Absence of a US supply chain for electric vehicle battery materials is often described as a tale of inconvenient geography. In many ways, this is true. There is cobalt from the Congo. Indonesian nickel. Latin American Lithium. But there is one critical material for which this is not the case: graphite. The material, which is the largest component of battery cells by weight, is not a rare metal. It is a system of six carbon atoms that can be mined essentially anywhere in the world, including from large deposits in the United States and Canada. And where it is not found naturally, it can be made synthetically, usually from waste petroleum products. For long-life EV batteries, this approach is usually thought to be best.
And yet, of all the critical materials that go into batteries, including those geographically restricted metals, the US is perhaps the least equipped to produce its own EV-quality graphite. In fact, all of this is made in China. Last year, when the federal government considered allowing tariff exemptions for Chinese graphite products to expire, domestic automakers (including Tesla) protested vehemently. There was nowhere else to take it – not because the US could not source of its own material, but because it simply had not invested in doing so.
It is no longer surprising that China leads in EVs. The country not only dominates in terms of sales – half of last year’s total sold in China – but, critically, in production. Backed by aggressive government policies, Chinese investors have spent the past decade building the ability to extract raw materials and refine and fuse them into the huge, powerful batteries that power electrified vehicles. They’re out to make money: The EV market is projected to bring in $9 trillion between now and 2030, according to a recent report from research group Bloomberg New Energy Finance, and it’s only going to grow from there.
Now American policymakers want to take action. The Inflation Reduction Act, which passed Congress last week and is likely to reach President Joe Biden’s desk in the coming days, contains new subsidies for American drivers who want to buy an EV. It eliminates an old program that caps tax credits at 200,000 per automaker. But there are also new conditions. Earning the full loan depends on the car’s details. Qualifying vehicles must be manufactured in North America and consist, at least in part, of raw materials that are mined and processed, and then refined and assembled into batteries, either in the U.S. or in countries with which the U.S. has friendships. trade relations. (In other words: not in China.) The bill constitutes a comprehensive effort to set up a US-led supply chain for the next generation of vehicles.
It will be difficult. The specifics of the legislation may still change before it is signed, and the Internal Revenue Service will ultimately determine which vehicles (and their supply chains) qualify for the credits. But the Alliance For Automotive Innovation, a trade group representing most global automakers in Washington, says the current strict rules will disqualify 70 percent of EVs currently on the U.S. market. An analysis of the bill by the Congressional Budget Office predicts that only 11,000 vehicles will receive the full credit in 2023.
Some argue that this is not such a bad thing. In an environment where supply is limited and many EV buyers face daunting waiting lists, proponents of the restrictions say the country no longer needs tools like tax credits to persuade people to buy battery cars. Instead, the subsidies are an ambitious bid to change the way automakers build them. Coupled with investments in critical materials makers through Biden’s call for the Defense Production Act, last year’s infrastructure bill and last month’s bill to stimulate a domestic semiconductor industry, some hope aggressive enough policies could drive supply chains to a point where automakers and other battery end-users are willing to make all their stuff in the US, or at least in US-friendly countries. The United States is making industrial policy, basically — matching what China did years ago.
