If all goes according to President Joe Biden’s plans, in 2030 half the Americans buying new cars will choose an electric vehicle — a giant leap from just 2 percent in 2020. This lofty goal is a climate imperative — transportation is now the biggest source of U.S. carbon emissions — and it’s an economic imperative, too. The Biden administration sees it as a critical opportunity for American automakers to capitalize on the transition to clean energy.
But the U.S. is arriving late to the race. Over the past decade, China has deftly maneuvered to dominate the electric vehicle supply chain, particularly when it comes to these cars’ core component: lithium-ion batteries.
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Ubiquitous in the modern economy from cellphones to laptops, lithium-ion batteries are now hot commodities on a larger scale. As countries strive to meet the 2015 Paris Agreement climate targets, the International Energy Agency projects skyrocketing global demand for electric-vehicle-sized lithium-ion batteries — a twentyfold jump in the next decade.
Chinese companies are poised to meet that surge in demand. In 2021, more than 3 million electric cars were sold in China — making it the largest market for the vehicles — and the country’s battery industry is growing exponentially to keep pace. Once a laggard, China’s share of global lithium-ion battery production capacity was 76 percent in 2020; the U.S. share? A mere 8 percent.
Meanwhile, global markets offer a stark picture of the competition: The price of lithium carbonate, one of the main raw materials used in batteries, jumped by nearly 500 percent last year, and a recent Bloomberg New Energy Finance report projects 2022 will see the first increase in lithium battery prices in a decade.
All this is playing out against a backdrop of historically high U.S.-China tensions. Billy Wu, a battery engineer and senior lecturer at Imperial College London, told Grid that U.S. policymakers are starting to realize when it comes to batteries, “if you have no native producers, then you will ultimately be at the whim of China.”
From the perspectives of the U.S.-China relationship, climate, the U.S. economy and the American car industry in particular, it all adds up to an urgent message: The U.S. needs to ramp up its own battery business — and do it fast.
How China passed everyone else in the battery race
You might call Zeng Yuqun the poster child for China’s lithium battery boom. Zeng may not be a global household name, but last summer he surpassed Alibaba founder Jack Ma to become the fourth-richest person in China. And a net worth of nearly $50 billion lands Zeng on the list of the top 30 richest people in the world. He is the founder of Contemporary Amperex Technology Co. Ltd, better known as CATL — the world’s largest lithium-ion battery producer.
Zeng’s company, CATL, along with several other Chinese battery manufacturers, has enjoyed a meteoric rise in recent years. While lithium-ion battery technology was invented by British, American and Japanese scientists in the 1970s and ‘80s and commercialized by Sony, China has leapfrogged other countries and become the world’s new battery production capital, part of its quest to be the global leader in electric vehicle manufacturing.
China has poured money into the effort. Over the past decade, the Chinese government has provided more than $100 billion to the “new energy” vehicle industry (which includes electric and hydrogen fuel cell vehicles), according to the Center for Strategic and International Studies. The support has come mostly in the form of generous subsidies and tax rebates for buyers.
“In the traditional automobile industry, China lagged behind the U.S. and Europe for decades,” said Albert Qi Li, a China-based analyst for Benchmark Mineral Intelligence. “In the EV industry, however, every country is on the same starting line. China saw this opportunity and acted quickly.”
The Chinese government didn’t stop at funding for the cars themselves; as early as 2012, the government provided $214 million in electric vehicle research funding primarily for battery technologies, along with tax breaks for factory land, according to Tu Le, the founder of Sino Auto Insights, a consultancy firm.
At the same time, China blocked foreign competition. According to the Center for Strategic and International Studies, starting in 2015, the government created a list of batteries that Chinese electric vehicle manufacturers could use if they wanted to be eligible for subsidies; the list excluded Korean and Japanese battery incumbents.
Taken together, the largesse of the state and sheer manufacturing prowess of Chinese battery companies have propelled the nation to the head of the field. In 2012, Chinese companies supplied lithium-ion batteries for just 10 percent of the electric vehicles sold worldwide; by 2019, the figure was roughly 50 percent.
Chinese companies — often backed by the government — have also been strategic about securing mineral supplies for batteries. Lithium is mined predominantly in Australia and Chile, and Chinese companies have invested in these countries to gain access. CATL also received over $100 million in loans from state-owned banks to establish its lithium supply chain in China’s western Qinghai province, the New York Times recently reported. Similarly, cobalt, another important battery ingredient, is produced almost exclusively in the Democratic Republic of the Congo; a New York Times investigation found that 15 of that country’s 19 cobalt mines were owned or financed by Chinese companies, backed by billions from state-run banks.
Chinese dominance in the supply chain is even clearer at the refining stage: Bloomberg New Energy Finance research shows that Chinese companies are responsible for 80 percent of global battery raw material processing.
In short, China has built a wide-ranging lithium battery strategy over the past decade and executed that strategy to powerful effect. “The policies allowed them to build the foundations of an electric vehicle supply chain,” Li told Grid. “Now they are leveraging that position to become a global power.”
The U.S. plays catch-up
One of the primary reasons why the U.S. battery industry has fallen behind is that Americans aren’t buying enough electric vehicles. EVs remain more expensive than conventional cars, and Washington hasn’t offered customers subsidies at the same level as China. As a result, U.S. automakers haven’t seen as much demand for batteries.
That demand is expected to rise as more American drivers make the switch to electric cars and the Biden administration delivers on its own strategy for growing green technology. But at this critical moment, the U.S.-made battery supply is expected to fall short. Benchmark Mineral Intelligence estimates that, by the end of the decade, domestic factories will be able to provide batteries for only half the electric vehicles sold in the U.S.
That shortage and China’s now-dominant position up and down the electric vehicle supply chain have set off alarm bells in Washington. In June, federal agencies released a comprehensive plan for lithium-ion battery development over the coming decade, urging the government to take decisive action to prop up U.S. production.
That plan — titled “National Blueprint for Lithium Batteries” — argued that government support for American battery manufacturers is critical not just for the green-tech sector, but for the future of the U.S. economy writ large. Among the report’s conclusions: “Capturing this market is imperative for the future viability of the U.S. auto industry, which historically has contributed 5.5% of the total U.S. gross domestic product.”
The authors went further, suggesting that the United States’ relatively weak position presents a geopolitical and military threat. With lithium refining and battery components so heavily controlled by Chinese companies, the U.S. electric vehicle supply could prove vulnerable to future trade spats; and as the U.S. military goes electric to lower its carbon footprint, ensuring a domestic battery supply chain becomes a national security priority.
“It does not help to make the batteries here,” said Sam Jaffe, a vice president at E Source, a utility research firm, “if someone can shut off our supply of lithium or nickel or cobalt. So having the upstream supply chain all the way from the mine to the refinery to the process chemical manufacturer to the battery factory is extremely critical.”
Facing all these challenges, the U.S. has begun to involve itself more directly in the industry — not unlike the Chinese approach. The first major government interventions have come via the bipartisan infrastructure legislation passed in Congress last fall. The infrastructure package allocated $6 billion in the form of Department of Energy loans and grants to the battery industry, including for materials refining, manufacturing and recycling projects. By funding the construction of a national electric vehicle charging network, the legislation could also help boost electric car demand, and battery production in turn.
In addition, Biden’s Build Back Better package could provide an expanded tax credit to U.S. customers who buy EVs. The credit would start at $7,500 for most plug-in electric vehicles but increase to $12,000 for a car built domestically with union labor; another $500 would be tacked on for a car built with domestically produced battery cells.
“Even though it’s a relatively small number,” said Jaffe, “it’s enough to make the car manufacturers definitely want to buy batteries made in the U.S.”
This federal push to keep battery production domestic is part of a broader reckoning about China’s ascendance. And it’s a rare bipartisan effort. Policymakers on both sides of the aisle have embraced elements of the Chinese government’s economic strategy to compete with China’s increasingly advanced technologies. The shift was clear in the Senate’s passage of a bipartisan bill in June, which aims to provide billions of dollars in funding to help the U.S. stay competitive in critical technologies such as semiconductors.
“China is in a very different place than it was a decade ago,” Brian Deese, director of Biden Administration’s National Economic Council, told the New York Times in April. “We are in a different place vis-à-vis our international competitors. And my openness to more targeted efforts to try to build domestic industrial strength — the things that people in prior eras would demean or mock as industrial policy — has increased, because I think we are not operating on a level playing field.”
But despite the agreement on the need for industrial policy to counter China, U.S. politicians haven’t fully delivered on the rhetoric. The Build Back Better legislation is in jeopardy, hampering the Biden administration’s efforts to propel the U.S. electric vehicle and battery industries.
What next in the U.S.-China battery race?
What are the U.S. chances in this high-stakes game of industrial catch-up? Venkat Srinivasan, who leads energy storage research at the Department of Energy’s Argonne National Laboratory, sees hope for American companies. The lab is hosting a new public-private initiative to ramp up U.S. battery research and production, and recently, major U.S. auto companies have rolled out some big battery plans. Ford announced it will build three sprawling battery plants in Kentucky and Tennessee with Korean partner SK Innovation.
Srinivasan notes one factor likely to drive car companies to boost domestic production: Shipping hefty batteries is expensive. “So while imports are going to be part of the mix,” Srinivasan told Grid, “in the long term, much like manufacturing of cars, expect to see distributed manufacturing located close to where the markets are.”
Still, experts say it is unlikely the U.S. will scale its battery production fast enough to match lofty electric vehicle targets. Benchmark Mineral Intelligence forecasts that by 2025 the U.S. share of battery manufacturing will rise, but only slightly — from 8 to 9 percent.
Currently, most U.S. electric vehicle battery imports come from Japan and South Korea, but Jaffe said the U.S. might also import from China going forward. Meanwhile, further up the supply chain, the U.S. and other countries will likely remain dependent on Chinese companies; it will take years for new U.S. mines and chemical processing plants to get approved and come online.
One silver lining for the U.S.: The broader tech supply route isn’t a one-way street. In the most profound example, China imports more than $300 billion of semiconductors — a staggering figure — and the global industry relies on equipment from the U.S. and its allies. As EVs become increasingly high-tech, semiconductors have become a critical component. “All you hear in China is how the U.S. controls these core technologies like chips,” said An Feng, director of Innovation Center for Energy and Transportation, a U.S.- and China-based nonprofit. “They rely so heavily on each other.”
As electric car sales in China and the U.S. rise in the coming years, and raw material supplies tighten, it remains to be seen whether either side will leverage its advantage in future trade disputes. But the risks alone — and the urgent U.S. policy response — reflect the complexity of pursuing aggressive climate goals at a time of such high U.S.-China friction. When it comes to this critical piece of the clean energy puzzle, the U.S. will remain behind for years to come in a race that China started running a decade ago.