated PFE share of material cost	10–20%		45–55%+
Clears 60% non-PFE threshold?	Yes, with margin	No, on available supply

Cost-share ranges are standard industry estimates; no single authoritative source. PFE exposure estimates assume worst-case sourcing for inputs without verified non-PFE supply at scale.

For an NCM cell, source cathode from L&F or POSCO Future M and that entire 40–50% share counts toward the non-PFE numerator. Even with graphite anode material sourced from a PFE, the manufacturer clears the 60% threshold with room to spare. For an LFP cell, if no non-PFE LFP cathode is available at commercial scale, that entire 35–45% share counts against the manufacturer. Add PFE-sourced graphite, and the PFE share of direct material costs reaches 45–55% before accounting for electrolyte solvents, separators, or other inputs with Chinese supply chain exposure. The 40% PFE allowance is consumed by two inputs alone.

No US battery manufacturer has publicly disclosed its MACR calculation or 45X compliance position for LFP cells. This sector-wide opacity prevents independent assessment of whether the facilities converting to LFP can maintain 45X eligibility under the supply conditions that actually exist, as opposed to the supply conditions that have been announced.

Beijing's technology controls and what wasn't suspended

The November 2025 suspension of China's export controls received extensive coverage. The scope of what remained in force received almost none, and the suspension itself expires November 10, 2026. A facility making cathode or anode sourcing decisions today is planning against a clock that runs out before year-end.

In October 2025, MOFCOM's Announcement No. 58 placed LFP cathode materials (compaction density ≥2.5 g/cm³, specific capacity ≥156 mAh/g), graphite anode materials, and production equipment including roller kilns, mixers, grinding mills, CVD rotary kilns, and box furnaces on the dual-use items control list. Following the Xi-Trump meeting in Busan, Decision No. 70 suspended Announcement No. 58 until November 10, 2026. The equipment controls matter for domestic cathode buildout: if a US LFP cathode producer like Mitra Chem requires Chinese-origin production equipment to reach commercial scale, the suspension's expiry creates a procurement window that is closing.

Three months before Announcement No. 58, MOFCOM had already acted through a different instrument. The July 2025 revision of the Catalogue of Technologies Prohibited and Restricted from Export added "cathode material preparation technology for batteries," including lithium iron phosphate and LMFP, to the restricted export list. The updated catalogue lowered specification thresholds from the January 2025 draft, expanding coverage to what Project Blue assessed as late third-generation and fourth-generation LFP technologies.

The technology catalogue restriction is a separate legal instrument from Announcement No. 58. No source reviewed for this analysis confirms that the July 2025 technology catalogue entry was included in the November suspension. If it was not, then the transfer of LFP cathode preparation technology from Chinese entities to non-Chinese licensees remains subject to MOFCOM licensing approval regardless of the suspension's status. This distinction matters directly for any US facility whose LFP production relies on process technology originally developed or licensed from a Chinese entity. The unresolved ambiguity is itself a compliance risk, constraining the timeline for building the non-Chinese LFP cathode supply that the MACR math requires.

The licensing provision as the inner trap

The OBBBA's amendment to Section 45X disqualifies components produced with "material assistance from any prohibited foreign entities." IRS Notice 2026-15, released February 2026, affirmed what White & Case described as a "draconian view" of licensing arrangements: any payment to a specified foreign entity under a technology license can classify the taxpayer as a foreign-influenced entity, denying 45X credits for the relevant project. The provision specifically targets licensing agreements that do not provide the licensee with all technical data necessary to produce the component without further involvement of the foreign entity. For 48E credits, the clawback provision extends ten years.

This provision hits LFP harder than NCM because Korean and Japanese cell manufacturers have decades of proprietary NCM process development. Their LFP capabilities are newer. Samsung SDI began LFP mass production in Q4 2025 and describes its prismatic LFP technology as proprietary, citing "years-long R&D efforts" and "differentiated anode material and electrode process." No public disclosure of any Chinese technology licensing arrangement has been found for Samsung SDI's LFP process. That is a meaningful signal. It is not the same as independent verification.

For LGES, the question is more layered. No direct Chinese technology license has been publicly disclosed for its LFP cell production at Holland and Lansing. But LG Chem's cathode supply relationship with Huayou, if it extends to LFP cathode supplied to LGES facilities, raises the question of whether "material assistance" flows through the cathode supply chain into the cell production that claims 45X eligibility. The OBBBA's definition of material assistance and the IRS's interpretive guidance do not yet provide safe harbors for this scenario. Treasury is directed to publish safe harbor tables by December 31, 2026.

Until those tables exist, every US LFP facility operates in a compliance gray zone where the interaction between cathode sourcing, technology licensing, and 45X eligibility has not been formally resolved.

The aggregate picture

Each compliance gate is individually manageable in theory. Clearing all four simultaneously, at production scale, in 2026, with the supply that actually exists: that is the trap. The supply that has been announced, sampled, conditionally funded, equity-entangled, or disputed does not count against the MACR threshold. The rate of change in facility conversions shows manufacturers moving toward LFP. The rate of change in non-Chinese LFP supply shows capacity that remains pre-commercial or compliance-uncertain. The gap between the two is widening.

The facilities converting to LFP are moving toward the chemistry where every compliance gate is harder to clear, with fewer alternatives available, less margin for error, and a policy architecture that never distinguished between a chemistry that has non-Chinese alternatives and one that effectively has none. The registry shows the pivot. The supply chain shows the problem. The compliance regime treats them as equivalent.