The United States’ Industrial Strategy for the Battery Supply Chain

Nikos Tsafos

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Key Points

The United States views the battery industry as a core pillar of economic competitiveness, decarbonization, and national security. Since it lags peers like Europe and China, the United States has articulated several elements of a strategy to catch up and ultimately lead in batteries.

The U.S. battery strategy rests on both demand- and supply-side measures, which could reshape the U.S. battery sector over the next decade.

The United States has no place-based elements in its battery strategy, but the intersection with the auto industry is clear. U.S. performance in batteries depends on how quickly the U.S. auto industry shifts to electrification and succeeds in deepening its supply chains with domestic manufacturing.

Vision

Outlined in the National Blueprint for Lithium Batteries (June 2021), the United States has three overarching aims for its battery industry: that it “supports long-term U.S. economic competitiveness and job creation, enables decarbonization goals, and meets national security requirements.”

The United States is looking to enhance the resilience of battery supply chains, especially given China’s position in this market. Beyond growing commercial use, batteries have significant potential military applications. While upstream production of critical minerals in the lithium-ion (li-io) battery supply chain is relatively diversified, China maintains a dominant position in materials processing and in the current production and future pipeline of li-io battery cell manufacturing.

Strategy

The U.S. government strategy for its battery industry consists of a classic “demand-pull” and “supply-push” approach. On the demand side, the Biden administration is trying to accelerate electric vehicle (EV) uptake and utility-scale energy storage. On the supply side, it is providing more incentives and public financing for manufacturers while boosting funding for battery research and development (R&D), particularly in novel technologies to reduce reliance on critical minerals dominated by Chinese production.

Demand-Pull

There are currently 908 separate laws and incentives across the United States in place to promote the adoption of EVs, only 44 of which are in place at the federal level. States, particularly California, have typically been the driving force behind EV regulations, with the exception of some federal tax incentives and tailpipe emissions standards.

Tax credits toward new vehicle purchases have historically been the primary means of incentivizing EV uptake in the United States. Introduced in the Energy Policy Act of 1992, extended in 2002, and allowed to expire in 2005, the Obama administration revived the credits in 2008, providing a $7,500 credit for plug-in vehicles. The credit was originally capped at 250,000 vehicles nationwide but was later expanded to 200,000 vehicles per automaker. To date, only Tesla and GM have exceeded this cap. Tax expenditure for the credits has increased from around $200 million annually to over $1.4 billion annually since 2018. Empirical literature suggests these tax credits have significantly affected growth of EVs in the U.S. consumer market.

As part of the Build Back Better Act (BBBA), the 117th Congress is looking to reinstate and expand these tax credits. Starting in 2022, the proposed tax credit for individual buyers provides a $4,000 base credit plus a $3,500 credit based on battery capacity. Additional credits of $4,500 for vehicles built in facilities that operate under a union-negotiated collective bargaining agreement and $500 for vehicles with 50 percent domestic content and domestically produced battery cells bring the maximum credit to $12,500 per vehicle.

The Biden administration is not relying only on tax incentives, however. President Biden issued an executive order in August 2021 setting a goal that 50 percent of all new passenger cars and light trucks sold in 2030 be zero emission—although this is neither binding nor enforceable.

The administration is also tightening fuel economy standards and has directed agencies to update rules regarding the Clean Air Act beginning with the model year 2027. In 2010, the Obama administration brokered an agreement to implement vehicle greenhouse gas (GHG) emission standards under the Clean Air Act. The first phase ran until 2016, and under the second phase, manufacturers agreed to reduce average GHG emissions from their 2025 fleets by 50 percent compared to 2010. The 2022–2025 standards were revised under the Trump administration, setting the average fuel economy increase to just 1.5 percent per year from 2021 to 2026. The rule will likely be revised again under the Biden administration after an August proposal to increase the standard by 10 percent in 2024, followed by a 5 percent annual increase from 2024 to 2026.

The Infrastructure Investment and Jobs Act (also known as the Bipartisan Infrastructure Deal), passed in November 2021, also makes a number of investments in EV infrastructure and demonstration projects that should provide a further boost to EV uptake. This includes $7.5 billion to build a national network of EV chargers, $5 billion to replace school buses with zero-emission vehicles, and $250 million for electric ferry pilot programs. The latest version of the BBBA also includes some $36 billion in new initiatives for vehicle electrification. This includes $5 billion to replace Class 6 and 7 trucks with zero-emission vehicles, $11.5 billion to electrify the federal vehicle fleet, another $4 billion for EV chargers, and $2.5 billion to electrify the Postal Service fleet.

The U.S. military has also been expanding its procurement of EVs and li-io batteries, while investing more in related R&D. The U.S. Army, which has one of the world’s largest vehicle fleets, is looking at electrifying its 170,000 non-tactical cars and trucks and making more of its 242,000 tactical vehicles into hybrids, with a recent National Academies report noting that full electrification remains impractical for the foreseeable future. For example, the army announced in April 2021 six $100,000 grants to companies developing power EVs for tactical use in austere, remote locations as part of its Next-Generation Combat Vehicle modernization effort.

The United States is also aiming to rapidly decarbonize its power sector, which will significantly increase demand for grid storage options. The Energy Information Administration predicts an additional 10,000 megawatts (MW) of large-scale battery storage will be installed in electric grids over just the next two years, more than 10 times today’s total capacity. Through a combination of additional tax credits, infrastructure spending, and loan guarantees, the administration is intervening across the power sector to encourage demand for grid battery storage.

A particularly significant change in the BBBA would be the inclusion of energy storage as an eligible property under the Clean Energy Investment Tax Credit, providing energy storage projects with a 30 percent credit (provided they meet prevailing requirements). These tax credits have been instrumental in the rapid growth of wind and solar energy in the United States and could significantly boost demand for energy storage.

Supply-Pull: Critical Minerals

A low-cost, stable, and responsibly sourced supply of critical minerals is also a priority for the United States, a goal made most explicit in the administration’s 100-day supply chain review (June 2021).

The review includes recommendations to boost domestic extraction of these materials, especially cobalt, nickel, manganese, and lithium. Few new industry-specific initiatives have been announced, and the strategy for securing access to these materials is largely couched in vague objectives such as “work[ing] with partners and allies” or “develop[ing] federal policies.”

A significant challenge for the federal government is that most policy levers and regulatory constraints to expand domestic mining capacity lie with states. Lithium mining, for example, has historically run into environmental concerns, holding up new mines in lengthy approval processes that typically work through state and local governments. Thus, despite having about 3.6 percent of known global reserves, the United States currently has only one lithium producer, in Nevada.

The recent Infrastructure Investment and Jobs Act includes important investments in the supply chains for clean energy technologies, including batteries. This includes $320 million for an Earth Mapping Resources Initiative to map critical minerals, $140 million for a Rare Earth Elements Demonstration Facility to improve U.S. capacity in rare earths extraction, and a congressional directive to the agency secretaries to identify additional measures to improve permitting for the exploration and development of domestic critical minerals. The bill also includes grant programs for battery and critical mineral recycling to reduce dependence on raw material imports.

Supply-Pull: Manufacturing

A 2017 Government Accountability Office report identified 58 programs across 11 agencies designed to support U.S. manufacturing, many of which are also available to manufacturing operations in the battery supply chain.

One prominent example in clean energy manufacturing is the Advanced Energy Manufacturing Tax Credit, which provided a 30 percent tax credit for investments in new, expanded, or refurbished manufacturing plants producing renewable energy equipment. Less than 2 percent of the initial $2.3 billion worth of credits went to battery manufacturing, however, and the program had disbursed all its funds by 2013. Under the latest version of the BBBA, the tax credit would be revived and expanded, providing $25 billion worth of credits over 10 years.

The Infrastructure Investment and Jobs Act, signed into law in November 2021, creates two new grant programs out of the Department of Energy (DOE) for battery material processing, manufacturing, and recycling. Worth $3 billion each, the two programs give priority to U.S.-owned entities deploying North American intellectual property and not using materials supplied by a “foreign entity of concern.”

An increasingly prominent policy intervention in the manufacturing sector is the use of public financing institutions. This includes the Export-Import Bank (EXIM), whose remit was expanded in 2020 to include public financing of exports in the “renewable energy, energy efficiency, and energy storage” sectors, among others. The 100-day supply chain review also includes a recommendation for EXIM to create a new Domestic Financing Program to “support the establishment and/or expansion of U.S. manufacturing facilities,” potentially a major addition to its mission.

DOE’s Loan Program Office (LPO) is another source of public financing in battery manufacturing, offering loan guarantees and subsidized direct loans to innovative projects. In January 2010, the LPO, as part of its Advanced Technology Vehicles Manufacturing Loan Program (ATVM), issued a $1.45 billion loan to Nissan North America for an advanced battery manufacturing plant in the United States, which it repaid in full in September 2017. The ATVM currently has $17.7 billion in loan authority, which is set to expand by a further $3 billion under the BBBA. The Energy Act of 2020 added energy storage technologies to the list of permissible industries the LPO can invest in under Title XVII, and the BBBA would increase its commitment authority by $30 billion.

The Manufacturing Extension Partnership (MEP) program and Manufacturing USA initiative, set to receive a $2.4 billion and $1.2 billion boost respectively under the United States Innovation and Competition Act of 2021 (USICA), were passed by the Senate in June 2021 but are awaiting a House vote as of writing. The initiatives both create a national network of innovation centers for manufacturers; however, MEP centers are geographic in focus, while Manufacturing USA institutes are industry specific and rely more on private participation. It is unclear how much these two initiatives have impacted the U.S. battery industry to date. This may change as the USICA would direct MEP to focus more on supply chain resiliency, and the National Blueprint for Lithium Batteries recommends creating a new Manufacturing USA Institute for high-capacity batteries.

DOE recently announced Li-Bridge, a new public-private partnership to bridge gaps in the domestic lithium battery supply chain. Run out of the Argonne National Laboratory, Li-Bridge will help coordinate between government agencies and the private sector in reaching the goals of the National Blueprint for Lithium Batteries.

Supply-Pull: Innovation

As is typical for U.S. industrial strategy, innovation policies play an outsized role relative to that of other nations. In its mission to secure critical minerals or build out a manufacturing base, the federal government hopes innovative technologies and processes can provide novel solutions. In accessing raw and refined materials, the Biden administration is significantly boosting efforts to find substitutes or expand recycling as a means of reducing import dependence.

DOE’s Vehicle Technologies Office is expanding its R&D efforts to eliminate cobalt and nickel in li-io batteries. In addition to its grant-giving capacity, DOE helps run the Critical Materials Institute, one of its Energy Innovation Hubs, which focuses exclusively on eliminating the need for materials affected by supply disruptions.

More generally, DOE announced its Energy Storage Grand Challenge Roadmap in December 2020, meant “to develop and domestically manufacture energy storage technologies that can meet all U.S. market demands by 2030.” Since announcing the roadmap, the Vehicles Technologies Offices, which focuses on batteries for use in EVs, increased the ambition of its goal to reduce battery costs. Similarly, the Office of Energy Efficiency and Renewable Energy announced a “Long Duration Storage Shot” to reduce costs by 90 percent in storage systems that deliver over 10 hours of duration within a decade.

DOE also supports battery R&D through the Joint Center for Energy Storage Research, which brings together national laboratories, universities, and industry stakeholders to collaborate on next-generation battery technology.

Geography

The United States has no centralized place-based strategy for its battery industry. However, several states, particularly those along what’s known as “auto alley” have policies and strategies in place to encourage battery manufacturing and industries along the battery supply chain. The exception is domestic industry leader Tesla, which operates a battery plant in Sparks, Nevada, and a plant in Fremont, California.

Many U.S. states have set up economic development corporations to attract business investment; states like Michigan, Ohio, Kentucky, and Tennessee use these corporations to coordinate with private stakeholders and generate incentive packages to encourage new battery manufacturing plants in their states. In September 2021, for example, Ford and SK Innovation announced a new $11 billion investment in EV and battery manufacturing plants in central Kentucky and west Tennessee. Tennessee reportedly offered Ford $500 million in incentives to build the new plant, and Kentucky expects the company to apply for $286 million in forgivable loans and skills training. Importantly, Tennessee officials also facilitated the large land acquisitions for Ford, coordinating purchases from 26 separate landowners.

One increasingly common strategy is to develop “innovation clusters” of complementary industries anchored around a research center or university. Kentucky, for example, has set up the Kentucky-Argonne Battery Manufacturing Research and Development Center in Lexington with both federal and state funding, in the hope of building a local battery supply chain hub. Similarly, Michigan provided support from the Michigan Strategic Fund for Ford to locate its new “global battery center of excellence” in the state, where it hopes to encourage further R&D investments.