To compete in the global battery arms race, the US must spur its domestic market, analysts say

Spurred by increased global demand for electric vehicles (EVs), energy storage systems and consumer electronics, lithium-ion batteries have become invaluable in today's global society. And while China recognized early on the importance of establishing a manufacturing base, the U.S. failed to take a similar approach.

The result of those decisions is market dominance on one side and a heavy dependency on imports on the other. To close America's gap in the battery production sector, industry experts told Utility Dive that having a reliable domestic market driven by government incentives is key to challenge China's superiority.

"We are in the midst of a global battery arms race in which the U.S. is presently a bystander," Simon Moores, managing director at Benchmark Mineral Intelligence, said in his written testimony before the Senate Committee on Energy and Natural Resources Committee on Feb. 5.

"The Chinese have really captured control and dominance in lithium-ion manufacturing and may well be on their way to grab control of the leading position on the technology side as well."

James Greenberger

Executive Director, NAATBatt International

China currently controls about two-thirds of the global lithium cell production capacity, a figure that is estimated to grow to 73% by 2021, according to BloombergNEF. In comparison, the U.S. controls only 13% of the global capacity, with no growth expected.

"The Chinese have really captured control and dominance in lithium-ion manufacturing and may well be on their way to grab control of the leading position on the technology side as well," James Greenberger, executive director of trade organization NAATBatt International, told Utility Dive. "They went out and they decided that in order to have a robust manufacturing sector in lithium ion, they had to first have a robust domestic market for lithium-ion battery products. And that's what they did. They went out, and they essentially subsidized that market."

The Chinese government offered generous incentives to boost EV adoption, used procurement policies to put more than 400,000 electric buses on its road and dished out subsidies to domestic battery manufacturers, enabling them to scale as the market grows, Greenberger said.

To understand the magnitude of the China's investment in its domestic battery market, you simply have to take a look at its EV subsidies. At an average subsidy of $10,000 per vehicle and 770,000 sold EVs, China's central and local governments spent a total of $7.7 billion on EV subsidies in 2017 alone.

"It's essentially a self-reinforcing system, whereby China is able to get its manufacturers to scale by subsidizing a domestic market for lithium ion. They've used that market to create opportunities for the manufacturers that are not available in North America or the EU or really anywhere else in the in the world," Greenberger said.

Free market approach

The U.S. administration on the other hand has not taken the position to subsidize battery manufacturing by requiring the purchase of domestically produced batteries, Daniel Simmons, assistant secretary in the Office of Energy Efficiency and Renewable Energy at the U.S. Department of Energy, told Utility Dive.

"The federal government takes the free market approach, while various states are working on various incentives or additional incentives for electric vehicles," he said.

And even though China is about to reduce its EV subsidies, the country's battery production continues to grow. Benchmark Mineral Intelligence said it is tracking 70 lithium-ion battery megafactories under construction across four continents — 46 of which are based in China and only five are planned for the U.S.

"The key to getting a robust North American manufacturing base in lithium ion is that we've got to have a very robust North American market for lithium-ion battery products. And today, we just don't."

James Greenberger

Executive Director, NAATBatt International

In less than two years — between October 2017 and February 2019 — the planned global lithium-ion battery capacity in the pipeline for the period 2019-2028 has risen from 289 GWh to 1,549 GWh, Benchmark Mineral said. This expanded capacity is the equivalent of 23-24 million sedan-sized electric vehicles.

EV sales figures are considered to be a good indicator for battery demand in a respective market — when China sold 770,000 EVs in 2017, the U.S. market failed to break even 200,000 sales.

"If the [electric vehicle] market takes off … you can very easily see much more battery production coming into the United States," Simmons said. "If the demand is in the United States, there's going to be a lot more production in the United States. If electric vehicle production and sales continue to lag, then it's going to be a challenge."

The global lithium-ion battery market size is estimated to hit $105 billion by 2025, according to Adroit Market Research.

Energy minerals

Lower labor costs are often the reason manufacturers go to Asia, but this is not the case when it comes to battery production.

"Battery facilities are highly automated, which is helpful to the U.S. in that it means battery costs are not necessarily driven by labor costs," Simmons said. "The United States has, obviously, high labor costs, but because so much is highly automated, the U.S. can be very competitive in this area."

The ongoing trade dispute between Washington and Beijing has also led to concern over supply disruption.

"Those who control these critical raw materials and those who possess the manufacturing and processing know-how will hold the balance of industrial power in the 21st century auto and energy storage industries,"

Simon Moores

Managing Director, Benchmark Mineral Intelligence

The U.S. Department of State last week issued a fact sheet related to its Energy Resource Governance Initiative (ERGI). Part of ERGI's strategy is to reduce risk of supply disruptions, which could have critical impacts on those evolving clean energy technologies, by eroding China's dominance in supplying rare earth elements.

Materials and elements commonly used in batteries such as lithium, cobalt, nickel and manganese are almost exclusively processed in China.

"Over 80 percent of the global supply chain of rare earth elements, important minerals for electric vehicles and wind turbine components, is controlled by one country," the department said in its fact sheet.

China is home to at least 85% of the world's capacity to process rare earth ores into materials that can be used in the production of batteries and other products, according to research firm Adams Intelligence.

Solving the recycling challenge

One way to disrupt China's stronghold on the processing of energy minerals could be recycling.

Even though the United States possesses critical minerals, the growth of battery storage and EVs, will require more sources than the ones domestically available, George Crabtree, director at Argonne National Laboratory's Joint Center for Energy Storage Research, told the Senate Energy and Natural Resources Committee June 4.

Currently, lithium-ion batteries are collected and recycled at a rate of less than 5%, according to the DOE. To increase the recycling rate, the department earlier this year launched Recycling Prize and R&D Center is to develop technologies to profitably capture 90% of all lithium-based battery technologies in the United States for eventual recycling.

"DOE estimates that recycled material could potentially provide one-third of our cathode material needs for lithium-ion batteries by 2025," according to a DOE official.

Critical energy minerals, such as lithium, copper and cobalt, could increase almost 1,000% by 2050, which is expected to strain the capacity of many countries to increase supply, according to the DOE fact sheet.

"America's dependence on foreign sources of critical materials undermines our energy security and national security," Energy Secretary Rick Perry said in a statement in January.