By Chandan Kumar GV, Head of Products at Indxx
In 2022, Electric Vehicles (EVs) constituted 10% of total car sales. While this percentage may not immediately appear substantial, the fact that it has tripled in the last three years underscores the noteworthy growth of EVs. The rapid increase in this figure can be attributed to three key factors: Climate Change, as per the Paris Agreement; the depletion of fossil fuels; and the pursuit of energy independence, particularly in light of geopolitical tensions.
Understanding these reasons prompts an exploration into who stands to benefit the most. Within the entire EV ecosystem, batteries emerge as a significant component, accounting for 30 to 40% of the total value of a singular EV.
Furthermore, batteries boast the highest— if not among the top— Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin, ranging from 15 to 20%.
A closer examination of the battery composition reveals that the cathode constitutes 52%, the anode 12%, with the remaining portion comprised of electrolytes and other materials. Of these materials, lithium, cobalt, manganese, and nickel constitute the cathode, with lithium being particularly critical due to its lightweight properties, energy efficiency, and storage capacity.
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Controlling lithium production essentially dictates control over battery production: a dominance China has achieved. Out of the 200 lithium-ion battery processing factories globally, 148 are located in China, with only 11 in North America. This dominance raises concerns, especially in the United States, reminiscent of historical dependencies on the Middle East for fossil fuels.
Can the U.S. outpace China in battery production?
Outpacing China in battery production poses a considerable challenge for the United States. The establishment of a Lithium-Ion battery mega-factory requires a substantial time investment, ranging from three to six years, providing China with a significant technological advantage.
China’s proactive adoption of new technologies further complicates US efforts to catch up in this competitive landscape. Additionally, China’s massive market demand, driven in part by its substantial population, presents another obstacle for the United States. In 2021, China commanded approximately half of the global EV market, selling around 3.3 million vehicles, surpassing the combined sales in the rest of the world.
Strategies for U.S. competitiveness
To enhance its competitiveness, the United States can focus on ensuring energy independence in the EV sector. This involves the development of robust domestic infrastructure for battery manufacturing to meet domestic demand.
By promoting the domestic production of batteries, the U.S. can prevent potential battery shortages from becoming a critical constraint. Essentially, the U.S. can secure the basic supply of batteries and reduce reliance on countries such as China. In light of this, the U.S. has taken a commendable step in the right direction by investing in and promoting the domestic production of batteries.
According to the US Department of Energy, the new investment proposal aims to:
- Ensure that the United States has a competitive battery materials processing industry to supply the North American battery supply chain.
- Expand the capabilities of the United States in advanced battery manufacturing.
- Enhance national security by reducing the reliance of the United States on critical minerals, battery materials, components, and technologies from foreign entities of concern.
- Advance the domestic processing capacity of minerals necessary for battery materials and advanced batteries.
- Support the goal that 40% of the overall benefits of certain federal investments flow to underserved and overburdened communities (in accordance with the Justice40 Initiative).
- Provide workforce opportunities to low- and moderate-income communities.
As aforementioned, a significant number of goals within this proposed funding program are aimed at securing the basic supply of batteries and reducing reliance on countries such as China.