The US ambition to build an electric car battery production chain without China's shadow is almost impossible, according to the Economist.
“I want to eliminate all emissions from the world’s highways,” John Goodenough, the Nobel Prize-winning scientist who developed lithium-ion batteries four decades ago, said in a 2018 interview. Goodenough died on June 25 this year, before his dream could come true.
But governments around the world are now working to make it happen, and with some notable results. Global electric car sales increased fivefold between 2011 and 2022, surpassing 10 million units last year.
But the pace of the shift to electric vehicles is facing supply and geopolitical challenges. Production of the minerals needed to make lithium-ion batteries must increase by more than 30% each year this decade to meet the world’s projected demand.
The US alone will need tens of millions of batteries to meet its ambition of selling half of all electric vehicles by 2030. But its biggest rival, China, is the world’s leading producer of battery metals, battery cells and finished batteries.
Even when battery production is overseas, Chinese companies dominate the process, which policymakers in Washington see as a threat to the resilience of America’s supply chain. All of which makes Goodenough’s technology one of the most important “industrial battlegrounds” of the new cold war, according to the Economist .
The outcome of this battle will be determined in Asia, where much of the battery supply chain is located. The first bottlenecks will be in the production and processing of materials—including two of the most important battery materials, lithium and nickel. Securing a steady supply of both will be crucial for manufacturers around the world.
Nearly half of the lithium produced in 2022 will come from Australia, 30% from Chile and 15% from China. As for nickel, Indonesia accounted for 48% of global production last year, the Philippines for 10% and Australia for 5%.
So far, the US has pursued trade deals with some of those countries to gain access to minerals and manufacturing capacity, while providing huge subsidies to manufacturers through the Deflationary Tariff Act.
To qualify for the $7,500 per electric car subsidy, automakers must meet strict requirements for the percentage of minerals processed and batteries produced in the U.S. or in a country outside China with which the U.S. has a free trade agreement. Meanwhile, China is building a parallel battery supply chain of its own.
Indonesia’s dominance in nickel is also a bottleneck. Consulting firm PwC estimates that 2.7 million tonnes of the material will be needed annually for electric vehicles by 2035. However, Indonesia currently produces just 1.6 million tonnes, most of which is used for stainless steel. A large amount of new nickel mining and processing capacity is being planned or built.
But this is the hardest part for the US to eliminate China’s presence. The country smelts and processes about three-quarters of the world’s nickel. It also has two-thirds of its lithium processing capacity. Even those numbers don’t fully capture China’s influence, since much of the processing is done outside the country but involves Chinese companies.
Nickel processing at PT Vale Indonesia's plant. Photo: JakartaPost
Specifically, three plants operating in Indonesia use high-pressure acid leaching, an advanced process that extracts nickel from ore without melting the nickel. All rely on Chinese technology, operational capabilities, or both. To secure nickel supplies, US automaker Ford has entered into a joint venture with Huayou Cobalt, a Chinese mining company, to invest in a nickel processing plant in Indonesia.
At home, Ford is also facing political heat over another joint venture with Chinese battery giant CATL to build a new battery plant in Michigan. CATL currently produces a third of the world’s electric vehicle batteries by capacity.
The overwhelming presence of Chinese companies is not only a result of their impressive industrial expertise. According to mining experts and CEOs, it is also because Chinese companies are nimble and risk-taking. Western or Japanese companies operating in nickel mining and processing are both fewer and take longer to research and prepare.
For example, Japanese mining company Sumitomo Metal Mining withdrew from a nickel processing project last year, citing disagreements with its Indonesian partner PT Vale. They made the decision after a feasibility study on the project had been underway since 2012.
Chinese companies also dominate the production of battery components, accounting for at least half of output and more than 70% in some categories. The rest is concentrated in South Korea and Japan. Together, the three East Asian countries account for between 92% and 100% of total output of the components that make up the battery component industry.
So even if the US can secure enough processed minerals, meeting its ambitious electric vehicle targets will require it to acquire large-scale battery manufacturing know-how from South Korea and Japan, if not China.
LG Energy Solution (South Korea), the second-largest battery maker after CATL, is expanding in the US with joint ventures with Hyundai, Honda and General Motors. LG aims to produce 278 GWh of batteries in North America by 2030, up from just 13 GWh in 2022.
But that may be too optimistic. Rising construction costs, a shortage of skilled workers and volatile prices for materials needed for batteries are all major hurdles, said Kim Myung Hwan, LG’s purchasing director.
Some Asian manufacturers worry that the cost of overseas battery production could be prohibitive for years. Hideo Ouchi, director of W-Scope, a Japanese company that makes separators used in battery cells, estimates that to meet its 2030 electric vehicle goals, the U.S. alone will need as much separators as will be produced globally in 2021. “It’s much more important to think about how to make a profit for the business in 10, 15, 20 years,” Ouchi said.
US policy is another uncertainty for their ambitions to be independent in their electric vehicle battery chains, especially when many Asian battery makers are expecting decades of financial support.
Last month, the United Auto Workers union criticized the Biden administration for not placing strict labor rights conditions on a $9.2 billion loan to Ford and South Korean battery maker SK On to build a new plant in Michigan. It remains possible that a Republican-led administration could scale back or abandon its current EV goals.
Overall, overcoming the existing barriers to electric vehicle batteries remains difficult. And expanding the battery supply chain to match the massive global demand for electric vehicles is one of the biggest industrial challenges ever, according to the Economist . Doing this—for the sake of the climate, human health, and more—without a country that dominates the battery industry is difficult, if not impossible.
Phien An ( according to Economist )
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