How America Can Win the Coming Battery War

The United States has begun a green industrial transformation. The Inflation Reduction Act of August 2022—which, despite its name, includes many measures intended to address climate change—jump-started investment in U.S. clean energy manufacturing. In the first quarter of 2022, investment in U.S. clean energy manufacturing was $4 billion; in the first quarter of 2024, it was $17 billion, a 325 percent increase in just two years. The IRA has been a boon especially to the supply chain for electric vehicles. U.S. battery production is expected to jump from 257 gigawatt-hours in 2023 to over 1,000 gigawatt-hours by 2030: enough batteries for ten million vehicles per year, roughly the number produced in the United States annually.

This battery boom is changing the geography and the politics of clean energy manufacturing. In a clever political play, the IRA, which was championed by progressives, has disproportionately benefited workers in politically conservative regions. The Net Zero Industrial Policy Lab at Johns Hopkins University found that 80 percent of announced U.S. battery production capacity will be in Republican-held congressional districts. Nationwide, the majority of the 400,000 jobs that the IRA is expected to create will end up in red areas represented by Republicans. Consider the state of Georgia, for example, which is on track to become the largest producer of battery cells in the United States. Although it is a purple state, where politicians from both major parties hold top offices, all of its battery plants are in Republican-held districts.

These jobs are changing the nature of Republican support for and opposition to manufacturing low-carbon goods. When the Republican-controlled House Ways and Means Committee tried to repeal parts of the IRA in June 2023, it spared a tax credit for producing batteries and their component minerals. Although Republican legislators and former U.S. President Donald Trump still talk about repealing the climate law if they get full control of the federal government in 2025, some members of the GOP recognize that the IRA benefits their districts.

The IRA’s economic boost to the U.S. battery industry may convert some Republicans to green energy in ways that climate science has failed to do. Because of the proliferation of green jobs in red districts, many Republican lawmakers are joining a bipartisan coalition that supports an industrial policy for electric vehicles. This consensus will be necessary to protect the United States’ transition to green energy, which is threatened by vulnerabilities in the electric vehicle supply chain. By the end of the decade, the world will likely face a shortage of raw materials needed for battery production, such as graphite, nickel, and lithium. And China already dominates the market for those minerals. If the United States wants to keep building electric cars without depending on China, then Washington will need to capitalize on the new bipartisan battery consensus to mobilize hundreds of billions of dollars to extract and process minerals. Otherwise, the United States might squander much of the IRA funding for the end stages of battery assembly and could lose the chance to become a major producer of electric vehicles.

GRAPHITE IS A GIRL’S BEST FRIEND

In the second half of this decade, demand for electric vehicles will soar, and there will be a major shortfall in the minerals needed to make them. The Biden administration wants half of new cars sold by 2030 to be electric. Private firms have similar goals. Stellantis, the parent company of Chrysler, Peugeot, and others, plans for 50 percent of its U.S. car sales and 100 percent of its European sales to be electric by 2030. Such an increase in electric cars will push the critical minerals supply chain to the brink. Benchmark Mineral Intelligence, a research firm, predicts shortages of lithium, cobalt, graphite, and nickel to begin by 2028. Unless capacity to extract and refine battery metals grows significantly faster than is projected, they will become either unaffordable or unavailable. In that case, U.S. manufacturers of electric cars will have to scale back production and furlough workers.

Today, China has a stranglehold on critical minerals. It mines 68 percent of the world’s natural graphite and processes most of the world’s cobalt, lithium, and graphite. Chinese firms also dominate the stages of production in which minerals are put into battery cells and those cells are placed into, for example, laptops or electric vehicles. By 2030, China is projected to have four times more potential capacity for battery production than the United States. Beijing has supported the electric vehicle industry for two decades. It is no wonder, then, that China now produces half the world’s electric cars, including 50 percent of those made by Tesla, a U.S. company.

China now produces half the world’s electric cars.

U.S. policymakers don’t want to rely on China for batteries and their components. Tax credits created by the IRA do not apply to electric vehicles that “contain any critical minerals that were extracted, processed, or recycled” by a foreign entity of concern, such as the Chinese government or companies controlled by it. In any case, China may not be willing to supply these minerals to U.S. companies. Beijing has responded to U.S. export controls on semiconductors by tightening its grip on minerals. In August 2023, China began restricting exports of gallium and germanium, which are used in advanced electronics and defense systems. In December 2023, China started requiring export permits for graphite—the largest component by weight in electric vehicle batteries—thereby solidifying Chinese government control over a key input of electric cars. The decision was a wake-up call for U.S. automakers.

To avoid reliance on China in the green energy transition, the United States needs to build a new electric vehicle supply chain, and it will need the help of its allies. The Johns Hopkins Net Zero Industrial Policy Lab found that known mineral reserves in the United States and Canada are insufficient to meet projected North American demand for five of the eight key battery minerals over the rest of the decade. There simply isn’t enough well-mapped, commercially accessible cobalt, nickel, manganese, and graphite ready to be extracted in North America.

When counting allies further afield, however, the picture changes. The 2024 National Defense Authorization Act adds Australia and the United Kingdom to the list of “domestic sources,” which are eligible to receive money through the Defense Production Act, which funds mining and processing projects. With the addition of Australia and the United Kingdom, domestic source countries can meet North American demand for critical minerals this decade. The United States’ mineral problem, therefore, is not one of insufficient reserves. It is about whether these allies can extract and refine battery components fast enough to keep up with demand. It takes just two years to set up a new battery factory but an average of 15.7 years to open a new mine. Private investment alone cannot create a new supply chain. The U.S. government will need to step in, or an undersupply of critical minerals and Chinese dominance over the market will make electric batteries unaffordable for U.S. producers, causing job losses in Republican regions and slowing the country’s transition to a cleaner economy.

MINER LEAGUE

Over the past ten years, China has spent between $90 billion and $100 billion in overseas mining and metals infrastructure through its Belt and Road Initiative. That figure does not include Beijing’s significant investment in infrastructure designed to move raw materials from places such as Africa, Latin America, and Indonesia to China. China has also managed to secure control of large shares of the cobalt mines in the Democratic Republic of Congo and nickel mines in Indonesia.

China has a massive head start in shaping the electric vehicle supply chain, but it is not too late for the rest of the world to catch up. To do so, Washington will need to mobilize funds and partnerships on a grand scale. Benchmark Mineral Intelligence estimates that the United States and its partners need to invest $920 billion by 2035 to build supply chains for lithium, nickel, graphite, cobalt, manganese, copper, rare earths, and phosphate. The United States should negotiate a series of agreements with other countries to develop supply chains for these key minerals. To get others to act, the United States should create a public fund to mobilize its share of the requisite overall investment. The United States represents approximately 30 percent of the global economy outside China, so it should muster about $300 billion as its share of the total investment needed in the coming decade. (Because this public fund could be leveraged to incentivize private loans and equity stakes, the actual public spending required would be a fraction of the mobilized capital.) The majority of such funding should be put toward developing the early stages of battery-making, such as mining and processing minerals in allied countries. For example, the United States has already made an equity investment in the mining firm TechMet to mine nickel in Brazil and gave a loan to Syrah Resources, an Australian firm, to mine graphite in Mozambique. Washington should significantly increase funding for those projects and others like them.

The sum of money needed to create a U.S.-centered supply chain is big but not unthinkable for the United States, which has a $23 trillion economy and has spent trillions on COVID-19 relief and hundreds of billions on clean energy and semiconductor manufacturing through the IRA and CHIPS and Science Act. A big investment is necessary if Washington hopes to maintain its economic might in a decarbonizing world, and the time to make a down payment is now, as Republicans and Democrats alike are keen to support electric vehicle manufacturing. U.S. policymakers should give more money to public bodies that are already making investments in a new electric vehicle supply chain, such as the Export-Import Bank and the Development Finance Corporation. In 2022, the Biden administration allocated $250 million to U.S. and Canadian companies to mine and process battery minerals through the Defense Production Act. The next president should significantly increase those funds.

The United States and its allies should also consider establishing price insurance for mineral producers, which would allow certain companies to sell a given amount of minerals at a set price. Similar federal insurance programs are used to guarantee minimum prices for certain crops, with the government making up the difference between the market price and a pre-agreed strike price. Such a program would mitigate price uncertainty, thereby driving private investment in mines and diversifying supply chains. The United States could also keep a strategic reserve of critical minerals, as Japan and Korea do, to help solve supply chain problems.

China’s dominance in the electric vehicle supply chain doesn’t have to be an impediment to the U.S. energy transition. Instead, it can motivate a bipartisan coalition in the United States to work in concert with its allies to expand the battery supply chain. Just as a major plank of U.S. foreign policy in the twentieth century was securing oil supplies and its trade, U.S. foreign policy today should be aimed at ensuring the United States has the materials it needs to compete in a decarbonized economy. The global transition from fossil fuels to electricity is happening regardless of whether the United States is ready for it. U.S. policymakers must now decide whether to let China push the United States out of the battery market or to invest so that the United States and its partners remain competitive.