Battery Metals
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US Battery Sector Fails to Keep Pace in Global Race
March 2021
China has emerged supreme in the race to manufacture the high-tech batteries that power electric cars and store renewable energy with 93 "gigafactories"—compared to only four in the US. If current trends continue, China could have 140 gigafactories by 2030, while Europe would have 17 and the US, just 10.

In this scenario, the US would be reliant on outside trading partners for much of its battery supply, a concern given that the military is planning to electrify a bigger share of its vehicles and equipment. It would also mean the US misses out on the investment and jobs boom the sector is expected to bring given that automakers like General Motors, Volkswagen and Ford Motor are rushing to make bold pledges about transitioning to all electric cars. To avoid this, the US will need to keep the technology in the country and incentivise companies to manufacture domestically. However, this proposition is only realistic if the federal government gets squarely in the game, financing an aggressive push to increase domestic battery manufacturing and production of their raw materials. Indeed, this is what governments in China, South Korea and Europe are already doing.

China sees batteries as crucial in its ambition to dominate the electric vehicle industry and has poured funding into the technology. The government has spent at least US$60bn to support the industry, including research-and-development funding, tax exemptions and financing for battery-charging stations, according to the Center for Strategic and International Studies, a Washington think tank. That’s encouraged 400-plus Chinese companies to get involved in the electric-car game. The Chinese government helped partly state-owned Contemporary Amperex Technology become one of the world’s biggest battery suppliers in an astonishingly short timeframe. Given that China's electric vehicle sales regained momentum during the pandemic last year, the generous subsidies for buyers have been cut by 20% for 2021. While the reimbursement differs depending on the vehicle's range, the standard payout in 2020 was roughly RMB18,000 (US$2,800), which will now be reduced to around RMB14,400 (US$2,228).  

The European Union is subsidizing battery production to avoid dependency on Asian suppliers as well as to keep auto jobs. Last month, the European Commission announced a EUR2.9bn (US$3.5bn) fund for battery manufacturing and research, which followed a EUR3.2bn (US$3.9bn) initiative in December. The European Battery Innovation project, which involves 12-member states and 42 participants, will give state aid to Tesla, BMW, and others to support the production of electric vehicle batteries and help cut imports from China. Indeed, Tesla could stand to receive at least EUR1bn (US$1.2bn) in public funding from Germany for setting up a battery cell factory near Berlin. The initiative, which will run through 2028, is expected to unlock an additional EUR9bn (US$10.9bn) in private investments. Maroš Šefčovič, in charge of the European Battery Alliance, said he expects the bloc to be manufacturing enough battery cells each year to power at least 6m electric vehicles.

Key European markets, such as France and Germany, expanded subsidies last year to increase purchases of electric vehicles. For example, in Germany, EVs with a sales price below EUR40k (US$48.5k) will qualify for a EUR9k (US$10.9k) subsidy until December 2021. All petrol stations in Germany will be required to offer EV charging points to boost demand and address refuelling concerns.

The Biden administration took the first step towards building a green-energy workforce by signing an executive order to replace the government's 645k vehicle fleet with electric vehicles assembled in the US. Mr Biden said the fleet changeover will assist his administration’s plan to create 1m new jobs in the US auto industry. He also announced plans for stricter use of American-made parts in government--purchased vehicles, denouncing the current 50% threshold as not high enough. The president also pledged to install 500k charging stations by 2030, revise and extend tax credits for buyers and tighten fuel economy standards for internal combustion engine vehicles, which the Trump administration loosened.

Under the Obama administration, the world's biggest economy offered federal loan guarantees to EV makers, such as Tesla. The country also introduced a US$7,500 tax credit for EV purchases, but this incentive was limited to 200k cars per manufacturer, which both Tesla and General Motors have already used up. Some of this federal support dried up under President Trump, under criticism from Republicans. Apart from California, which has introduced a host of incentives and regulation, the country has largely left the sector to fend for itself. But this is looking likely to change.

The US Department of Energy announced in February US$100m in funding to support low-carbon energy technologies. National Climate Advisor Gina McCarthy reiterated the Biden administration believes an aggressive shift to a clean energy economy can reinvigorate the US economy and create "good-paying union" jobs. Meanwhile, the formation of the new Climate Innovation Working Group will focus on commercializing technologies like direct air capture and battery storage.

The new US energy secretary Jennifer Granholm plans to revive a US$40bn energy loan program to boost investment in clean energy and harden the electric grid after widespread blackouts in Texas last month and California last year. “If we’re going to add the gigawatts of clean energy to the grid that we need to in order to do electric vehicles, in order to accommodate all of the data centers that are being added, we have got to invest…and harden the grid,” the former Michigan governor said. The program, which offers federal loans and loan guarantees to start-ups and energy projects, has tens-of-billions authorized by Congress but left untouched by the Trump administration.

 

US Battery Pipeline

Even as the US is lagging behind in the battery production race, there are some developments in the pipeline. Tesla and its Japanese partner, Panasonic, produce lithium-ion battery cells at a gigafactory in Nevada and is currently building a new gigafactory in Texas, which is expected to be up and running by the end of 2021.

General Motors and its partner, South Korea's LG Chem, is making progress on its battery plant in Lordstown, Ohio. The factory will be able to produce 30GWh of batteries annually when construction is finished in 2022. The plant, which is part of GM's plans to switch to producing all electric cars by 2035, will employ 1,100 people. Meanwhile, SK Innovation faces a bumpier path for its two lithium-ion factories in Georgia, after the US International Trade Commission ruled against it in a trade secrets case. In a decision last month, the ITC issued a limited 10-year exclusion order barring imports into the US of some lithium-ion batteries. The judge did, however, allow for SK to import components to assemble in Georgia battery packs for the Ford F-150 and Volkswagen MEB program for four years and two years, respectively, to allow those auto makers time to “transition to another domestic supplier.” The ruling could have major implications for the US$2.6bn Georgia complex, which promised to create 2,600 jobs.

QuantumScape, a Silicon Valley start-up whose investors include Volkswagen and Bill Gates, is working on a technology that could make batteries cheaper, more reliable, and quicker to recharge. Even though it has no substantial sales, stock market investors consider the company to be more valuable than the French carmaker Renault.

If the US wants to secure a secure supply of batteries, it will need to develop the industries that mine and refine the raw materials, including lithium. Currently, the only lithium production in North America comes from a brine operation in Nevada—Albemarle’s Silver Peak mine. Albemarle is looking to double production at the facility, which has operated continuously since 1966, to cash in on higher demand from the burgeoning electric vehicle market. The North Carolina-based chemicals manufacturer said it will invest US$30m-$50m by 2025 to expand capacity to around 10ktpa of LCE. Albemarle has other US lithium interests, including brine resources in Arkansas and the Kings Mountain site in North Carolina—which it says is “one of the richest spodumene ore deposits in the world”. Spodumene is a lithium-rich hard rock ore that offers an alternative extraction option to brine resources.

Cypress Development Corp's Clayton Valley lithium project in Nevada is under development to produce high-purity lithium hydroxide for tier one EV batteries. In August 2020, the updated mineral resource estimate increased 55% to 929.6Mt averaging 5.2Mt of lithium carbonate equivalent (LCE). The Preliminary Feasibility Study (PFS) completed in May last year outlined an average production rate of 15ktpa to produce 27.4ktpa of LCE over a 40+ year mine life for a cash cost of US$3,329/t LCE. The project is located 3.5 hours from Tesla's Gigafactory.

American Lithium is continuing to advance its TLC lithium project in the Esmeralda lithium district in Nevada. The project, which is expected to release a PFS this year, aims to provide battery grade lithium compounds for the North American battery market. The recent 43-101 compliant Technical Report shows a measured and indicated resource of 5.37Mt of LCE along with another 1.76Mt LCE inferred resource.

Looking to California, a fledgling project known as Lithium Valley is seeking to extract the mineral from the Salton Sea. The geothermal brines, a byproduct of existing geothermal power plants, could yield more than 600kt of lithium carbonate, valued at US$7.2bn, annually, according to the California Energy Commission. Researchers and companies in California, the largest US market for electric vehicles and energy storage batteries, are working to commercialise this recovery process. Given that it would be a byproduct of the existing geothermal industry, there would be almost no additional carbon footprint. The California Energy Commission has doled out US$16m in grants for further study of the project. One of the plant operators in the Salton Sea, Berkshire Hathaway Energy, believes it can reduce the cost of geothermal power by about 35% by selling lithium.

While "critical minerals" have been deemed strategically important, the US relies heavily on imports, particularly from China and Russia, and establishing a domestic supply chain would strengthen mineral security amid growing demand. The carbon footprint, not to mention shipping costs, would also be massively reduced from shortening the logistics chain.

 

Promise on the Horizon?

While several battery factories are underway in the US, federal incentives for electric car and battery production will be crucial to create a prosperous domestic industry. So will advances in technology by both government-funded researchers and private companies, such as QuantumScape and Tesla. If all goes to plan, the US won't once again miss out on a major tech boom as it did with solar panels and 5G mobile network equipment.

Those in the industry believe these are early days yet and US companies could still get ahead of the Asian producers that dominate the industry. But there's still a long way to go and not all of their problems have been solved yet.