Jane Nakano and Chen Huang
Securing the supply chains for electric vehicle (EVs) batteries and their requisite minerals has become a key priority for the United States as it seeks to facilitate clean energy deployment, revitalize industrial competitiveness, and reduce undue reliance on a supply chain dominated by China.
The Inflation Reduction Act (IRA), which became law in August 2022, provides strong support for this effort. These include the Advanced Energy Project Credit for a project that reequips, expands, or establishes an industrial facility for the processing, refining, recycling of critical materials (48C); the Advanced Manufacturing Production Credit for domestic manufacturing of battery components and critical minerals (45X); and the Clean Vehicle Credit (30D). Specifically, under the consumer tax credit for EVs, half of the $7,500 credit ($3,750) is available if 50 percent of the battery components (by value) are manufactured or assembled in North America while the other half of the credit is available if battery minerals are extracted, recycled, or processed in the United States or a country with a free trade agreement (FTA). For both credits, the required value percentage will steadily increase over the next 10 years. Notably, the law also prohibits the application of EV tax credits where components or critical materials are sourced from China.
The onshoring and nearshoring provisions appear to be raising investment interest in the United States. Within three months after the law was enacted, a series of commitments to investing in U.S. EV battery supply chains totaled $13.5 billion, compared with $7.5 billion in the prior three months. Another analysis suggests that the IRA will see over $91 billion invested in the U.S. battery industry over the next 10 years.
Most recently, General Motors has announced a $650 million investment to help develop a massive lithium deposit at Thacker Pass in Nevada, marking another significant step in the growing ties between automotive and mining industries in the United States, as U.S. automakers seek to secure domestic battery mineral supplies to fuel EV production that would meet the new IRA EV consumer tax credit.
Would these investments amount to a counterforce to China’s dominance? The answer depends on multiple factors that currently remain uncertain, such as how successfully these provisions would be implemented, and what level of support that the European Union may provide for its own EV battery supply chains.
One factor that is quite certain, however, is that China is not standing still. Both the Chinese government and the industry are focused on securing its EV battery supply-chains and expanding its EV value chains. According to the International Energy Agency’s latest Energy Technology Perspectives, China accounts for most of the announced manufacturing capacity expansion plans to 2030 for EV battery components, including 98 percent for anode and 93 percent for cathode material such as cobalt (95 percent), lithium (60 percent), and nickel (60 percent).
For example, China’s leading lithium battery manufacturer, Sunwoda Electric, announced a $2.4 billion project involving lithium carbonate and cathode material production in Jiangxi province while China’s second-largest lithium chemical producer Tianqi Lithium announced that its lithium hydroxide project in Australia had commenced commercial production in November.
Indeed, China’s effort to secure and expand its EV battery supply chains is not confined at home. China is transforming itself into the world’s battery factory. Starting with Contemporary Amperex Technology Co (CATL)’s battery plant in Germany announced in 2019, there have at least been eight Chinese battery projects in Europe under construction. By 2031, Chinese companies are expected to have 322 gigawatt hours of production capacity in Europe, dominating the European battery supply chain. In contrast, capacity owned by U.S.-based companies will likely come in the fifth in Europe.
Additionally, a month after the IRA enactment in the United States, the Chinese government announced its decision to extend tax exemptions for EV purchases, while following through on its earlier decision to terminate other EV subsidies at the end of 2022. Since 2009, China’s EV subsidies had amounted to more than US$47 billion. In 2022, Chinese automakers BYD and Geely saw sales grow by over 200 percent, compared to Tesla’s at 37.1 percent and SAIC-GM-Wuling at 2.5 percent.
The U.S. campaign to expand the domestic EV battery supply chains has also underscored a complex nature of U.S.-China rivalry in the EV battery value-chains.
First and foremost, U.S. automakers remain interested in engagement with China. After all, China is the largest EV market in the world, accounting for about 60 percent of the global EV sales in 2022. Moreover, China is currently the main source of competitively priced EV batteries. U.S. automakers have explored and/or struck partnerships with non-Chinese EV battery makers, such as South Korea’s LG Energy Solutions and SK Innovation. Nonetheless, such engagement does not readily negate the value of engagement with China. Tesla’s EV factory in Shanghai, which procures EV batteries manufactured and assembled by CATL, has been its top export center and supplies cars to markets outside North America. In 2022, the Tesla factory delivered over 71,000 vehicles, accounting for over half of its global delivery of the year.
While official and industry voices in China seem cautious to not prejudge the effects of the IRA on its EV sector before the tax credit provisions are fully articulated, some individual Chinese companies seem interested in the nascent EV battery industry in the United States. Their investment interests are accompanied by a promise of jobs in host U.S. communities. Such Chinese engagements may also present an opportunity for the nascent U.S. battery manufacturing sector to rapidly gain production and operational expertise.
Should any tie with China be precluded from the U.S. pursuit of a more resilient EV battery supply-chain? Could a well-calibrated engagement be a net positive and turbocharge the expansion of the domestic supply chains for EV batteries and component minerals? These questions would benefit from close evaluation of what it means to balance multiple national interests, including economic growth and industrial competitiveness.
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