The world's largest EV-battery maker was just added to a Pentagon blacklist. Here's what it means.

• A key Tesla supplier said it may take legal action over a designation as a Chinese military company.
• CATL, the world's largest battery company, was added to the Pentagon blacklist on Monday.
• It's unlikely to affect CATL much but could lay the groundwork for more sanctions under Trump.

A key Tesla supplier slammed the US government's decision to designate it a Chinese military company as tensions between the countries rise.

The Department of Defense on Monday added CATL, the world's largest producer of electric-vehicle batteries, to its list of "Chinese military companies" operating in the United States.

The video-game titan Tencent was also added to the list, which tracks companies the US military believes work with its Chinese counterpart.

Shares in the two companies dropped on Tuesday following the news. Both CATL and Tencent denied they had any association with the Chinese military and said they were prepared to contest the decision with legal action if necessary.

CATL said in a statement that it "has never engaged in any military-related business or activities, so this designation by the Department of Defense is a mistake."

CATL is by far the biggest player in the global battery industry, which is dominated by China. The Ningde-based company is thought to control about 37% of the world's battery market, compared with the 17% held by the runner-up, BYD, a fellow Chinese firm.

As a result, CATL is a crucial supplier for numerous Chinese and Western EV manufacturers.

Ford is licensing technology from CATL for batteries built in a new factory in Michigan. A Bloomberg report said Tesla was CATL's biggest customer.

The head of CATL said last year that the battery manufacturer was also working with Elon Musk to build fast-charging EV batteries.

The Pentagon designation does not directly affect CATL's and Tencent's ability to do business in the US but serves as a warning for US businesses that their association with the companies may bar them from future defense contracts.

It could also lay the groundwork for tougher sanctions under the Trump administration. Companies have managed to reverse the designation before — the Apple rival Xiaomi was removed from the list in 2021 after taking legal action.

The move is the latest in a series of regulatory measures targeting Chinese industry by the Biden administration, which has also slapped 100% tariffs on Chinese EVs and proposed banning Chinese software from cars sold in the US.

President-elect Donald Trump has also vowed to slap crippling tariffs on goods imported from China, floating a 60% tariff on all Chinese goods during his campaign.

Tencent did not respond to a request for comment sent outside normal working hours.