Lack of U.S. supply chain for EV battery materials is often made up as a story of geographic inconvenience. In many ways, this is true. There is cobalt from Congo. Indonesian nickel. Lithium in Latin America. But that’s not the case for one key material: graphite. The material is the heaviest component of the battery and is not a rare metal. It’s an arrangement of six carbon atoms that can be dug up basically anywhere in the world, including from large deposits in the US and Canada. Where it cannot be found naturally, it can be manufactured synthetically, often from discarded petroleum products. For long-lasting EV batteries, this approach is generally considered the best.
However, of all the critical materials used in batteries, including those geo-restricted metals, the U.S. may be least capable of producing its own EV-grade graphite. In fact, it’s all made in China. Last year, when the federal government considered letting tariff exemptions on Chinese graphite products expire, domestic automakers, including Tesla, protested. There is no other place to get it – not because the US cannot source its own materials, but because it simply has not invested in doing so.
So far, it is no surprise that China is leading the way in electric vehicles. China dominates not only in terms of sales – accounting for half of all Chinese sales last year – but crucially in terms of production. Backed by aggressive government policies, Chinese investors have spent the past decade increasing the ability to extract raw materials, refine them and assemble them into the massive batteries that power electric vehicles. They will profit: According to a recent report by research firm Bloomberg New Energy Finance, the electric vehicle market is expected to bring in $9 trillion between now and 2030, and will only grow from there.
Now US policymakers want to act. The Reducing Inflation Act, which passed Congress last week and could reach President Joe Biden’s desk in the coming days, includes new subsidies for American drivers who want to buy electric vehicles. It scrapped an old program that capped tax credits at 200,000 per automaker. But there are also new conditions. Earning full points depends on the details of the car. Eligible vehicles must be manufactured in North America and consist at least in part of raw materials extracted and processed in the U.S. or a country with which the U.S. has a friendly relationship, and then refined and assembled into batteries in a trade relationship. (In other words: not in China.) The bill amounts to a full-blown attempt to build a U.S.-led next-generation automotive supply chain.
It’s going to be tough. The details of the legislation could still change before it’s signed, and the IRS will finalize which vehicles (and their supply chains) are eligible for the credit. But the Alliance for Automotive Innovation, a trade group representing most of the global automakers in Washington, said the current strict rules would disqualify 70 percent of electric vehicles currently on the U.S. market. A Congressional Budget Office analysis of the bill suggests that only 11,000 vehicles will be fully loaned by 2023.
Some people think that’s not a bad thing. In an environment where supplies are tight and many EV buyers face daunting waiting lists, supporters of the restrictions say the country no longer needs tools such as tax credits to persuade people to buy EVs. Instead, subsidies are ambitious efforts to change the way automakers make things. Combined with Biden’s invocation of the Defense Production Act, last year’s infrastructure bill and last month’s bill to stimulate the domestic semiconductor industry to invest in producers of critical materials, some hope that policy aggressive enough will allow supply chains to reach auto manufacturing Manufacturers and other battery end-users are willing to manufacture all their products in the US or at least a US-friendly country. The U.S. is developing industrial policy that largely matches what China did a few years ago.
