The movement to make batteries for electric vehicles (EVs) made in the United States, including raw materials, in principle, has been accelerated by new laws enacted one after another. On the other hand, what is becoming apparent is that at present, procurement sources are limited to “unfriendly countries” such as China.
Geographical inconvenience is often cited as the reason for the lack of an electric vehicle (EV) battery materials supply chain in the United States. In many respects that is true. Cobalt is produced in the Democratic Republic of the Congo, nickel in Indonesia and lithium in Latin America.
On the other hand, there is one major ingredient that is not. It’s graphite.
Graphite is the largest component in a battery cell by weight, but it is not a rare metal. Graphite, which has six carbon atoms bonded together, can be mined basically anywhere in the world. The United States and Canada also have large deposits.
If it does not occur naturally, it can be produced artificially. Generally, it is often made from the waste generated in the oil production process. This method is considered the best for long-lasting EV batteries.
But of all the key materials used in EV batteries, including the geographically constrained metals, the United States is least equipped to produce graphite domestically. In fact, all graphite is produced in China.
When the U.S. federal government considered not extending tariff exemptions on Chinese graphite in 2021, domestic automakers (including Tesla) reacted furiously. There were no suppliers other than China. This is not because the United States cannot source graphite domestically, but because it has not invested in sourcing it.
It’s no surprise that China is now leading the way in EVs. China has an overwhelming advantage not only in terms of sales (half of the domestic sales in China in 2021), but also in terms of production. Encouraged by aggressive government policies, Chinese investors have developed over the past decade their ability to extract and refine raw materials and assemble large, powerful batteries that can power EVs.
And now China is about to reap the benefits. According to a recent report from research firm BloombergNEF (New Energy Finance), the EV market is expected to bring in a cumulative $9 trillion between now and 2030, with further growth from there.
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The tough road of new laws enacted one after another
U.S. policymakers want to jump on the bandwagon. The Inflation Control Act, recently passed by Congress and signed into law by President Joe Biden, includes new subsidies for American drivers who want to buy electric vehicles.
The new system does away with an old program that capped each automaker at 200,000 vehicles eligible for the tax credit. On the other hand, new conditions have also been added. Whether you get all the tax deductions now depends on the specs of the EV.
Eligible EVs must be produced in North America and must use some of the battery’s raw materials that are collected, processed, or refined in the United States or in countries with friendly trade relations with the United States (i.e., made in China are excluded). This bill is a comprehensive attempt to build a US-led supply chain for next-generation automobiles.
But the road ahead is going to be tough.
First, the Internal Revenue Service (IRS) will ultimately decide which vehicles (and supply chains) qualify for the deduction. But the Automotive Innovation Association (AAI), a U.S. trade group representing major automakers, claims that the current stringent rules disqualify 70% of EVs currently on the U.S. market. In 2023, only 11,000 vehicles will be covered by the full deduction, according to an analysis by the US Congressional Budget Office (CBO).
Some say the situation isn’t all that bad. Proponents of the regulation argue that tax breaks and other measures aimed at encouraging citizens to buy EVs at a time when supply has not kept up and many EV buyers are forced into a daunting queue. It argues that the means are no longer needed in the United States.
On the one hand, the subsidy is an ambitious attempt to change the way automakers produce. In the United States, the “Defense Production Act” enacted by Biden’s signature, the “Infrastructure Investment Act” in 2021, and the “CHIPS and Science Act” (commonly known as the CHIPS Act) to support domestic production of semiconductors passed in July, There is an accelerating push to invest in producers of key raw materials.
We also expect a sufficiently aggressive policy to create a supply chain in which automakers and other battery end users want all their products to be produced in the United States, or at least in countries that are friendly to the United States. some people do. The U.S. is essentially pursuing an industrial policy similar to what China did a few years ago.
“This could create an opportunity for the future-proofed U.S. EV market,” says Kwassy Ampofo, a researcher in the metals and mining sector at Bloomberg NEF. “It could be a game changer in terms of empowering US companies and US battery makers to invest.”
Graphite as a Symbol of Problems
That said, it’s not easy. The auto industry has sought to manufacture battery cells and battery packs in the United States and closer to EV factories. This will help you qualify for half of the tax relief proposed by the IRA, one of America’s private pension plans.
On the other hand, there is a large gap between the ideal and the actual situation regarding the mining and processing of resources, which are the initial stages of the supply chain. It will be difficult to fill this gap immediately. “Battery cell production is going on here, but all the raw materials we need are made in China, so it’s just a step up in the mess,” said the former Tesla engineer in Tennessee. Chris Burns, CEO of Novonix, which is building an artificial graphite plant in the state, said.
The U.S. Senate plan appears to have a high proportion of domestic materials required to qualify for the tax credit. And while it’s actually expensive, analysts say it’s theoretically possible. And while the U.S. could have a largely domestic EV industry, it doesn’t yet exist.
Graphite is the raw material that symbolizes this issue. Resources and technology for producing graphite are plentiful, but US processors typically cost more than Chinese processors. This is due to high energy costs and generally small and inefficient operations.
And traditional methods of purifying graphite require extremely high heating in unsealed furnaces, adding to environmental costs. Some companies, mainly in Europe and the United States, are experimenting with cleaner methods that operate at lower temperatures in order to comply with local environmental regulations and sell their products to automobile manufacturers that consider environmental impact. But these processes are expensive to scale.
“Which came first, the chicken or the egg?”
The next hurdle for graphite entrepreneurs is finding investors and securing deals to sell the material to EV makers. This is a classic “chicken or egg” problem.
Graphite for EVs will require more processing to ensure durability and safety for hundreds of thousands of kilometers. Moreover, each stage of the supply chain must be certified by the automaker.
Existing Chinese manufacturers have already obtained such certifications and have buyers. Graphite startups like Novonix, on the other hand, need to prove themselves to customers while simultaneously reaching out to investors to expand their business.
“It’s been a humble, tedious process,” says Graphite One CEO Anthony Houston. For the past decade, Graphite One has planned to mine graphite in a deposit in western Alaska, believed to be the largest deposit in North America.
But Houston says things are starting to change. Graphite One has applied for subsidies included in the 2021 Infrastructure Investment Act, which Houston hopes will spur automakers to invest in U.S. suppliers. “I think automakers are looking at where the U.S. government is subsidizing,” says Houston. “Automakers don’t want to get too far ahead.”
Can technical ingenuity solve the problem?
Automakers are already in the early stages of restructuring their supply chains. AAI says it has already spent more than $100 billion on this effort.
Tesla, for example, has struck a deal with Australia-based graphite maker Syrah Resources. The company, which sources raw graphite from mines in Mozambique and processes it in Louisiana, received a $100 million loan from the U.S. Department of Energy in July. General Motors (GM) has signed deals to secure lithium in Southern California, cathode materials in Canada and South Korea, and cobalt in Australia.
Automakers seem largely content with the new tax breaks included in the Infrastructure Investment Act and other subsidies that favor EVs. Officials at Ford and GM have both stressed that the Infrastructure Investment Act should help strengthen America’s manufacturing and clean energy industries. A GM spokesperson said the new law is in line with “our effort to establish the United States as a global leader in electrification.”
At the same time, both automakers and resource companies warn that this change will not happen overnight. Mining and refining can be a “dirty” business, and domestic projects are likely to face local opposition.
Even if the project is approved, “all land belongs to the state and county, so decisions about that land must be made by both the national and local governments,” says auto industry consultant AlixPartners. Division Managing Director John Lohr said: “It can cause a lot of nasty problems.”
As a result, automakers and battery makers are still likely to source raw or partially processed graphite-containing battery raw materials from China in many cases. It is unclear whether vehicles with materials that have been in China even briefly will qualify for the new tax exemption.
If not, parts of the industry could struggle for years as material shortages continue and demand soars. “Any goal has to be pursued to reach it,” says Graphite One’s Houston. “Without these milestones, we certainly wouldn’t be able to do it.
Ampofo, a metals and mining analyst, said U.S. technological ingenuity should be considered. Innovations could improve battery chemistries or omit the now-essential refining process.
For example, Tesla is proposing a new way to extract lithium at low cost. Policies such as those outlined in the new law “are an incentive and an opportunity to guide research into breakthrough technologies,” says Ampofo. “Our outlook is very optimistic and we believe that technology will change some of the constraints we are discussing.”
