KENTUCKY — Kentucky officials say they won't start paying out $21 million in economic incentives for a proposed electric vehicle battery facility until the company further explains why the U.S. Department of Energy abruptly rejected a $200 million loan for the project after some congressional Republicans argued the firm has improper ties to China.

Texas-based Microvast was one of 20 companies to win preliminary grants totaling $2.8 billion to boost the domestic manufacturing of batteries for electric vehicles. The company is building battery plants in Kentucky and Tennessee and was in talks with the Energy Department for a $200 million grant funded through the 2021 infrastructure law.

Yang Wu, Microvast’s founder and CEO, said the company was surprised by the Energy Department's decision against awarding the loan, which would fuel plans for a Kentucky facility focused on a new technology for batteries called polyaramid separator. The department did not offer a reason for cutting off talks.

It’s unclear if the company will still try to build out the project in Kentucky. A company spokesperson did not respond to emails asking if plans for a facility there were still moving forward. A slideshow for an investors presentation days after news of the federal denial broke late last month did not mention Kentucky or the loan. The company has also sought to fight back against claims of inappropriate Chinese influence.

In March, Kentucky Democratic Gov. Andy Beshear's administration announced the project, which was expected to include a $504 million investment from the company and create 562 full-time jobs at a new Hopkinsville facility, which was expected to be finished by March 2025. It would be about 30 miles (48 kilometers) across the state border from the Microvast facility being built in Clarksville, Tennessee. The company has additional locations in Florida and Colorado, and internationally in China, England and Germany.

Now, Kentucky officials say they need more information from the company about the federal decision before they would move forward with the incentives deal they preliminarily approved. When initially considering the company's plans for Hopkinsville, officials weighed “the presence of Microvast’s current operations in the U.S., the presence of U.S.-based leadership and the presence of federal funding” and other factors, said Brandon Mattingly, spokesperson for the Kentucky Cabinet for Economic Development.

Officials are continuing an “open communication” with Microvast, Mattingly added.

“As these agreements are performance-based in nature, no state funding has been issued to date in connection with this project,” Mattingly said. “Additionally, no further action will be taken related to tax incentives until the company provides further information about the DOE’s decision to rescind funding to the satisfaction of our Cabinet.”

Wu, Microvast’s CEO, said “there will be some timing impact” on bringing the polyaramid separator technology to market due to the federal loan decision, which he assured “does not alter” the company’s plans for the technology.

After the decision, Microvast released a rebuttal about the claims of ties to China, including a note that Wu “is an American citizen.”

“Microvast is based in Texas, its shares are traded on Nasdaq, and the operations for our global business are centralized in the U.S.,” Wu said in a written statement after the loan decision. “Neither the Chinese government nor the Chinese Communist Party has any ownership in the Company, nor do they control or influence Company operations in any way.”

At a U.S. Senate Energy Committee hearing in February, Sen. John Barrasso, a Wyoming Republican, questioned whether the planned grant to Microvast would benefit China. Barrasso cited a company filing with the Securities and Exchange Commission in which Microvast said it may not be able to protect its intellectual property rights in China.

In a May 1 letter to U.S. Energy Secretary Jennifer Granholm, Barrasso said Microvast’s CEO had “bragged to Chinese media about Microvast’s strong ties to the People’s Republic of China.″

In its annual filing from March, Microvast said it “has become subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed companies with substantial operations in China” and that investigating and defending themselves if allegations arise will be “costly and time consuming and distract our management from growing our business.”

Microvast said its focus is on finishing its Tennessee facility, saying the firm is about half-way through its more than $300 million investment in the plant.

Tennessee economic development officials awarded Microvast a $3 million grant for its project in Clarksville, which was announced in 2021. The company has drawn down all of the grant money, which requires it create at least 90% of the 287 jobs it had promised, according to the state Department of Economic and Community Development.

The state department has declined any further opportunity to provide incentives for Microvast.

“To protect Tennessee’s strong economy and security, our administration is focused on recruiting trusted global partners who are looking to invest in our state and create good jobs for Tennesseans, while remaining vigilant with regard to companies that have ties to any designated foreign adversary,” said Jade Byers, Republican Tennessee Gov. Bill Lee's spokesperson.