On June 7, 2019, I had the privilege of testifying in Washington, D.C. before the U.S.-China Economic and Security Review Commission on the subject of China’s growing dominance of lithium-ion battery manufacturing. The written statement that accompanied my testimony is reproduced below:
Introduction
My name is James Greenberger and I am the Executive Director of NAATBatt International. NAATBatt is a trade association of advanced battery manufacturers and their supply chain partners doing business in North America. Today, NAATBatt has 110 corporate members, including major automobile manufacturers, electric utilities, equipment manufacturers, battery cell and pack manufacturers, chemical companies, energy materials suppliers and professional service firms. Our organizational mission is to support developments in the science of and markets for advanced electrochemical energy storage technology in North America consistent with the goals of enhancing energy efficiency, reducing petroleum dependence and enabling carbon-free electricity generation.
I apologize for the rough nature of these comments. I am a last minute substitute for NAATBatt’s Chairman Emeritus and Chief Technology Officer, Robert Galyen, who had originally been scheduled to testify today. Mr. Galyen, who also serves as the Chief Technology Officer of CATL, the largest lithium-ion battery manufacturer in the world based in Ningde, Fujian Province, China, has a unique perspective on Chinese capabilities and ambitions in advanced battery manufacturing. Mr. Galyen asked me to express his deep regret at being unable to be here today.
Of necessity, my remarks will focus a little less than Mr. Galyen’s would have on what is going on in China and a little more on the prospects for the U.S. advanced battery industry in light of the large and growing investment that China is making in lithium-ion battery technology. The views I express are my own and are not the official position of NAATBatt International.
The Importance of Battery Technology
Advanced battery technology, or more precisely the technology that stores and delivers energy to an electrical device in precise amounts, at precise times, and at precise locations, is and will continue to be one of the most important technologies of the 21st Century. If the United States wants to remain a leading economic power, it is essential that U.S.-based companies master this technology and maintain leadership in its innovation, manufacture and deployment.
Advanced battery technology is a strategic technology in that it touches upon and provides spin-out opportunities into most of the other technologies that will shape human society in the 21st Century. Vehicle technology, stationary energy storage on the grid, consumer devices, implanted medical devices, drones, the Internet of Things, high energy weapons, electrified aircraft, ships and submersibles will all depend upon the ability to access electric energy at precise times and places that the traditional electricity grid cannot accommodate. In fact, battery technology sets the pace at which many of these other technologies can evolve and come to market. For example, Apple already knows what the iPhone XIV is going to do. It is just waiting for a battery light enough, powerful enough, durable enough and safe enough to power it. The same is true for other technologies such as rail guns, long duration drones and implanted medical devices. Because the battery is such a key factor in these technologies, the battery manufacturer will always have insight into them and the ability over time to enter into their markets.
An advanced battery also provides a substantial value-added component of the manufactured goods into which they are installed. In electric vehicles today, the battery pack accounts for roughly 40% of the vehicle cost. This percentage may fall as the cost of lithium-ion batteries decline. But it will remain a significant part of the overall vehicle bill of costs because the battery substantially simplifies and makes less expensive the balance of the vehicle. The ability to add substantial value to end products is an essential attribute of a manufacturing process that has the potential to provide high wages to its workers and high profits to its owners.
Battery manufacturing provides substantial backward linkages within its supply chain that help stimulate other industries. Manufacturing lithium-ion batteries requires base materials, such as lithium, nickel, copper, and cobalt, as well as the mixing, compounding and formation of those materials. It requires specialized manufacturing and testing machinery, monitoring devices, electrical control devices, software, adhesives, and metal working. Batteries lie at the end of a long and complex supply chain. Stimulate battery manufacturing and you stimulate a wide swath of advanced manufacturing in other industries.
Finally, the process of battery manufacturing involves a lot of “learning by doing”. Over the past 10 years, the price of lithium-ion batteries have fallen by about 80%. Almost none of that reduction has come from improvements in the chemical composition of lithium-ion batteries. The vast majority of the reduction has come from hundreds of small improvements made in the design of batteries on the manufacturing shop floor. That is not surprising. Economists increasingly recognize that the vast majority of technology innovations take place, not in a laboratory or classroom, but on a shop floor. Lose the shop floor and you lose an important opportunity to innovate.
Chinese Efforts to Dominate Advanced Battery Technology
China figured out the importance of advanced battery technology to its economic development more than 10 years ago and has been heavily investing in the sector ever since. Unlike the United States, which has a longstanding ideological discomfort with industrial policy (i.e., picking winners in the private sector), China’s innovation and investment in the lithium-ion battery industry has experienced strong support from Federal, Provincial and City governments through a variety of methods ranging from incentive programs, licensing programs, allocations in infrastructure development, to actively managing the battery industry.
In 2016 the Chinese National government issued what has come to be referred to as the “White List” of lithium-ion battery companies. This list is made up of entirely domestic cell manufacturers with more than 8GWh of installed capacity. No non-Chinese companies are included on this list. All electric vehicles sold in China must use cells and packs made by companies on the list or they will not be eligible for any incentives. This has forced out all non-Chinese manufacturers from the Chinese market.
But the primary focus of the Chinese government in its effort to support the manufacture of advanced batteries has been its support of market demand for the vehicles which are powered by lithium-ion batteries. Forbes reported that incentives for the production of electric buses propelled electric bus sales in China from just over 1,000 in 2011 to 132,000 units in 2016. Today there are over 400,000 electric buses in the road in China and more than 30 e-Bus manufacturers.
Purchase incentives for light electric vehicles, including cars, have been at least as aggressive. Forbes reports that based on an average subsidy of about $10,000 per vehicle, China’s central and local governments spent $7.7 billion on electric vehicle subsidies in 2017 alone. Assuming that current subsidies continue (though it is not clear that they will), Forbes estimates that subsidy payments would rise to approximately $20 billion in 2020 and $70 billion in 2025.
China’s efforts to corner the market on lithium-ion battery manufacturing have been largely successful. Today, approximately 75% of all lithium-ion batteries made worldwide are manufactured in China.
China’s success in capturing lithium-ion battery manufacturing stands in unfortunately contrast to the largely unsuccessful efforts of the Obama Administration to promote lithium-ion battery manufacturing for electric vehicles in the United States. Although the American Recovery and Reinvestment Act of 2009 invested more than $2 billion in domestic battery manufacturing, few if any of the funded projects were commercially successful. With the exception of the Tesla/Panasonic Gigafactory in Nevada, no large scale manufacturing of automotive lithium-ion batteries takes place in the United States today. China’s demand-pull approach has proven more successful than the limited supply-push initiatives in the United States.
Policy Recommendations
China and its success in lithium-ion battery manufacturing should not be viewed as a threat. The United States should endeavor to learn from the Chinese experience and to employ some of the same tools that China has used successfully to build its own advanced battery industry. Some possible policies would be the following:
- Procurement of Public Electric Vehicles for Mass Transit. The United States should establish a substantial and well-financed “Procure for Innovation” policy. First priority should be the purchase of electric buses for public transport and of light, medium and heavy vehicles for use by public bodies. Today, almost all procurement decisions in the public sector are driven by price, which generally drives purchasers to non-electric vehicles. This makes sense from the standpoint of the locality or agency doing the purchasing. But it is counter-productive on a national level. A robust investment in public electric vehicles, coupled with strict local content requirements that support the development of lithium-ion battery production in the United States, would return to the public treasury in the long run many times the additional expense of acquiring electric buses and other public vehicles today.
- Continue and Expand EV Purchaser Incentives. The United States should double-down on its investment in tax subsidies and other purchaser incentives for private electric vehicles. Any such subsidies should be conditioned on strict domestic content requirements for the battery technology contained in the vehicle. The local content requirement must be carefully specified. It is not just a matter of mandating U.S.-made steel. The battery technology and battery components should be largely of domestic origin. Also, Congress should consider enacting a special funding mechanism to expand existing purchaser incentive programs. A small user fee charged to purchasers of electric vehicles starting in 2028 could be sold to raise funds for the near-term payment of additional purchaser incentives. The fee would end up paying for itself if an increased market for electric vehicles in the short term helps improve battery technology and lowers the cost of electric vehicles during the period in which the fee is charged. Public investments in vehicle electrification are really investments in infrastructure. They can be financed through user fees, in much the same way that toll roads are financed.
- Use Public Subsidies to Push the Envelope on Battery Technology. Any “Procure for Innovation” policy and EV purchaser incentives should be structured to encourage battery manufacturers to push the envelope of battery technology. The availability of public procurements and private purchasing subsidies should depend on the vehicle battery being “state of the art” and addressing specific areas of concern in battery technology, such as energy density, safety, ease of second use and recyclability. These requirements can be staged over time to push manufacturers to innovate, just as is done with fuel economy standards in ICE vehicles today.
- Learn from Foreign Battery Manufacturers. Foreign-based battery manufacturers should be encouraged to locate in the United States and have access to the U.S. market, provided that American workers have the opportunity to learn from the battery manufacturing technology they bring. Foreign-based companies building battery plants in the United States should be required to use some minimum percentage of local suppliers, engineers and manufacturing technology in their factories and products. The opportunity for American workers to “learn by doing” must be jealously protected as a matter of public policy.
- Focus Long-Term Research on Disruptive Battery Technologies. China’s decision to make a massive investment in lithium-ion technology was motivated in part by its desire to compete with more established Western vehicle manufacturers by disrupting the internal combustion engine technology that those Western manufacturers dominate. Having made that investment, however, China is now itself vulnerable to a competitor that can disrupt lithium-ion technology with a better energy storage or energy generation technology. Lithium-ion chemistry is unlikely to be the last word in battery technology. New and better technologies will replace it in time. The United States should focus its public research dollars on finding and commercializing that next generation energy storage/generation technology.
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