New US EV battery production explodes; can supply chains keep up?

New electric vehicle (EV) battery plant announcements have exploded in the United States, however critical supply chain questions remain unsolved

According to the International Energy Agency’s Global Supply Chains of EV Batteries report, the demand for EV batteries will increase more than ten-fold between now and 2030.

There is still some debate as to how quickly the electric revolution will take place, but with the volume of announcements of new EV battery production facilities in the US the pace has already been set.

While there are numerous startups that would like to revolutionize the industry, at present five companies produce almost all EV battery cells in the US.

AESC, LG Chemical, Panasonic, Samsung and SK Innovation dominate the space, with Panasonic accounting for the lion’s share of the production via their partnership with Tesla and AESC producing exclusively for Nissan. Other automakers are rapidly forming new battery partnerships with LG, Samsung, and SK to take production in-house and deliver competing products.

Monday’s Honda and LG joint venture announcement is the latest in a string of new domestic EV battery factory announcements.

General Motors and LG are already producing patented Ultium battery cells in Ohio, with plants announced for Spring Hill, Tennessee and Lansing, Michigan. There are also rumors that a fourth plant will be announced soon.

In September of last year, Ford and SK announced a partnership to break ground on new EV battery facilities in Stanton, Tennessee and Glendale, Kentucky in order to supplement current production of SK cells in Georgia.

Stellantis, the owner of Ram and Jeep, is presently partnered with LG in a battery project planned in Windsor, Canada. However, in May of this year, Stellantis also announced a joint venture with Samsung to construct a new plant in Kokomo, Indiana.

While Volkswagen recently started building their first of six planned EV battery gigafactories in Europe, they are also rumored to be exploring in-house production in the US.

One would be hard-pressed not to speculate that we are on the verge of major technological, societal and environmental change. But there are major unresolved questions as to how exactly supply chains will meet this rising demand.

Scott Keogh, chief executive of Volkswagen Group of America, perhaps put it best when he quipped in June at the Automotive News forum in Washington, “this is a scale of investment that honestly is going to make the industrial revolution look like a cakewalk. It’s massive.”

Mr. Keogh thinks that achieving this goal will take a complete transformation of the American economy, “into a manufacturing society again.” While there is industry acknowledgment of the challenge, there are surprisingly few answers to the big questions.

In an attempt to incentivize the transformation, the US Federal government has initiated new subsidy programs and included sweeping tax and financing incentives via the new Inflation Reduction Act. But will this be enough to support the budding industry?

In May, the US Department of Energy announced $3 billion in subsidy investments to boost domestic battery production. While the ability to receive subsidies is attractive, each of the previous domestic battery projects are estimated to cost several billion dollars.

The Inflation Reduction Act has sweeping tax incentives for EV producers, but the thresholds for obtaining these incentives are so high that achievement of the incentives is questionable in the near-term and may result in other countries reaping the economic benefits.

The primary incentive for domestic production comes in a key provision of the Inflation Reduction Act that ties electric vehicle tax credits to where the battery pack was made.

“The incentive to buy more [electric vehicles] is the least of our problems,” said Ed Meir, senior commodity independent consultant with ED&F Man Capital Markets. “Where will all the battery materials come from, and will there be enough power to charge the grids?”

The Inflation Reduction Act offers up to a $7,500 tax credit for EVs that meet specific critical minerals criteria. To fully obtain this credit, by 2027 at least 80% of the lithium, cobalt, nickel, manganese and graphite utilized in EV battery production must be extracted and processed in the United States, or a country with which the US has a free trade agreement.

Tax credits have previously been a frequently-cited driver of consumers making the buying decision to adopt EVs over traditional gasoline-powered vehicles. Given this, automakers investing billions of dollars in the EV transformation must surely be aware of the challenge, but again questions remain unanswered as to how the thresholds will be achieved.

Only a handful of current US free trade partners have battery manufacturing capabilities or produce officially identified “critical minerals.”

When it comes to forming new agreements, environmental, social and governance Standards have previously proven to be major hurdles in plugging supply gaps. The Inflation Reduction Act will make it impossible to turn a blind eye to material origin.

Then there is the question of material quantity. Even if materials can be obtained, is there enough material to support both legacy industries and the emerging EV sector?

One nickel producer we discussed this problem with commented, “there is a big question whether there is, or will be enough, class one nickel supply for the European and US markets.”

“Though I am not a specialist in the lithium markets, I think both lithium and nickel can be the bottleneck which determines how much battery producers can produce batteries.”

Analyzing nickel supply chains provides an excellent picture of the sort of challenges that battery producers will face in obtaining each of the critical minerals needed to meet Inflation Reduction Act thresholds.

“No question that the battery sector is where the future growth is. It is only a question of how much the producers take away from legacy industries to go straight into supply for batteries,” one trader said.

“Suffice it to say that there will not be enough class one nickel to go around for aerospace, steel, special alloys and batteries,” one buyer commented.

Another trader opined on supply concerns presently felt by legacy nickel consumers, “part of the nickel sulfate that will be going to the market will be from producers who produced briquette now producing more nickel sulfate – so it will still have an effect on nickel briquette supply.”

One nickel producer spoke to the limitations on current production, saying, “regarding nickel, in the short term, Europe or the US market have to rely on imported nickel, as we have limited supply of battery grade nickel within the regions (namely Vale Canada / Glencore Nikkelverk).”

Notably, the US currently has one operating nickel mine in Michigan, but its resources will be exhausted by 2026.

At present, the largest increase in general nickel supply comes from nickel pig iron (NPI), or nickel matter made from NPI. However, this production method is too carbon intense to meet European or US standards.

While there is ample nickel sulfide ore available throughout North America and other countries with free trade agreements, extracting this via traditional methods has a dubious environmental record.

The ores in which the material is lodged can leach out sulfuric acid and heavy metals, decimating surrounding plants and wildlife. In addition, many of these mines are located on or within the vicinity of first nations tribal lands, adding another layer of difficulty for any potential extraction of the resources.

This is not to say that innovative solutions are not possible.

One producer discussed new mixed hydroxide precipitate (MHP) projects in Indonesia with us, “VW and others have obtained memorandums of understanding on some private ventures in Indonesia. In the short term the sector will have to source nickel from Indonesia to meet the demand.”

MHP is an intermediate nickel product produced from laterite nickel ores which contain both nickel and a small percentage of cobalt. The nickel is typically extracted via a high-pressure acid leach process and is much more environmentally friendly and cost-effective than other methods of obtaining nickel sulfate.

“High-pressure acid leach ventures in Indonesia are relatively less carbon intense, so the speculation is that in the short run these ventures should be accepted by the market and regulators in Europe and the US.”

Fastmarkets recently launched an open market consultation on nickel MHP pricing.

While MHP is promising, Indonesia will not be able to satisfy all the growing demand, and ventures in other countries will clearly be needed to meet demand.

Analyzing the present state of the nickel market makes it clear: the road ahead for battery producers will be extremely challenging. Obtaining each of the critical minerals needed to produce batteries will result in comparable challenges and supply chain bottlenecks.

Achieving true transformation will involve nothing less than a major transformation of the entire US economy and supply chain infrastructure. The challenge of the present transformation will likely be defining for the generations tasked with its accomplishment.

For such a monumental task against such incredible odds, the slogan of the British SAS seems appropriate: “Who dares, wins.”

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