Winning the Battery Race: How the United States Can Leapfrog ...

Introduction

The United States battery industry has fallen dangerously behind the global leaders. A cornerstone of the modern economy, batteries are essential and ubiquitous across consumer electronics such as cellphones, military equipment such as drones, and clean energy products such as electric vehicles (EVs) and power grid storage installations.

If you are looking for more details, kindly visit our website.

Over the past decade, China has come to dominate this critical industry. Across every stage of the value chain for current-generation lithium-ion battery technologies, from mineral extraction and processing to battery manufacturing, China’s share of the global market is 70–90 percent. Japan and South Korea, once world leaders in battery technology and production, now hold minority market shares, and the United States is in a distant fourth place. As a result, the United States almost entirely relies on Asian imports for the batteries widely used today.

The good news is that after years of development, far superior battery technologies could reach commercial markets in the coming decade—and the race to scale them up remains wide open. Next-generation batteries represent a fundamentally new architecture compared with today’s lithium-ion batteries, leaving behind liquid components for a solid-state architecture and eliminating graphite, a material over which China has a chokehold on production. U.S. companies and research institutions have made strides toward commercializing next-generation batteries with dramatically better performance. These batteries have expanded energy storage, quicker charging rates, and radical safety improvements. Yet competition is intense, with U.S. rivals in Asia investing heavily in innovation. Washington will have to act with force and speed to recover from its disastrous start in the global battery competition and leapfrog China’s lead.

Even as it acknowledges the opportunities in next-generation batteries, the United States must be realistic about its slim odds of competing in today’s technology. Over the last two years, U.S. federal incentives for the battery supply chain have surged, but more than 90 percent of the funding spree has supported current generation, lithium-ion batteries. China’s lead in lithium-ion technology is such that the United States will struggle to ever pull even. To be sure, it is prudent to secure the supply of limited quantities of today’s batteries—whether through domestic production or imports from trusted partner countries—to reduce national security risks if China were to cut off battery exports. And there’s value in having a base of American workers and firms with experience manufacturing batteries.

Yet the main thrust of the U.S. policy response to the battery crisis must be the urgent commercialization of next-generation technologies where the United States can actually enjoy a competitive advantage. Doing so will be a tall order, but it is achievable at reasonable cost. The United States should redouble funding for research and development (R&D), target incentives and public financing for demonstrating and scaling up commercial production of next-generation batteries, and use public procurement to create protected markets for innovative technologies to gain a market foothold.

Why Catching Up Is So Hard

The dire state of the battery race might seem surprising, given that the United States has recently made historic investments in its battery industry. Over the past two years, U.S. investments in batteries and critical minerals refining have grown at least threefold, with battery manufacturing investments totaling $40.9 billion from Q2 through Q2 (see figure 1). This is largely thanks to government policies and incentives, notably the manufacturing and investment tax credits in the Inflation Reduction Act. The United States is enjoying a battery boom. Given this progress, why can’t it expect to close the competitiveness gap with China?

Simply put, China’s lead in existing lithium-ion battery production is too large. After decades of Chinese investment in lithium-ion supremacy, even today’s U.S. surge, which is almost exclusively focused on manufacturing current lithium-ion technology, hasn’t stopped China’s widening lead on cost and economies of scale. Beginning in , Beijing made electric vehicles (EVs) and their batteries a priority in its Five Year Plan, motivated by its realization that China would struggle to catch up to the United States and Japan when it came to innovation in internal combustion engine technology. By the end of the s, the Chinese government was providing major support for the firms making EV batteries, including tax breaks, cheap land, and public procurement. Researchers at the Center for Strategic and International Studies calculated that Chinese government support for the battery and EV sector totaled $230 billion from to . China dominates the manufacturing of every component of battery cells as well as the upstream supply chain (see figure 2a). Chinese firms not only refine most of the world’s battery minerals at home but also have extensive interests in mines abroad. For instance, more than 90 percent of Africa’s supply of lithium this decade will be produced by entities at least partly owned by Chinese firms.

And China plans to keep stepping up production. The International Energy Agency projects that “Chinese dominance of the cathode and anode active material manufacturing capacity will not see any significant reduction by ; it doesn’t see the US winning more than 15% of the lithium-ion market by , even if all announced projects materialize.”

What’s more, China’s production capacity far outstrips the world’s demand, let alone its domestic demand; a subsidy-driven manufacturing and export model is driving global overcapacity of 400 percent (see figure 2b).

Admittedly, forecasts of future demand for clean energy products are always uncertain, and has brought a wave of consolidation and canceled investments to the Chinese battery sector. But it is clearly a massive challenge for U.S. factories and firms to compete with the scale of Chinese production, which are priced competitively in the protected U.S. market and are far more competitive than U.S.-produced batteries in markets around the world. In the wake of U.S. tariffs on Chinese EVs and battery minerals, China’s leadership decided at a crucial economic meeting on July 18, the Third Plenum, to double down on the manufacturing and export of batteries, EVs, and other low-carbon technologies. Any attempt by the United States to catch up with Chinese manufacturers of today’s lithium-ion batteries will require enormously expensive subsidies to produce a commodity product with slim margins, and China’s cost advantage is virtually insurmountable. Maintaining the political will to fund an indefinitely uncompetitive industry would be taxing.

Yet the United States cannot cede the field and yield economic sectors that are vital to prosperity. The largest use of batteries is for EVs, and the transition to EVs puts at risk the U.S. automotive industry, which makes a significant contribution to the entire U.S. economy. More than a million Americans work directly in motor vehicle and parts manufacturing, and the industry is at the core of U.S. metal-working capabilities. From California to Texas, batteries are also increasingly being used to store energy and make possible grids that rely on renewables. Batteries power the modern U.S. economy through portable electronics and a growing array of wearable devices. And batteries are critical to modern military operations, including powering combat troops’ equipment and marine and aerial equipment.

The task, then, is to prioritize the next generation of batteries.

The Promise of Next-Generation Batteries

The lithium-ion batteries mass-produced by China today are industrial marvels. The battery pack for an EV assembles thousands of tightly packed battery cells, each one comprising dozens of layers with precisely honed chemical compositions. Yet after more than three decades of improvements to commercial lithium-ion batteries, these devices are approaching the theoretical limits of their performance.

Next-generation batteries, defined in this paper as batteries that use lithium-metal anodes and enable solid-state architectures, could shatter those performance limits and eliminate the drawbacks of lithium-ion batteries, with revolutionary impacts across applications.

The advantages of next-generation batteries start with safety. Today’s lithium-ion batteries are based on a chemistry that is inherently flammable; when these batteries cross a temperature threshold, they can explode spectacularly through a process known as thermal runaway. Deadly fires from battery explosions have erupted on ocean tankers carrying EVs, and several incidents in South Korea, including fires that killed dozens at a battery plant and in an apartment building, have reduced the country’s demand for EVs. But next-generation batteries are inherently safe—they do not experience chain reaction thermal runaway because of their architecture. Dramatically improving battery safety could reduce risks from EVs and portable electronics, while also reducing fire shields that make today’s batteries heavier and undercut their performance.

More importantly, next-generation batteries could far surpass the limits of today’s batteries across key performance metrics, such as energy density by volume and weight, power density, charging speed, and durability. Each of these advantages brings revolutionary new capabilities. Next-generation batteries could unlock new generations of wearable electronics, extend the range and potency of drones, and enable vehicles that can drive more than 1,000 miles on a single charge and command five times the horsepower of EVs with today’s battery packs. There are also military advantages at stake: energy-dense batteries could power uncrewed submarines and enable combat troops in the field to power equipment such as night-vision goggles for longer periods and with lower weights.

Achieving these new performance thresholds will require leaping beyond existing lithium-ion technology. Incremental approaches that modify existing lithium-ion technologies, such as enriching anodes with silicon, can deliver performance gains, though these batteries still suffer from drawbacks such as cell expansion that degrades reliability. Chinese firms may be best positioned to solve these technical challenges, building on their dominance of existing lithium-ion technology to become formidable competitors in these incrementally improved battery chemistries, and continuing to use their scale and experience to innovate in the manufacturing process. China is also moving swiftly ahead to dominate low-cost battery chemistries, such as sodium-ion batteries, which perform worse than lithium-ion batteries but can be far cheaper to produce and can enable low-cost, short-range EVs or grid-scale electricity storage.

But dramatic improvements across all performance metrics—enabling the most profitable and most compelling applications—can only be unlocked by eliminating a key component of today’s batteries: the graphite anodes that store positive ions and release them during discharge. Replacing these with lithium metal anodes would enable more energy-dense architectures and faster charging speeds. However, this change requires redesigning much of the rest of the battery cell to prevent degradation, such as by eliminating liquid electrolytes. Indeed, many have hailed solid-state batteries as a holy grail of battery technology development. It is no wonder, then, that the race is intensifying to develop and scale next-generation batteries. Here, the United States has critical advantages thanks to its world-leading innovation ecosystem, though China and other competitors aim to narrow the gap.

Global Competition in Battery Innovation

Next-generation batteries represent a critical battleground in the global competition to win market share in the battery industry. Over the past decade, the United States built an early technology lead through the R&D efforts of research institutions and venture-backed startups. Today, there are multiple publicly traded U.S. companies developing next-generation batteries; the only multibillion-dollar American firm of this kind, QuantumScape, has announced an industrial licensing and manufacturing deal with automaker Volkswagen Group.

However, the global competition to be the first to bring next-generation batteries to market is heating up. The largest Chinese battery companies, including CATL and BYD, have joined together as part of a Chinese government-led consortium of companies and research institutions aiming to commercialize solid-state batteries. Elsewhere in Asia, Japanese automakers Toyota and Nissan are targeting solid-state battery production by , and South Korean conglomerate Samsung aims to mass-produce next-generation batteries for premium vehicles by .

The reason for this fierce competition is that next-generation batteries could be the key to both seizing market share and turning a profit. Extreme Chinese overcapacity in producing today’s lithium-ion batteries means that the margins on today’s battery sales are slim or even negative. Next-generation batteries could come with premium pricing power. Because of their superior performance, they could power cellphones with energy-intensive artificial intelligence (AI) computing hardware or high-end EVs with increased acceleration and range, and they could unlock new market segments, such as more powerful and long-lived wearable devices. The companies and countries that achieve this performance first will be in pole position to rapidly capture a share of growing markets around the world.

Next-generation batteries could also bring important security benefits. Turning to batteries with lithium-metal anodes would eliminate one of the most concentrated Chinese supply chain advantages—the processing and production of graphite—defanging a potential security risk were China to cut off graphite supplies to the United States.

China recognizes it has a great deal to lose if it does not dominate this next round of battery innovation. As next-generation batteries reach commercial markets, China is forecasted to take only a minority share of their production by , according to Benchmark Mineral Intelligence, which explains, “In a way, China sees solid-state batteries as a risk to their control over the lithium-ion battery industry.”

The coming years are critical in the race to commercialize high-performance, next-generation batteries. By , Bloomberg forecasts that 20–30 percent of the global battery market could be served by disruptive next-generation batteries with lithium-metal anodes (see figure 3). But the proof points for commercial success—the first vehicles, consumer electronics, and military-grade equipment to use next-generation batteries—could emerge in the next twenty-four to thirty-six months.

The stakes are too high for the United States to fall behind.

Policy Recommendations for the United States

Winning the race to dominate next-generation batteries will require a suite of policies targeted at scaling up emerging technologies. A critical insight is that incentives and market interventions required to cultivate next-generation batteries are very different from a policy framework tuned to increase production of today’s technology.

Therefore, policymakers should avoid fighting yesterday’s war. As frustrating as it is that China has come to dominate the production of today’s lithium-ion battery technology through a mix of genuine innovation and manufacturing prowess as well as state-sponsored intellectual property theft and unfair trade and subsidy practices, it would be a mistake to try to beat China at its own game. Lavishing subsidies at a grand scale on domestic manufacturers to produce the same batteries that could otherwise be imported much more cheaply from China amounts to closing the barn door after the horse has bolted. U.S. producers will never catch up to the tremendous scale economies and experience that Chinese lithium-ion battery producers have achieved, and U.S. firms will remain woefully uncompetitive in global markets if they only produce today’s technology. To be sure, it would be wise for the United States to keep working to reduce its reliance on batteries (and refined minerals) produced in China by cultivating other suppliers such as Vietnam and India; the share of batteries imported from China reached 72 percent in —50 percent would be more appropriate. But U.S. policymakers have to be realistic about what level of competitiveness they can achieve with tariffs on graphite and EVs like the ones the Biden administration introduced in May .

Unfortunately, the vast majority of current U.S. incentives for battery production, such as the Inflation Reduction Act (IRA) Section 45X tax credits, do not target next-generation batteries over existing technologies. As a result, these incentives are being used almost exclusively to support manufacturing facilities to produce lithium-ion batteries. In addition, a Carnegie analysis of the $24 billion in U.S. federal grants and loan guarantees through the Department of Energy over the last two years reveals that more than 90 percent of the funding has supported lithium-ion batteries, the current generation of technology. Some of the remaining funding has supported low-cost and low-density architectures that can be used to back up the power grid. And less than 1 percent of federal funding has supported next-generation solid-state batteries.

Given the extreme imbalance of U.S. government support for current-generation technology, U.S. firms seeking to harness government subsidies have looked to contract with leading Chinese producers of conventional batteries to build up domestic U.S. manufacturing capacity. Although it may be possible for the United States to benefit from Chinese expertise and foreign direct investment and protect intellectual property generated through these manufacturing partnerships, this should not be the only model for scaling up U.S. battery production. Indeed, there is no pathway to dethroning China’s dominance in the battery industry so long as U.S. producers depend on China for technology and manufacturing prowess. The only way to narrow, rather than entrench, China’s massive lead will be to invest decisively in next-generation batteries.

A wholesale shift in strategy to cultivate a U.S. industry developing and producing next-generation batteries will require three types of policies: (1) robust R&D funding, (2) funding to rapidly scale up new technology, and (3) protected markets for the early deployment of these new products.

Increase R&D Funding

Pushing the technological frontier for battery performance and cost will require U.S. universities, research institutions, and National Laboratories to reestablish U.S. supremacy in battery technology. China has more than closed the gap in battery R&D—it has taken the lead (see figure 4). Thanks to aggressive Chinese R&D funding, 68 percent of highly cited technical papers on battery technology now come from Chinese research institutions, compared with just 10 percent from U.S. institutions.

Although published scholarly work is widely available across borders, the know-how and centers of excellence generated to push the technological frontier confer competitive advantages to the countries that undertake cutting-edge R&D. Therefore, the U.S. Congress should urgently increase appropriations through the National Science Foundation (NSF), the Department of Energy, ARPA-E, the Department of Defense, and other funding sources for next-generation battery R&D. This would help fill the pipeline of pioneering research, including into battery technologies on the horizon that are so energy dense they could power long-distance aviation.

Boost Incentives for Scaling Up Next-Generation Batteries

The U.S. government should urgently increase funding dedicated to scaling up next-generation battery demonstrations and production. Today, there is a major gap between funds available for university research, such as from ARPA-E and NSF, and incentives for the mass production of mature lithium-ion battery technology, such as IRA tax credits and Loan Program Office manufacturing loans. The missing middle represents funds for scaling up production of next-generation battery technologies.

Companies at the forefront of developing solid-state batteries with lithium-metal anodes need tens of millions (in some cases hundreds of millions) of dollars in grants and low-cost loan financing to build pilot lines that iron out the kinks in their technologies. This funding is also essential for scaling up companies’ production now to at least a gigawatt-hour—enough to power 1,000 electric vehicles—and to hundreds of gigawatt-hours by the end of the decade. The Department of Energy has the latitude through its Loan Programs, Clean Demonstrations, and Manufacturing Offices to concentrate the support it offers toward next-generation battery manufacturing instead of only supporting existing technology manufacturing. The Department of Defense should also focus on cultivating new producers of next-generation batteries. And Congress should build on the IRA and Bipartisan Infrastructure Law by focusing new tax incentives on manufacturing for next-generation batteries, because today’s incentives will almost certainly be monopolized by producers of existing technologies.

Utilize Public Procurement

It will be critical to create market opportunities for emerging U.S. producers of next-generation batteries to sell their products without fear of competing with low-cost, Chinese producers of existing lithium-ion batteries that can undercut new technologies. For next-generation batteries to gain initial scale and costs to fall, companies will need to ship initial volumes of product and build experience in serving customers and analyzing battery performance in the field. U.S. government procurement offers an excellent route to do just this.

The U.S. military should provide American firms with a dedicated market to power a small segment of military vehicles, drones, and other equipment with next-generation batteries, ensuring that existing lithium-ion technologies and Chinese suppliers are ineligible for these procurements. Similarly, these efforts could target other government purchasers of batteries, including the U.S. Postal Service truck fleet and the other twenty-eight government agencies that committed to ramping up procurement of EVs and bought nearly 10,000 of them in . Shifting a fraction of those procurements to only target U.S.-produced next-generation batteries could create a critical beachhead market for companies to underwrite and finance new production lines and guarantee sales of a new technology that needs to get off the ground. Although the executive branch already has some leeway to develop these small procurements, Congress should explicitly authorize the U.S. federal government to prioritize next-generation U.S. battery technologies over existing ones.

As policymakers develop trade policy, they should ensure that U.S. competitors cannot take advantage of the country’s market to scale their next-generation battery designs by dumping or undercutting U.S. technologies through artificially depressed prices and government subsidies. Although in the long run, U.S. firms will need to build globally competitive next-generation batteries to truly realize the full market potential of these revolutionary technologies, the U.S. goal in the near term should be to tilt the playing field in favor of American next-generation battery commercialization and early sales. Failing this, China will dominate the next chapter of the global battery industry exactly as it has done to date.

The cost of these interventions is small—on the order of several billion or at most tens of billions of dollars—compared with the hundreds of billions needed to compete with the vast Chinese manufacturing complex for existing lithium-ion technologies. Leapfrogging China with U.S. innovation has the dual benefit of saving taxpayer resources and enabling a superior U.S. product that can compete effectively in global markets, particularly for premium applications. This is a strategy that plays to U.S. strengths and could reset the race for the batteries of the future, a race where America can actually hope to compete, rather than aspire to a distant second or third place. There is no time to waste.

Note: Sivaram would like to disclose that his father, Siva Sivaram, is CEO of QuantumScape Corporation, a U.S. battery firm. Varun Sivaram has no financial or other relationship to QuantumScape.

Correction: The author’s voluntary disclosure was added.

Correction: A calculation in the underlying data for figure 3 was revised. The aggressive scenario in was corrected from 54 percent to 32 percent, and the reference scenario was corrected from 32 percent to 22 percent.

Introduction

The transportation sector is the largest emitter of greenhouse gases in the US economy, and about half its emissions come from light-duty vehicles alone. To avoid the disastrous effects of a 1.5°C increase in global temperatures, we will need to replace the more than 300 million internal combustion engine (ICE) vehicles currently on the road with electric vehicles (EVs).

Today, there are about 2.5 million EVs on US roads; this number will need to increase to 44 million by if we are to reach net-zero emissions. Every one of these 44 million cars will need to be powered by an electric battery produced in a long, complex process involving mining, refining, production, and assembly.

While research findings predicting expected growth in EV demand varies, there is consensus that it is expanding and will continue to do so: S&P Global Mobility forecasts EV sales in the United States alone could reach 40 percent of total passenger car sales by , and more optimistic projections foresee EV sales surpassing 50 percent by .

To meet this increasing demand for EVs, governments, policymakers, and public and private sectors around the world will need to strengthen supply chains to rapidly scale production of EV batteries.

In recent years, billions of dollars have been invested in this supply chain. Beyond addressing climate change and meeting growing demand for EVs, this increased investment is meant to:

• Provide economic opportunity and create new jobs;
• Increase the resilience of the global supply chain by increasing the number of countries involved;
• Address human rights and environmental abuses associated with the supply chain; and
• Comply with legislation like the Inflation Reduction Act (IRA), which requires that an increased percentage of EV battery supply chain activities take place in North America to be eligible for certain tax credits.

By providing this overview of the EV battery supply chain, the challenges it faces, and opportunities to improve it, we hope to give local and national governments, policymakers, and private and public sector actors a starting-point resource they can use to further explore these important issues. For more information on EV batteries and how they work, read “EV Batteries 101: The Basics.”

What is the EV battery supply chain?

The term supply chain describes the process by which a product is made and delivered to a consumer.

The steps involved in producing and using an EV battery fall into four general categories:

• Upstream: Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
• Midstream: Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials; commodities traders buy and sell raw materials to firms that produce battery cells.
• Downstream: Battery manufacturers assemble the battery cells into modules and then pack and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
• End of Life: When batteries no longer serve their original purpose, they can be reused or recycled.

Providing economic opportunities and creating new jobs

Domestic investments to improve the EV battery supply chain will have a range of economic implications.

The transition to EVs represents a major disruption to the automotive workforce, both in terms of its overall size and its geographic distribution around the country. Currently, more than 10 million people work in the US automotive industry. Since EVs are much simpler to produce than ICE vehicles, the automotive industry may need fewer workers in the future.

However, with overall car sales declining after a peak in , EVs are the only growth area in the automotive market, meaning all future job growth in the industry will likely be in EV manufacturing and its supply chain. These new EV jobs will not necessarily be in states and regions where ICE manufacturing jobs are today. That being said, disruptions related to EVs can have all sorts of economic benefits when they lead to increased entrepreneurship pathways and the development of new industries around novel technologies. The growth of Tesla, Rivian, and a range of new battery manufacturers illustrates how this technology transition has encouraged startups to compete with legacy players, creating new competition and incentives to innovate in the marketplace. The transition to EVs is likely to continue to foster innovation in one of the most important sectors of the US economy, creating numerous productivity ripple effects throughout the country.

Localizing the EV battery supply chain also brings upstream investment opportunities, since batteries require a range of critical minerals, processing facilities, and component part manufacturing. For example, in just the few short months since the Inflation Reduction Act was passed, the United States has seen more than $40 billion worth of new investment announcements across the battery supply chain. These investments can help spur local economic development by supporting surrounding industries, fostering spinoff entrepreneurship, and contributing to the development of industry clusters that improve productivity and growth.

Increasing the resilience of the global EV battery supply chain

The EV battery supply chain is dispersed around the world — battery minerals travel an average of 50,000 miles from extraction to battery cell production. At the same time, much of the mineral supply is concentrated in just a few countries. This dispersion and concentration make the global supply chain vulnerable to disruptions, including:

• Extreme weather (e.g., hurricanes, tornadoes, and earthquakes that impact energy inputs and disrupt infrastructure like pipelines and shipping routes)
• Geopolitics (e.g., the war between Russia and Ukraine)
• Changing trade alliances between countries or regions
• Corporate consolidation: Today, when one of the many companies involved in the battery supply chain experiences a disruption, others are affected. As EV demand rises, it’s likely that there will be a few big players that will oversee more parts of the process. If one (or more) of these companies experience disruptions, the effects will be greater.
• A change in materials needed due to new technologies: Battery chemistries and designs are changing quickly; many of them use alternative and more abundant materials. These changes will affect the supply chain network and the countries and companies involved.

These disruptions can result in bottlenecks and negatively affect the rest of the battery supply chain; they can also impact economies, cause delays for suppliers, increase transportation costs, force employers to cut jobs, discourage investment, and hinder transportation decarbonization.

The global EV battery supply chain today

China currently dominates the supply chain. As broader geopolitical issues affect economic and trade relationships, the stability of the global supply chain is increasingly at risk when extracting, refining, processing, and assembling an outsized share of EV battery components occurs in any single country.

Several critics have described US efforts to increase domestic EV battery supply chain capacity as an attempt to “de-couple” from China, which is an oversimplification. A more accurate assessment is provided by US Trade Representative Katherine Tai, who labels the current administration’s approach “de-risking.” As the market for EV batteries and other advanced energy technologies expands, there will be plenty of growth opportunities for all producing nations, even as that production capacity diversifies.

It is important to recognize that strengthening the EV battery supply chain is not a zero-sum game with winners and losers. Creating a robust supply chain will benefit people around the world by providing economic opportunity, creating jobs, and making it easier for more people to purchase EVs.

We can significantly bolster EV battery supply chains by advancing partnerships with other countries, improving regulations, devoting more resources to domestic battery production, and increasing battery circularity.

Addressing human rights and environmental abuses

Around the world, the upstream portion of the EV battery supply chain (mining) is linked to human rights abuses, such as the use of child and forced labor. Many mines lack basic worker safety measures — endangering workers’ lives — and extraction often comes with an environmental cost. Mining practices often cause surface and groundwater depletion, soil contamination, biodiversity loss, and other negative consequences that can last for centuries.

Today, few automakers and battery manufacturers know where their battery minerals come from and how they’re extracted (although we have the power to increase supply chain transparency with more investment). As a result, human rights abuses and environmental damages often go undetected. A growing coalition of stakeholders are working on these issues, including activists and advocates, policymakers, regulators, those in the automotive industry, and others. Many in the extractive industry have also expressed a desire to address these issues. You can read more about what’s being done to address human rights and environmental abuses in the Upstream section below.

Complying with legislation

The US government is investing in strengthening EV battery supply chains using a variety of legislative tools:

The Infrastructure Investment and Jobs Act

Passed in November , the Infrastructure Investment and Jobs Act provides funding for the programs and initiatives listed below, which are designed to address the above issues.

• Battery and Critical Minerals Mining and Recycling Grant Program ($125 million)
• Earth Mapping Resources Initiative ($320 million)
• US Geological Survey’s Energy and Minerals Research Facility ($167 million)
• Rare Earth Elements Demonstration Facility Program ($140 million)
• Battery Materials Processing and Battery Manufacturing Recycling ($2.8 billion)
• Electric Drive Vehicle Battery Recycling and 2nd Life Apps Program ($200 million)
• Advanced Energy Manufacturing and Recycling Grant Program ($750 million)
• Future of Industry Program and Industrial Research and Assessment Centers ($550 million)

The CHIPS and Science Act

Passed in August , the CHIPS and Science Act will fund American semiconductor research, development, and production, which will help decrease US reliance on China for the semiconductors used in EVs and many other technologies. Two programs will fund research and development in advanced manufacturing and materials with a total of $2 billion.

The Inflation Reduction Act

Passed in August , the Inflation Reduction Act focuses on improving clean energy manufacturing and recycling; industrial decarbonization; critical materials processing, refining, and recycling; incentivizing domestic production; improving supply chains; and electrifying heavy-duty vehicles. The Act:

• Extends and expands the Qualifying Advanced Energy Project Credit ($10 billion)
• Establishes the Advanced Manufacturing Production Tax Credit ($30.62 billion)
• Enhances use of Defense Production Act of ($500 million)
• Expands the Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program ($3 billion)
• Creates the Domestic Manufacturing Conversion Grants ($2 billion) and the Clean Heavy-Duty Vehicle Program($1 billion)
• Encourages people to buy EVs through the Clean Vehicle Tax Credit, which provides consumers up to $7,500 if they buy a new qualified plug-in EV or fuel cell electric vehicle.
• Aims to strengthen domestic EV supply chains by requiring critical minerals be extracted or processed in the United States or a Free Trade Agreement country, or recycled in North America, with final assembly in North America.

Understanding how the EV battery supply chain works and the challenges it faces will help us make effective policies to improve it and reduce the harms associated with it.

Upstream

Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.

The “upstream” portion of the EV battery supply chain, which refers to the extraction of the minerals needed to build batteries, has garnered considerable attention, and for good reason.

Many worry that we won’t extract these minerals quickly enough to meet rising demand, which could lead to rising prices for consumers and slow EV adoption. There’s also concern that the US is missing out on economic opportunities, new jobs, and a chance to strengthen the supply chain.

More importantly, mining is routinely associated with human rights abuses and environmental degradation. Certain mines have used or are using child and/or forced labor to extract the minerals used in EV batteries; there are also many documented cases showing the devastating effects of mining on local communities and environments.

Across the world, there is particular concern about the negative impacts of new extractive developments on Indigenous communities. In the United States, the majority of nickel, copper, lithium, and cobalt reserves lie within 35 miles of Indian Country.

Additional reading:
What is Fiberglass Chopped Strands and Why Do We Use Them?
PVC Valve Selection Guide (and plastic valves) - Assured Automation

For more information, please visit Huiyao Laser.

Below we explain the steps involved in the upstream portion of the EV battery supply chain, answer five questions about the challenges facing the mining industry, and describe what’s being done to address the industry’s negative impacts.

What is the “upstream” portion of the EV battery supply chain?

In the upstream portion of the supply chain, mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.

Because of the energy required to extract and refine these battery minerals, EV production generally emits more greenhouse gases per car than cars powered by fossil fuels. However, the average EV makes up for this difference in less than two years. Over a typical vehicle’s lifetime, EVs produce significantly less emissions than traditional vehicles, making them an essential tool to combat climate change.

Lithium-ion batteries, the kind that power almost all EVs, use five “critical minerals”: lithium, nickel, cobalt, manganese, and graphite.

The Energy Act of defines critical minerals as a “non-fuel mineral or mineral material essential to the economic or national security of the U.S. and which has a supply chain vulnerable to disruption.” There are around 35 minerals categorized as critical.

Critical minerals are found across the world, but most economically viable deposits are found in only a few places. For instance, much of the world’s cobalt is located in the Democratic Republic of the Congo while lithium is concentrated in South America and Australia. As a result of this geographic diversity, the supply chain for electric vehicles is truly global.

Do we have enough minerals to make the EV batteries we will need?

Yes. While demand for these minerals is already high and expected to grow significantly in the coming years, there are enough minerals to meet today and tomorrow’s EV needs.

The problem is that the upstream portion of the supply chain is unprepared to meet this demand. Today, although there are enough minerals, there are not enough operating mines.

Since it can take years to establish a mine, we need to move very quickly to ensure that supply can meet growing demand while also respecting the expressed needs of local communities. This work will require significant investment to do so: in the United States alone, we’ll need to invest $175 billion in the next two or three years to match China’s battery production.

How do mining practices contribute to human and environmental injustice?

Today’s mining practices can involve:

Child and/or forced labor: According to the International Labor Organization, more than 1 million children are engaged in child labor in mines and quarries; many receive little to no pay. These practices are a form of modern slavery.

Tailings storage are another form of mine waste that harms local environments and residents. Once a mineral has been extracted from the ore, the rest of the ore is disposed of. These leftovers are called tailings and are usually dumped in above-ground ponds held together by humanmade dams. When these dams collapse, they can cause deadly mudslides that destroy farmlands and nearby towns. Collapses can also pollute bodies of water that local communities rely on for food, agriculture, and income. Since , more than 250 tailings dam failures have been recorded around the world, killing 2,650 people. In , a single dam failure at a mine in Brazil claimed the lives of 270 people in a tragic instant.

Water pollution and depletion: Drilling and excavation can contaminate surface water and groundwater reserves. As Earthworks notes, many mines in the US have historically failed to control their wastewater, which has led to polluted drinking water, harm to local habitats and agriculture, and negative public health impacts. Globally, mines dump more than 200 million tons of mining waste directly into lakes, rivers, and oceans every year. Mining also requires huge amounts of water; more than 2 million liters of water are needed to produce one ton of lithium. Because mining often occurs in arid and semi-arid regions, this can seriously stress local water supplies for communities and ecosystems.

Gender discrimination across the mining industry: Despite women’s significant contributions to mining, their work has been less valued and less protected than that of men, according to the International Labour Organization, which also notes that in large-scale mining operations, women rarely make up more than 10 percent of mineworkers. In many countries women are expressly prohibited by law from holding certain positions at mines.

What are the factors that contribute to human and environmental injustice?

There are many factors that contribute to human rights abuses and environmental degradation, including:

Some mineral reserves are in conflict-affected and high-risk areas: Many of today’s operating mines are in regions labeled as a conflict-affected and high-risk area (CAHRA), which the Organisation for Economic Cooperation and Development defines as places “identified by the presence of armed conflict, widespread violence, or other risks of harm to people.” The presence of civil and international wars, insurgencies, political instability and repression, and corruption are some examples of factors that determine whether an area is considered conflict-affected or high risk. At the time of this writing, the European Union has identified 28 countries with CAHRAs.

Economic dependence on artisanal and small-scale mining (ASM): Unlike large-scale mining, ASMs are operated by individuals, families, and/or groups and are often informal and completely unregulated, which leads to little to no health, safety, or environmental protections. They do not always use modern equipment; some rely on tools like shovels and pickaxes. As the European Union notes, in some cases, ASMs are controlled by armed groups, who use the extracted resources to finance conflicts.

Outdated mining laws: Current US laws governing mining do not address the complex challenges facing the sector. For instance, the General Mining Law of remains the most prominent mining regulation today in the United States. Governing the extraction of critical minerals on federal lands, it has not been meaningfully updated since President Ulysses S. Grant signed it more than 150 years ago to promote westward expansion. It does not require mining companies to pay federal royalties to taxpayers and includes no environmental protection provisions. Laws such as these do not reflect the complexities of today’s mining practices; it’s especially important that they require free, prior, and informed consent of Tribal nations, who often bear the brunt of mining’s negative impacts.

A lack of tools to monitor mining practices: Without good governance or transparency from organizations, there’s no way to definitively know how most mines treat their workers or affect the surrounding environment. Journalists have been largely responsible for uncovering human rights abuses and environmental degradation. We often rely on assurances from mining companies, which often prove to be inaccurate or incomplete. That’s why we need third-party tools to monitor mining practices: we must have data from trusted sources to meaningfully address destructive operations and hold bad actors accountable while continuously requiring responsible practices.

What is being done to address human rights abuses and environmental impacts?

Activists, advocates, policymakers, employers, governments, and others are working to integrate environmental justice in the EV battery supply chain by:

Onshoring/reshoring/friend shoring efforts: Though far from a complete solution, investing in EV supply chain capacity within the United States and its allies will help diversify supply and limit exposure to human rights abuses and detrimental environmental impacts. When upstream supply is concentrated in a few countries, downstream purchasers have little leverage over their suppliers’ human rights and environmental practices. In general, the United States and its allies have strong oversight over human rights concerns and high-quality environmental protections, although there is always room for improvement. The goal here is not self-reliance, however, but rather greater diversity and competition, helping put pressure on all countries to adhere to improved standards.

Leading efforts to update legislation: At the time of this writing, the Biden administration is convening an Interagency Working Group on Mining Regulations, Laws, and Permitting, which will provide recommendations to Congress on how to reform mining law to include provisions that protect the environment, involve local communities, and reduce the time, cost, and risk of mine permitting. Likewise, the Initiative for Responsible Mining Assurance (IRMA), has provided recommendations to the Department of State’s Clean Energy Resources Advisory Committee regarding what should be included in these updates. The US Department of State’s Minerals Security Partnership has also recently announced principles marking a public commitment to full integration of environmental, social, and governance standards into its work.

Improving EV supply chain transparency: “Battery passports” can help manufacturers certify where battery minerals are sourced and verify that these sources are following globally recognized ethical practices.

Convening stakeholders to drive action. IRMA brings together industry, affected communities, governments, and others to provide an independent third-party verification and certification against a comprehensive standard for all mined materials that provides “one-stop coverage” of the full range of issues related to the impacts of industrial-scale mines.

Automakers are also making commitments to ensure that materials are ethically sourced. For instance, Ford requests that suppliers source raw mined materials from entities committed to and/or certified by IRMA.

Although the upstream portion of the EV battery supply chain faces many challenges, we can address them with investment, improved laws and regulations, and public awareness. These steps will help ensure that we have the batteries we need for an electrified transportation future without harming people or the planet.

Midstream

Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials. Commodity traders buy and sell materials to producers who then assemble battery cells.

The “midstream” portion of the EV battery supply chain has the power to improve supply chain traceability, a practice in which products are tracked from their source to the consumer. Since companies participating in the midstream portion of the EV battery supply chain are the ones that interact most directly with upstream actors, they are essential to improving traceability and ensuring that materials are ethically sourced.

Another issue that has garnered some attention is the fact that EV battery manufacturing is concentrated in a handful of countries, raising concerns that supply chains could be vulnerable to geopolitical shocks or trade wars.

Many also believe that American communities are missing out on the economic opportunities associated with the energy transition. This issue has been the subject of congressional action and is reflected in recent legislation such as the Inflation Reduction Act, which includes provisions that require that a certain percentage of EV battery minerals be extracted and processed in the United States or a country with which the United States has a free-trade agreement (FTA).

To help you understand these issues and what’s being done to address them, we’ve provided a definition of midstream activities and compiled a list of answers to common questions regarding these activities.

What is the “midstream” portion of the EV battery supply chain?

After mines extract raw materials (the upstream portion of the EV battery supply chain), they are sent to facilities where they are processed, refined, and assembled into battery cells.

Processing involves removing unneeded materials from the minerals. Refining involves working with these processed materials to achieve a purity level that makes them suitable for use in many products, including batteries. Manufacturers then use these materials to make anode and cathode electrodes that are placed into battery cells, which store energy.*

After the midstream products are ready, manufacturers combine them into large battery packs and place them in EVs. These last two steps are part of the “downstream” portion of the EV battery supply chain, described below.

*(It’s important to note that there is no single industry consensus on whether battery cell manufacturing belongs to the midstream or downstream portion of the EV supply chain. RMI considers cell manufacturing part of the midstream portion.)

Where do the processing, refining, and battery cell steps take place?

Like the upstream portion of the EV battery supply chain, the midstream portion is concentrated in a small number of countries, mostly outside of the United States.

Asia dominates the midstream portion: according to BloombergNEF, China, South Korea, and Japan are the world’s three top battery manufacturing countries, with China dominating.

China produces three-quarters of all lithium-ion batteries and 70 percent of cathode capacity and processes and refines more than half of the world’s lithium, cobalt, and graphite. It is the leading refiner of battery metals globally and currently hosts 75 percent of all battery cell manufacturing capacity, 90 percent of anode and electrolyte production, and 60 percent of the world’s battery component manufacturing.

The next two countries on the list, South Korea and Japan, are responsible for significantly less battery production (South Korea produces 15 percent of the world’s cathode electrodes and 3 percent of its anode electrodes; Japan accounts for 14 percent and 11 percent, respectively).

How strong is the United States midstream?

The United States is currently not a midstream leader; however, its midstream capacity is growing quickly, driven in part by the Advanced Manufacturing Production Credit (45X) which offers up to $45 per KWh of battery capacity and has the potential to strengthen the US midstream sector.

The United States also has existing competitive advantages in automotive manufacturing that it can use to compete in the global EV supply chain, helping to leverage the economic benefits of transport decarbonization. As noted above, legislation like the IRA will help — it requires that to be eligible for a vehicle tax credit, a growing percentage of an EV’s battery metal value must be extracted or processed in the United States or in a partner country with an FTA.

Under this last provision, eligible countries like Australia, which supplies about 60 percent of the world’s lithium and has an existing FTA, would qualify; Indonesia, estimated to account for 37 percent of global nickel production, would not. Guidance released by the US Treasury in March also proposes a set of principles for identifying the countries with which the United States has an FTA in effect; this term could include newly negotiated critical mineral agreements. For example, Japan signed a critical mineral agreement in March with the United States, allowing the Treasury to add that country to its list of approved suppliers.

These dynamics, easily lost in the legislative fine print, will become major forces in shaping the geography of battery production in the coming decades.

Why is geographic diversity important in the midstream portion of the EV battery supply chain?

If the battery supply chain, or portions of it, are concentrated in just a few countries or regions, the global battery supply chain will suffer should any of these places be faced with disruptions like natural disasters, geopolitics, or changing trade alliances.

Some observers have suggested that efforts to boost local production capacity implies that every country should strive to dominate all portions of the EV battery supply chain. Not only is this domination impossible, it’s also undesirable.

That’s why it’s important that more countries, including the United States, work on strengthening their EV battery supply chains; if they do, global EV battery production will be better able to weather these disruptions.

How can the midstream portion of the EV battery supply chain help address human and environmental injustice?

Consumers and automakers are increasingly concerned with how the materials that go into EV batteries are extracted. They don’t want their EVs to be powered by minerals obtained through slave labor or mining practices that destroy local environments. But due to the opacity of EV battery supply chains, it’s very difficult for them to find out whether their batteries are responsibly sourced.

Midstream actors are uniquely positioned to address the human rights abuses and environmental degradation associated with the upstream (mining) portion of the supply chain (you can read more about these issues in the section above). As mentioned at the top of this article, companies that process and refine the minerals that go into EV batteries interact most directly with those that extract these minerals, which means that they have purchasing power. If those involved in the midstream portion of the supply chain had to follow strong due diligence procedures and were subject to robust audits, they could avoid buying materials from companies with questionable or downright unethical mining practices. Mines would be forced to improve or else face significant financial losses. Also, industry leaders could benefit from investing in responsible production in the same way fairtrade coffee sells at a premium.

As we note above and in another article, improving supply chain traceability would go a long way in ensuring that EV battery minerals are ethically sourced. Technology can replace current paper trails with online systems that will provide companies and regulators with an easier way to track, audit, and improve their supply chains — but any technology is only as effective as its stakeholder participation on the platform.

What efforts are underway to improve EV battery supply chain traceability?

“Battery passports” that track where and how battery minerals are sourced may also help improve the supply chain’s transparency. They would serve as a battery’s digital twin, which follows the physical battery as it makes its way from mineral extraction to placement in the vehicle.

Legislation could also improve battery traceability. The European Council recently adopted a new rule requiring companies to conduct due diligence along their entire supply chain. But in order to succeed, legislative efforts will need buy-in from diverse levels of stakeholders, including national and subnational governments and private sector leaders. Past efforts to improve sourcing, such as the United States’ Conflict Minerals Rule, have mostly foundered. Traceable, ethical supply chains remain an elusive but essential component of the energy transition.

Consumer demand, investor pressure, regulatory improvements, and responsible business practices all have a critical role to play in ensuring secure and ethical supply chains for EV batteries.

Downstream

Battery manufacturers assemble the battery cells into modules and then packs and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.

What is the “downstream” portion of the EV battery supply chain?

The downstream portion of the EV battery supply chain involves the assembly of battery cells into modules and then packs before placing finished batteries into EVs. (To learn more about how EV batteries work and how they’re made, read “EV Batteries 101: The Basics.”)

To make a battery module, manufacturers stack battery cells in series or in parallel in a metal frame that protects the cells from the shocks and vibrations that come with driving. Modules house several battery cells, ranging from fewer than 10 to several hundred, depending on the cell type and vehicle range.

These battery modules are then placed into a battery pack. In addition to battery modules, the battery pack includes other components that protect the battery and help it operate within an EV. All of these components are housed in a structure to protect the battery from water, salt, and other outside elements that can damage the battery as a whole. These batteries are then sent to automakers who place them into EVs.

Where do downstream activities take place?

Chinese, South Korean, and Japanese companies dominate global battery manufacturing; together, these countries accounted for nearly 70 percent of the battery market in . The top three companies were China’s CATL (33 percent), South Korea’s LG Energy Solution (22 percent), and Japan’s Panasonic (15 percent). China’s dominance has been attributed to its prioritization and investment in battery manufacturing, while South Korea’s and Japan’s rankings have been influenced by strategically building on their extensive experience and expertise in manufacturing consumer electronics.

How strong is the US downstream sector?

While the supply chain will remain global, North America is poised to become the second-largest player in the battery production market thanks to its efforts to strengthen local supply chains and increase investments in domestic assembly, according to a report from consulting firm LEK.

Today, the United States is responsible for only 7 percent of the world’s battery production capacity. As with the midstream portion of the supply chain, the Advanced Manufacturing Production Credit (45X), which offers up to $45 per KWh of battery capacity, is expected to strengthen the US downstream sector.

The current 72 GWh of battery manufacturing capacity in the United States — which includes midstream and downstream operations — could grow to over 1,000 GWh in just the next two years, as recent announcements and facilities currently under construction come online.

There are many reasons the United States is increasing its domestic investments in the downstream portion of the EV battery supply chain; chief among them is a desire to reduce reliance on overseas suppliers in certain nations, particularly China. By diversifying the supply chain for EVs and the batteries that power them, automakers will be able to endure disruptions in global supply chains and meet increasing domestic and foreign demand. They’ll also be better able to meet their ambitious climate goals and mitigate human rights and environmental abuses associated with mining.

How will American communities benefit from stronger domestic supply chains?

A stronger domestic supply chain translates to well-paying, in-demand jobs for workers in diverse fields ranging from mining to engineering to manufacturing, which in turn results in healthier, robust economies.

Federal legislation like the Inflation Reduction Act and the Infrastructure Investments and Jobs Act are already moving the needle. These two laws provide at least $83 billion in loans, grants, and tax credits that could support the production of low- or zero-emission vehicles, batteries, or chargers, according to an analysis from Atlas Public Policy (APP). RMI estimates that if the United States were to deploy EVs at the speed required to meet net-zero targets, this spending could reach over $200 billion since key tax credits have no upper spending limit.

In response to government investments and regulations, automakers are also upping their investments in EV production, confident that funding and demand will continue to grow. The APP analysis notes that US-based companies, led by Ford, General Motors, Tesla, and Stellantis, have announced that they will invest more than $173 billion in the transition to EVs.

Another significant market shift is increased partnership between automakers and battery manufacturers. For example, Ford is working on diversifying its raw material suppliers and General Motors and LG have partnered to co-locate battery pack and cell production; at the time of this writing, they have one active plant in Ohio and have plans to open two others in Tennessee and Michigan. Some are planning to create manufacturing facilities that house both battery and EV plants, while other downstream manufacturers are creating contracts that enable them to source directly from responsible mines.

Other countries and regions are also working on improving their domestic EV battery supply chains. The European Union has announced ambitious plans to strengthen regional EV production while Indonesia and Thailand aim to become regional market leaders by taking advantage of the fact that they already serve as important vehicle manufacturing hubs for global markets as well as rich upstream mineral and metal supplies.

How can downstream actors mitigate human rights and environmental abuses?

While downstream influence is limited by the current supply of the minerals that go into EV batteries, battery manufacturers and automakers still have considerable influence in improving the EV battery supply chain for one simple reason — downstream actors can influence responsible mining practices in the same way coffee shops can influence responsible coffee farming.

Consumers and automakers are concerned about human rights and environmental abuses and are therefore applying increasing pressure on upstream actors to improve their mining practices. This pressure has resulted in corporate commitments to implement stronger policies to protect local communities, workers, and the environment.

Increasingly, companies, including automakers, will demand to see auditable information showing where critical minerals like nickel and cobalt come from. To date, these systems are just beginning to take shape, led by a handful of enterprising firms and technology startups. Coupled with robust domestic legislation and regulations as well as internationally harmonized policies governing EV battery supply chains, negative impacts associated with the supply chains could decrease.

Moving Forward

It’s an exciting time for transportation electrification, a movement that gains momentum daily. As we collectively work toward decarbonizing the way people and goods move, it’s important that governments, policymakers, the private and public sectors, and communities understand the EV battery value chain so we can effectively address its challenges while also realizing electrification’s economic, health, and environmental potential.

If you want to learn more, please visit our website Battery PACK Manufacturing.