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If it sounds like a familiar tune, it is.

In our post last year about the status of semiconductor supply, we cited a White House Fact Sheet about the CHIPS and Science Act which included some disturbing statistics: “America invented the semiconductor, but today produces about 10 percent of the world’s supply—and none of the most advanced chips. Instead, we rely on East Asia for 75 percent of global production.”

A recently released report described a similarly disturbing trend about the lithium battery supply chain: “Although U.S. scientists originally invented lithium battery technology, the United States and U.S. companies today find themselves at least a decade behind in this critically important industrial sector.”

That’s from Building a Robust and Resilient U.S. Lithium Battery Supply Chain, a Li-Bridge report released in mid-February. Li-Bridge is a project created in early 2022 by the U.S. Department of Energy (DOE) when it “identified and brought together the leading experts in lithium battery technology from across the U.S. industry…” to “develop a strategy for establishing a robust and sustainable supply chain for lithium battery technology in North America.”

In this first post of our series, we’ll dig into the U.S. lithium battery supply chain problem as described by Li-Bridge—as well as key takeaways and challenges.

The Problem

Li-Bridge says the rapid growth in lithium battery demand is primarily related to the growing adoption of electric vehicles (EVs) and energy storage systems (ESSs) on the electrical grid—and that despite the “massive growth” in the demand for lithium batteries that’s predicted by 2030, it appears the U.S. will remain “highly import-dependent.”

“The United States relies (and, without intervention, will continue to rely) on a global lithium battery supply chain that is highly vulnerable to disruption,” the report says, noting that two issues are creating this vulnerability:

  • Concentrated global manufacturing capacity for batteries and battery materials: “China controls the largest global capacity share: >75% of cell production, >70% of processed energy material production, and >60% of energy materials purification and refinement.”

  • A limited supply of essential raw materials: “…several raw minerals essential to batteries (particularly lithium, nickel, and copper) are forecasted to be in short supply globally over the next decade as demand grows faster than extraction capacity. Global competitors have spent the last decade buying up much of this limited supply.”

Five Key Takeaways

After ten months of consultation and study, Li-Bridge arrived at five key takeaways related to the growing role of lithium batteries and the status of the U.S. lithium battery supply chain:

  • A key technology of the 21st century: “…Lithium batteries will power the majority of vehicles manufactured over the next 50 years and will be essential to military systems, power grids (which are increasingly reliant on variable, renewable energy), and all manner of consumer, medical, and industrial electronics.”

  • The U.S. has fallen behind: “Certain economic competitors of the United States recognized the importance of lithium battery technology nearly 20 years ago. Those competitors have invested heavily in it ever since. Although U.S. scientists originally invented lithium battery technology, the United States and U.S. companies today find themselves at least a decade behind in this critically important industrial sector. Key deficiencies are in manufacturing know-how and access to both raw and refined energy materials.”

  • America lags in lithium battery production: “U.S. companies today play only a minor role in the domestic and international markets for lithium battery production. The market for lithium battery cells in the U.S. is growing rapidly and expected to reach $55 billion per year by 2030. Yet it is estimated that under current conditions U.S. companies and U.S. workers will capture less than 30% of the value of cells consumed domestically.”

  • A threat to national security: “The lack of a substantial lithium battery supply chain in the United States and the lack of secure access to energy materials pose serious threats to U.S. national and economic security. These threats will not only inhibit the manufacture of lithium batteries in the United States but will stymie the development and growth of the many downstream industries that design, manufacture, and operate products powered by lithium batteries. …”

  • Urgent action required: “Building a robust and sustainable lithium battery manufacturing base in the United States will require addressing a number of challenges that have depressed investment in the domestic lithium battery supply chain to date. It will also need to respond to the aggressive actions of competing nations that recognized the importance of lithium battery technology early on.”

Eight Key Challenges Holding the U.S. Back

Li-Bridge identified eight key challenges inhibiting the development of “a robust and sustainable lithium battery supply chain in the U.S.” and underscored the first three as the most significant.

  • Insufficient Return on Investment on Long-Term Projects. “U.S.-based projects related to the lithium battery supply chain have historically had difficulty meeting the internal rate of return (IRR) and payback period requirements of U.S. investors. …”

  • Lengthy and uncertain timelines to secure permits and project approval, especially upstream. “Li-Bridge participants report highly unpredictable timelines for securing permits and approvals in the United States relative to much of the rest of the developed world,” and note that this is especially true for critical mineral projects.

  • Lack of access to critical minerals and raw and processed energy materials. “Several Li-Bridge participants anticipate a worldwide shortfall in supplies of critical minerals and energy materials within a four-to-twelve-year time frame (before new foreign and domestic sources of supply can be brought online). …”

  • Insufficient benefits for customers (OEMs) to “buy local” and pay more for U.S.-made intermediates. “Li-Bridge participants believe that without changes to U.S. government policies, U.S.-based battery makers and original equipment manufacturers (OEMs) will largely choose to import intermediate materials from outside the United States in order to take advantage of their lower landed costs. …”

  • Lack of U.S. R&D- and pilot-scale line capacity for the commercialization of new technology. “Li-Bridge participants report a shortage of shared pre-commercial-scale production facilities for lithium batteries in the United States at both the R&D-scale. (Pre-commercial scale includes R&D-scale and pilot-scale production lines for product development and validation.) …”

  • Lack of domestic technical know-how, especially in midstream activities. “The U.S. lithium battery industry currently possesses limited skilled worker training in high-volume production, particularly in midstream activities, and will need to ramp up the workforce development required to meet future battery demand. …”

  • Limited suitable sites served by reliable clean energy. “Access to reliable and clean electric power is a key requirement for building up the lithium battery supply chain in the United States. Although the U.S. has abundant, inexpensive land available for industrial development, sites that are truly shovel-ready for projects with large electricity demands are in surprisingly short supply. …”

  • A lack of domestic suppliers of key manufacturing equipment and reliance on protective, overbooked foreign suppliers. “One of the most important gaps in the U.S. lithium battery supply chain is the lack of domestic equipment and tooling suppliers that make machinery used in the manufacture of lithium batteries and battery materials. …”

Please join us next week, when we’ll cover Li-Bridge goals and recommendations—as well as other evolving dynamics related to the lithium battery supply chain.

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