The lack of A US supply chain for battery materials for electric vehicles is often spun as a story of an unfavorable geographical location. In many ways this is true. There is cobalt from the Congo. Indonesian Nickel. Latin American lithium. But there is one critical material where this is not the case: graphite. The material that makes up the largest component of battery cells by weight is not a rare metal. It is an arrangement of six carbon atoms that can be mined basically anywhere in the world, including from large deposits in the United States and Canada. And where it doesn’t occur naturally, it can be made synthetically, usually from petroleum by-products. For long-life EV batteries, this approach is usually considered to be the best.
And yet of all the critical materials used in batteries, including these geographically limited metals, the US is perhaps the least equipped to produce its own EV-grade graphite. In fact, everything is made in China. When the federal government considered phasing out tariff exemptions for Chinese graphite products last year, domestic car manufacturers (including Tesla) protested violently. It couldn’t be found anywhere else – not in the US could not own material, but because it simply hadn’t invested in it.
It is no longer surprising that China is the leader in electric vehicles. The country not only dominates in terms of sales – half of last year’s total sales were sold in China – but above all in terms of production. Backed by aggressive government policies, Chinese investors have spent the last decade building the ability to extract and refine raw materials and assemble them into the big, powerful batteries that power electric vehicles. You’ll make money: According to a recent report by research group Bloomberg New Energy Finance, the electric vehicle market is projected to bring in $9 trillion by 2030 and will only grow from there.
Now American politicians want to intervene in the action. The Inflation Reduction Act, which passed Congress last week and is likely to make its way onto President Joe Biden’s desk in the coming days, includes new subsidies for US drivers looking to buy an electric vehicle. It scraps an old program that capped tax credits at $200,000 per automaker. But there are also new conditions. Earning the full credit depends on the specifics of the car. Qualifying vehicles must be manufactured in North America and consist at least in part of raw materials extracted and processed in either the United States or countries the United States is friendly with, and then refined and assembled into batteries in commercial relationships. (In other words, not in China.) The bill amounts to a full-scale attempt to build a US-led supply chain for the next generation of vehicles.
That’s going to be hard. Details of the legislation could change before it’s signed into law, and the Internal Revenue Service will ultimately determine which vehicles (and their supply chains) are eligible for the loans. But the Alliance For Automotive Innovation, a trade group that represents most global automakers in Washington, says the current strict rules will disqualify 70 percent of electric vehicles currently on the US market. An analysis of the bill by the Congressional Budget Office estimates that only 11,000 vehicles would receive full recognition in 2023.
Some argue that’s not so bad. In an environment where supply is tight and many EV buyers face daunting waiting lists, supporters of the restrictions say the country no longer needs tools like tax credits to persuade people to buy battery-powered cars. Instead, the subsidies are an ambitious attempt to change the way automakers build them. Coupled with investments in makers of critical materials through Biden’s invocation of the Defense Production Act, last year’s Infrastructure Act and last month’s Act to Stimulate a Domestic Semiconductor Industry, some are hoping that sufficiently aggressive policies can push supply chains to a point where the automaker and other battery end users are willing to make all their stuff in the US, or at least in US-friendly countries. The US is basically pursuing industrial policy – much like China years ago.