The Electric: To Get Its Battery Supply Chain, the U.S. Will Have to Mimic China

Save the date: A year ago, we launched The Electric to cover one of the most important—and least reported—new sectors in technology: batteries and electric vehicles. On September 8, we’ll celebrate our anniversary with a special event on perhaps the most important challenge facing the industry—building a battery supply chain independent of China. Our guest for this 3 p.m. ET live chat will be Bob Galyen, a foremost leader of the U.S. effort to establish a battery industry, and formerly chief technology officer of China’s Contemporary Amperex Technology Ltd., the world’s largest battery company. Register here for this subscriber-only event. Email me directly if you’d like to invite a guest: [email protected].

Last week, President Joe Biden signed a law authorizing the expenditure of about $100 billion to build a U.S. supply chain for EV batteries. Problem is, there will be about a 10-year gap until the chain is completed. How will the U.S. navigate its relationship with China until then? This week, I argue that American leaders will have to make nice with China to get its help in keeping the U.S. EV industry going through the 2020s.

In the 1950s, Japan set its mind on building a world-class automobile industry: The country’s automakers scrutinized and mimicked the practices of then-dominant American automakers, while the government severely restricted imports of U.S. models. Three decades later, quality compacts from Toyota, Nissan and Honda captured a big chunk of U.S. auto sales, a triumph of those years of honing product and skills. Since the 1990s, China has acted similarly—inviting in U.S. and other foreign expertise to jump-start a local automobile industry, leading eventually to its dominance of the nascent electric vehicle and battery industry.

Now, in a role reversal, the U.S. faces a humbling economic moment: Last week, President Joe Biden signed a law that, together with existing funding, will throw more than $100 billion at building an American supply chain for battery materials, essentially from scratch. The money, to be doled out over a decade, is meant to make the U.S. independent of China’s EV and battery industry.

Still, for the next decade, the U.S. is likely to require continued significant Chinese help: U.S. automakers and their suppliers will continue to rely on Chinese suppliers for the majority of their battery materials and many of their battery cells. Chinese companies also have developed the difficult know-how required to turn nickel, manganese and cobalt into precursor chemicals and then, mixed with lithium, into electrode powders. They’ve also mastered the sundry machinery that transforms the electrodes, separators and other components into battery cells.

By contrast, there’s little U.S.-based expertise anywhere along the lithium-ion battery chain, according to Benchmark Minerals Intelligence. Nor can the U.S. rely on South Korea, which has the world’s second-largest battery manufacturing industry and will be the primary source of batteries for Ford and General Motors; its companies, too, rely largely on Chinese suppliers for their electrode chemicals and powders, and also suffer from a shortage of workers who know how to make them.