Aug. 28, 2023, 7:30 PM

US Battery Hype Spurred by Climate Law Faces Hurdles From China

Daniel Moore

Reporter

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• Tax credits, agency grants boost US battery supply chain
• Battery projects hinge on moving away from China

US battery projects have proliferated since the Inflation Reduction Act was enacted one year ago, outpacing other clean energy technologies encouraged by the climate-and-tax law and spotlighting a heavy lift of shifting supply chains from China.

Since August of 2022, when President Joe Biden signed the law, BloombergNEF has tracked $72 billion of announcements by automakers, battery manufacturers, and other stakeholders in the electric vehicle supply chain. That includes nearly $55 billion for battery-related projects.

While the industry’s supporters celebrate the progress, they acknowledge the scale of the investment represents the daunting challenge of turning the hype into reality.

Much of the battery supply chain is dominated by China, and the US battery plants sprouting up to supply electric vehicle manufacturing and power grid storage are weighing cheaper costs of imported materials while signing deals with US producers.

“Now is this incredible opportunity in time in our industry,” said Chris Burns, co-founder and CEO of NOVONIX, an Australia-based battery technology firm building a 400,000-square-foot synthetic graphite production facility in Chattanooga, Tenn.

The NOVONIX plant, expected to begin operation next year, will produce at least 10,000 metric tons per year of synthetic graphite for battery cell company Kore Power, and the company’s US workforce has grown to 120 people. It plans to finalize a $150 million grant from the Department of Energy to help pay for a new plant in the Southeast that will initially target 30,000 metric tons per year of production capacity for LG Energy Solution with an option for LGES to buy up to 50,000 tons of the material over a 10-year period.

Graphite is an essential material for anodes in lithium-ion batteries, but production is dominated by China. The US funding and permitting regime means production is still being deployed slower than China, which continues to build graphite facilities in one year that are five times bigger and half the cost of those in the US, Burns said.

“We have huge challenges competing with China because of the maturity of their industry, as well as their ability to deploy capital very quickly,” Burns said.

Leveling the Playing Field

The Biden administration and bipartisan members of Congress have sought to level the playing field between the US and China. The battery supply chain spans mineral mining, refining and processing, production of components like cathodes and anodes, and final battery assembly.

In 2021, the Infrastructure Investment and Jobs Act allocated $7 billion to the Energy Department to award grants to companies throughout the battery supply chain. In October 2022, the agency announced $2.8 billion for nearly two dozen companies, including NOVONIX. The DOE plans to announce the second round of funding awards before the end of the summer.

The climate law, enacted in August 2022, included the 30D electric vehicle tax credit for batteries that are assembled in North America and for batteries that source a certain percentage of critical minerals from the US or trade allies. The minimum percentage increases annually to 100% and 80%, respectively, by fiscal year 2029.

This month, the White House reported the US share of global battery manufacturing capacity is projected to almost double by 2030 and have enough capacity to meet US demand for EV batteries.

The climate law was designed to spur companies to invest, and “it’s quite clear it’s working, just based on the sheer number of deals we’re seeing,” said Lauren Collins, a tax and renewables partner at Vinson & Elkins LLP, referring to energy investment broadly. “It seems like every day we’re getting a term sheet or a tax credit transfer deal.”

Targeting Gaps

The DOE’s battery supply chain program has tried to surgically aid companies aiming to fill supply chain gaps, Steven Boyd, the agency’s acting deputy director for battery and critical materials said in an interview. The US has some of the lowest capabilities in processing materials, such as lithium, nickel, and cobalt, as well as graphite and cathode materials needed for batteries, Boyd said.

“Those earlier-stage types of materials and those processing capabilities, that’s really where we think the investments have moved the bar,” Boyd said.

The second round of funding, expected to be about $3.2 billion, will be announced later this summer and could target electrolytes and binders for cells. “As a supply chain, you’re only as strong as your weakest link,” he said.

Some materials buyers in the auto sector remain concerned about higher prices of inputs made in the US and some trade allies compared with China, said Todd Malan, chief external affairs officer and head of climate strategy for Talon Metals Corp.

Talon operates a nickel-copper-cobalt mine in Minnesota and received a $114 million grant from the Energy Department to build a processing facility in North Dakota, covering about 27% of the total cost. Malan also pointed to the 45X Advanced Manufacturing Tax Credit that provides 10% production tax credit for supply chain companies.

“There’s a lot in these laws that have yet to be fully rolled out that will be even more resources to support an ex-China supply chain,” Malan said. “There’s really strong policy, really strong financial support, and we’re seeing a private sector response.”

Policy Decisions

Major policy decisions still have to be made, including how to treat companies that have had experience with China, said Ben Steinberg, executive vice president and co-chair of Venn Strategies’ critical infrastructure group and a former Energy Department official.

The government must also precisely deploy trade barriers to allow the US industry to grow without raising costs for producers down the supply chain. A 25% tariff on imported graphite, for example, has been waived for years to keep costs competitive, but now companies like NOVONIX are ramping up.

“A large majority of these gigafactories will happen in some capacity,” Steinberg said, using a shorthand for large-scale battery factories.

“The question remains whether we will be importing a majority of the materials and the components that make these batteries for electric vehicles and the grid, which is what we’re doing now,” Steinberg said.

To contact the reporter on this story: Daniel Moore in Washington at [email protected]

To contact the editors responsible for this story: Zachary Sherwood at [email protected]; JoVona Taylor at [email protected]