For years, the US has shied away from establishing an industrial policy on the production of lithium-ion batteries. However, in the face of stiff competition from China and the EU, American policy-makers are now voicing their support for domestic battery supply chains, which are crucial to the modern auto and energy industries.

In 2015, Beijing unveiled its ‘Made in China 2025’ strategy, and Brussels launched its ‘Strategic action plan on batteries’ some three years later. Since then, the US has only fallen further behind.

Playing catch-up

On its current trajectory, American plants stand to deliver 486 gigawatt hours of battery capacity per year (GWh/y) by 2030, compared with China’s 2681GWh/y and the EU’s 778GWh/y, according to data provider Benchmark Mineral Intelligence. That is the equivalent of China building one new battery megafactory every week and the US building one every four months. 

Such is the scale of the challenge that Simon Moores, managing director of price-reporting agency Benchmark Mineral Intelligence, says the US has been relegated to the position of “bystander” in the “global battery arms race”. But it needs not be that way: despite holding 9% of the world’s lithium reserves, China dominates the mid-stream supply chain, with 55% of global lithium chemical compounds being processed and manufactured within its borders. 

In a bid to wrest control of these industries, the US Department of Energy published a 10-year national strategy in June 2021, to onshore key inputs — including some extraction processes, as well as electrode and cell manufacturing — rather than focusing almost exclusively on downstream end products. 

Getting started

“[US president Joe] Biden’s plan has certainly created very bullish sentiment for building a domestic lithium-ion economy in the US,” says Mr Moores. “For the first time, [we’re seeing] connective thinking from the top of the US government that supply chains are crucial to building the platform technologies of tomorrow.” 

That is good news for states with large automotive sectors, particularly in the south. Outside of electric vehicle (EV) pioneer Tesla’s Nevada gigafactory, the greatest inroads toward electrification are being made in Georgia and Tennessee. The cornerstone of Korean energy company SK Innovation’s plan to become a top three global EV supplier is its $2.6bn investment in two battery plants based in Jackson County, Georgia, which will supply automakers Ford and Volkswagen. 

Meanwhile, US car manufacturer General Motors announced in April that it will build a second $2.3bn battery plant in Spring Hill, Tennessee, as part of a joint venture with another Korean battery maker, LG Energy Solution. The new 2.8 million square-foot facility is set to open in late 2023. 

“The US is one of the biggest EV battery markets in terms of its size, with the potential that it may grow at the fastest rate among major markets. This is largely due to the Biden administration’s emphasis on clean energy and the EV battery value chain,” a spokesperson for LG Energy Solution tells fDi. 

Transforming an industry

In Georgia, where 130,000 people work in the automotive sector, the impending transition to EVs has forced automakers to rethink their operations and supply chains, too.

“We’re probably going to see more change in this industry over the next 20 years than we’ve experienced in the previous 100 years,” explains commissioner Pat Wilson of the Georgia Department of Economic Development. “And [as a state], we want to be part of that process across the entire supply chain, from the refining of rare minerals to the assembly of the automobile.”

Commissioner Bob Rolfe of the Tennessee Department of Economic and Community Development, shares this view. “When we talk to automakers ... it feels like every single company is going all-in on EVs,” he says.

Picking up steam

Part of the reason for this is the rapid pace of innovation, both in terms of advancements in battery chemistry and its associated production factors. While Volkswagen has seen the energy density of lithium-ion batteries double since 2014, the International Energy Agency reports that the unit cost per kWh has fallen by 87% in the past decade. 

Yet lithium-ion cells come with their own drawbacks. Battery packs are registered as hazardous goods and can be up to a quarter of the vehicle’s weight, rendering them unsuitable for shipping in bulk over long distances, says Vanessa Witte, a senior analyst at natural resources consultancy Wood Mackenzie. 

The case for building battery facilities at close proximity to existing automotive plants has also been borne out by the risks of just-in-time supply chain models, which sacrifice resilience for efficiency. 

“Our international supply chain has its blind spots, which become more apparent when there are events such as the pandemic,” says Mr Rolfe. “As a result, we’ve seen more companies trying to shore up their local supply chains.”

In the coming years, these difficulties are likely to be amplified as a looming supply shortage of lithium becomes more apparent. Benchmark Mineral Intelligence estimates that the global annual supply of raw lithium (440,000 tonnes) will meet the growing demands of the EV market (432,000 tonnes) for 2021, but demand will outstrip supply by 60% (at 2.4 million tonnes to 1.5 million tonnes) by the end of the decade. 

“There’s no real resource constraint, but if countries or original equipment manufacturers want to achieve the kind of EV sales they are talking about, there needs to be more investment in mine projects in the near term,” says Ms Witte. 

This realisation has prompted GM to take a more active interest in upstream investments, such as its collaboration with the California-based renewable energy company, Controlled Thermal Resources (CTR), to “secure local and low-cost lithium”. CTR’s closed-loop, direct extraction process also results in lower carbon dioxide emissions when compared to traditional processes such as pit mining or evaporation ponds, GM claims — something that will be increasingly important as the US seeks to regulate the environmental impact of its supply chains. 

Not all automakers are diving headlong into new battery projects, however. “We don’t have to scale today to justify our own dedicated battery plant,” Hau Thai-Tang, Ford’s chief product platform and operations officer, told CNBC during an interview in May 2021.

“But by 2025, as we bring on the F-150, the E-Transit and another battery electric vehicle that we’ve announced, we’ll have enough volume in North America to justify our own plant.”

Moving forward, Mr Moores expects to see consolidation in the space, with some automakers acquiring the battery manufacturers with whom they initially set up joint ventures. But in the final calculation, the limiting factor will either be a shortage of lithium compounds or lagging consumer demand for EVs. Federal tax credits to incentivise electric passenger cars were phased out for most automakers at the end of 2019, dramatically raising costs for the consumer. In order to balance these two forces, the US government will need to find the right mix of policies to make EVs affordable and build out the domestic supply chain capacity.

This article first appeared in the August/September print edition of fDi Intelligence.