One of the most interesting sessions during the NAATBatt 2020 annual meeting was the Industry Leaders Roundtable: How To Make the U.S. a Leader in Lithium-Ion Battery Manufacturing.  The session featured a discussion among government and industry leaders in energy storage about what the United States might do better to support the domestic manufacturing of lithium-ion battery cells.

The panelists generally agreed on a number of points:  that building a supply chain is important but building demand for the batteries may be more important;  that the U.S. does not have the same tools to work with that China does; and that while the U.S. may not be a leader in lithium-ion battery manufacturing, some American companies are world leaders in other battery technologies, such as lead acid and zinc battery technologies, which should not be ignored.

But a more fundamental question underlies the topic the panelists discussed:  Should the U.S. care whether it is a leader in lithium-ion battery manufacturing or not?  In other words, is lithium-ion technology itself so strategic that the United States should invest public money to ensure that world-class lithium-ion battery manufacturing technology takes root in North America?

If the answer to that question is yes, it is so for two reasons.  The first is that lithium-ion battery technology will be the key to controlling the auto industry of the 21st Century.  Automobile manufacturing is a major driver of the U.S. economy.  Vehicle manufacturing directly or indirectly employs about one out of ten U.S. workers.  Only the healthcare industry employs more.  Loss of automobile manufacturing would be a huge blow to the American economy and to America’s economic position in the world.

During the industry leaders’ discussion session at NAATBatt 2020, the moderator asked the panelists:  Is the following statement true:  He who makes the batteries will one day make the cars.  At least two panelists strongly opined that the statement was not true.  American automakers, they argued, can partner with trusted foreign suppliers to obtain lithium-ion batteries.  There is no need for U.S. companies to get into the battery business themselves.

I would respectfully but profoundly disagree.

Lithium-ion batteries are expensive and highly complex automotive components.  Somewhere between 30-60% of the component value of future electric vehicles will be in the battery.  The rise of autonomous drive technology might push that percentage down a bit.  But lithium-ion batteries will still be the most complex and expensive components in the vehicles of the future.

While vehicle manufacturers can acquire lithium-ion batteries from trusted suppliers in the short term, the market is a highly competitive place.  All companies, even trusted supplier/partners, naturally look for ways to capture higher-margin portions of the product supply chain.  Manufacturing lithium-ion battery cells is and might always remain a low-margin business.  But it is an ideal starting point for companies, and countries, looking to move into the higher margin businesses of vehicle assembly and consumer brand development.

In the 1980’s the U.S. computer hardware industry faced a similar issue.  Japanese companies, with heavy government support, made a concerted effort to dominate the semi-conductor industry.  Although semi-conductors were but one component of the mainframe systems that were the strategic business focus at the time, U.S. hardware companies recognized the threat that loss of control of that component to foreign manufacturers would pose.

In 1987, 14 U.S.-based semiconductor manufacturers came together to form SEMATECH.  With about $500 million of funding from the U.S. government (and the leadership of NAATBatt’s own Sandy Kane), SEMATECH went on to make revolutionary advances in semiconductor manufacturing technology. Those advances ensured that U.S.-based companies such as IBM, AT&T, Intel, Hewlett-Packard and Texas Instruments, retained their leadership in semiconductor and computer hardware technology for well over a decade.

The historic significance and efficacy of SEMATECH is subject to debate.  Contrarians point to Apple as an example of a company that eschews component manufacturing but maintains a secure leadership position in its business sector.  But that argument ignores an important fact: Apple owns the key technologies within its devices.  Offshore manufacturers only assemble the devices.  Apple is successfully because it has maintained control of its critical technology while sending only low-margin assembly services offshore.

That is not what is happening in lithium-ion battery technology.   The Asian companies that are assembling lithium-ion battery cells are investing heavily in lithium-ion research and development.  Today the patent landscape in lithium-ion technology is dominated by the Asian companies making the batteries, not by the American auto companies hoping to partner with them as trusted suppliers.

Predicting the future is a risky business.  But there is good reason to believe that he who makes the batteries will in fact one day make the cars.  If that is the case, and 1 in 10 American workers depend upon vehicle manufacturing for their livelihoods, lithium-ion technology is about as strategic as technology gets.

The second reason why lithium-ion battery technology may be strategic is because of the nature of 21st Century technology itself.  The next thirty or forty years will see the rise of new technologies we may not yet conceive of but which may be as transformative to the 21st Century as the personal computer and the cellular phone were to the 20th.  It is a good bet, however, that no matter what those new 21st Century technologies may be, they will be powered by electricity and unattached to the grid.

The principal technology story of the 21st Century is likely to be the rise of electric power.  A huge variety of electrically powered devices operating at everything from high to ultralow voltage may well be what most significantly distinguishes 21th Century technology from 20th Century technology.  All will share a single technological challenge:  How to deliver electric power to the device as efficiently as possible.

The most significant feature of lithium-ion battery technology is that it is the most efficient way we know of to deliver electricity to a device in any particular point in space using the least possible mass and the lowest possible weight.  Other electricity storage or energy generation technologies might one day prove more efficient.  But as near we can tell lithium-based battery technology will be the most efficient way to deliver electricity to remote devices for at least the next thirty or forty years.  What might come next is pure speculation.

If he who makes the batteries will be he who makes the cars, the same logic will apply to next-generation electrical devices.  The sole consolation of losing the race to build automotive-grade lithium-ion batteries is that we know exactly what industry we stand to lose.  As to what we stand to lose if foreign manufacturers use their expertise in lithium-ion battery technology to dominate the development and manufacture of next-generation electrical devices, we can only guess.

The United States has historically been adverse to industrial policy, trusting the free market to pick winners and losers over government bureaucrats.  That approach has served the U.S. well.  But every good rule allows for good exceptions.  If lithium-ion technology is a strategic technology, and if other governments are actively pursuing its domination, the United States may have little choice but to play the same game.

China recognized the strategic importance of lithium-ion technology ten years ago.  In ten years its companies have grown, with massive government support, from irrelevance to domination of the lithium-ion battery industry.  Europe grasped the significance of lithium-ion technology belatedly but now seems waking to the challenge.  Only the United States slumbers on, dreaming of partnerships with trusted suppliers.  The history of business does not lend confidence to such dreams.