Thinking About Disruptions in the Advanced Battery Supply Chain

Earlier today I participated in a roundtable discussion at the U.S. Department of Commerce on possible threats to the supply chains of critical technology materials. The Department of Commerce and the White House National Science and Technology Council co-sponsored the meeting responding in part to recent concerns about rare earth metals supply.  The purpose of the meeting, as expressed by the Department of Commerce, was to identify future “rare earth problems” that might be a threat to U.S. industry.

In preparing for the meeting, I had opportunity to talk to several NAATBatt members about their views of the critical materials supply chain issues.  Thanks to all who responded to my inquires.  Based on those responses I made a short presentation this morning, which summarized, in unscientific fashion, what seems to be a consensus view in the industry.  That view is as follows:

There is a general concern that the supplies of certain critical materials are controlled by a limited number of suppliers (in many cases, by China).  The concentration of supply gives rise to the possibility of future supply disruptions, though no member reported experiencing any such disruptions to date.  The specific critical materials mentioned by members included heavy rare earth metals, lithium carbonate, high quality natural graphite and antimony.

Although several members expressed concern about the concentration of supply, no member reported that their concern was serious.  There seemed to be general confidence that, at least with respect to raw materials, the threat of disruption was not great and that any disruptions or potential disruptions that might occur can be remediated in the short to mid-term by normal market forces.  In the worst case, responding members expressed the view that government intervention though subsidies or socialization of environmental costs would be effective in establishing new sources of supply in relatively short order.

Several members expressed concern about possible government over reaction to China’s clearly mercantilist strategy of using its control of most rare earth supplies to encourage greater manufacturing of finished goods in China (i.e., the Chinese will sell you all the rare earth metals you want, so long as they are incorporated into a battery, electric motor or wind turbine).  Several members fear that the government will spend money or political capital buying access for U.S. manufacturers to Chinese critical materials.  Those members feel that such capital would be better deployed supporting the development of new U.S. technology that could one day replace those critical materials or make them unnecessary (such as switch reluctance motors and superconducting direct drive generators for wind turbines).

Although responding members seems generally unworried about constraints of raw materials supply, many were very concerned by threats to the supply of many processed materials and finished goods that are important to the advanced battery industry.  Access to domestic supplies of cathode materials, lithium-ion battery cells, and the machinery and equipment necessary to manufacture battery cells and electrode materials were a source of serious concern.  Although the Stimulus Package funding of 2009-11 did much to ensure that a domestic supply of such finished materials exists at all, that supply chain is fragile and under great stress as demand for electric vehicles and renewable energy proves slower to develop than originally thought.

Disruptions to the supply chain of processed materials and finished goods can be far more destructive than disruptions to raw material supplies.  If lithium carbonate or rare earth metal supplies are disrupted, new mines or sources of supply can simply be opened when prices rise above a certain point.  Processed materials and finished goods, however, are more problematic.  Producing processed materials and finished goods requires human experience and know-how.   If this experience and know-how is lost as a consequence of a disruption in the manufacture of processed materials or finished goods, simple price signals may be insufficient to restart production.  The deficit will be more critical and of much longer term.

My conclusion to the Department of Commerce was that while studying threats to the supply chains of critical, raw materials may be important, it is more important to concentrate on protecting the domestic supply and production of processed materials and finished goods.  This will require making sure that the experience and know-how that U.S. battery industry has gained over the past two years does not fall victim to the short term challenges of the electric vehicle and grid-connected energy storage markets.

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