NAATBatt 2021 concluded on Thursday, February 11.  It was the first, and hopefully the last, virtual annual meeting of the NAATBatt International organization.

By the standards of expectation, the meeting was a great success.  NAATBatt 2021 managed to incorporate the usual high-quality content of past NAATBatt annual meetings despite the disadvantage of its virtual format.  Most remarkable was the success of the networking sessions:  the on-line breakfast table discussions and the meeting and greet sessions.  Those proved immensely popular, proving that interactive sessions can work even in large virtual meetings and that good, productive conversations can still be had among participants.

The theme of the NAATBatt 2021 meeting was promoting the development of an advanced battery industry in North America, with an emphasis on lithium-ion battery manufacturing.  Several panels and discussion groups covered that topic.  It was clear that most all meeting participants had a clear understanding of the importance of developing a lithium-ion battery supply chain in North America.  The important question is:  How exactly do you do that?

Based on the conversations and content at NAATBatt 2021, I suggest a three-part plan to develop a robust lithium-ion battery manufacturing industry in North America.  I would emphasize that the following is not the official position of NAATBatt International.  It is only the musings of its Executive Director:

Increase Domestic Demand

The first and most important part of the plan is to ensure high demand for products powered by lithium-ion batteries in North America.  It is pointless, and even arrogant, to talk about building an advanced battery industry and supply chain in North America if demand for lithium-ion batteries is centered off-shore.  There are few examples in modern history first-world countries building new industries supported primarily by export markets.  What few examples there are owe their success in large part to U.S. geopolitical considerations.  To grow a domestic battery industry, the domestic industry must have domestic battery customers.

Since approximately 90% of demand for lithium-ion batteries is expected to come from electric vehicles, any significant domestic demand for batteries will be from the transportation sector.  Demand for electric vehicles can only come from two types of customers:  public sector customers and private consumers.

Public sector procurement of electric vehicle fleets is the most direct way the government can build a market for domestic battery production.  The U.S. government operates the largest civilian fleet in the world with more than 640,000 vehicles as reported in the Federal Fleet Report (2015).  In addition, as of January 2018, there were 66,116 transit buses, 69,316 demand response commuter vehicles and 15,670 transit vans deployed in the United States, the large majority owned by public agencies.  Converting a sizable portion of the replacement vehicles for these fleets to electric drive each year would create a significant domestic market for lithium-ion batteries.

Incenting private consumer and commercial purchases of electric vehicles is the second way of promoting lithium-ion battery demand.  The Section 30D tax credit for new qualified plug-in electric drive motors vehicles is old news and should be extended.  But other effective financial incentives can be brought to bear.  One take-away from NAATBatt 2021 is that electric vehicle makers (primarily bus and heavy-duty vehicle manufacturers) are increasingly looking to battery leasing business models in order to relieve themselves of warranty responsibility for the batteries and to lower the initial capital cost of vehicles to their customers.  Permitting accelerated depreciation for vehicle batteries and other tax incentives for battery owners could help reduce the cost of electric drive for commercial fleets and consumers.  Importantly, these tax incentives should only be available for domestically manufactured batteries.

Substantial thought must also be given to non-economic incentives.  For example, in many urban areas electric vehicles have priority access to high-occupancy vehicles lanes.  The federal government should consider mandating that same priority access on all federally-funded highways.

All around the world, governments realize that the race for electric drive is not just about a race for a better environment.  It is about a race for dominance of many of the technologies that will shape the economies and workforces of the 21st Century.  For the United States even to be competitive in that race, there must be a robust market for lithium-ion batteries and the electric vehicles they power in North America.

Stand Up National Battery Champions

The second part of the plan is for the U.S. government to stand up one or two national champions in the large-scale lithium-ion battery fabrication business.

As I have written in this column before, the structure of the advanced battery industry is such that the fabricators of lithium-ion battery cells control much of the rest of the supply chain.  The cell fabricator determines whose electrode materials are used, whose separator is used, whose manufacturing and testing equipment is purchased, and whose R&D is commercialized.  Most of the social and employment benefits of advanced battery manufacturing are associated with those other enterprises and not with the fabricator itself.

The conundrum of lithium-ion battery manufacturing is that although the cell fabricator gets to choose the suppliers who will garner most of the social and employment benefits of battery manufacturing, the business of cell fabrication itself is a lousy economic proposition.  Cell fabrication involves huge capital costs, wafer-thin margins and the assumption of large warranty liabilities.  Every major North American company that has looked at getting into the business of high-volume lithium-ion battery cell manufacturing over the last twelve years has taken a pass on the opportunity.  And for good reason.  The only reason Asian companies have entered the cell fabrication business is because their governments understand the larger social benefits that accrue from those companies fabricating cells.  The EU has done the same analysis and is proceeding down the same path.

A robust supply chain of lithium-ion battery production—including energy materials production and refining, electrode production, manufacturing and testing equipment production, and battery R&D—will only grow up in North America if there are one or more national champion cell fabricators willing to buy those products.  To stand those national champion fabricators up the government needs to do two things:  ensure that the fabricators will have a guaranteed, large scale customer for their cells and backstop any losses the champion companies might suffer as a consequence of being forced into the lousy cell fabrication business.

National battery fabrication champions will, of course, need to be true national champions.  Although foreign technology assistance may be needed in the short term, the national champions will need to take direct responsibility for cell manufacturing.   Under no circumstance can a national champion be allowed to lay off its manufacturing responsibilities onto a joint venture in which U.S. employees cannot even go into certain parts of the manufacturing plant.  Lithium-ion cell fabrication is a know-how business.  Critical to the success of the plan is insuring access of U.S. employees and engineers to battery cell fabrication know-how.

Who those national champions should be and what the nature of the economic backstop should be are questions beyond the scope of this article.  But neither should be difficult to figure out.

Fund a Next Generation Manufacturing Consortium

The third part of the plan is to establish and fund a national consortium to develop next generation manufacturing technologies for lithium-based batteries.

At NAATBatt 2021, Chloe Holzinger of IHS Markit showed a simple but insightful slide illustrating the principal drivers of battery cost reduction.  Basically, battery cost reduction is a function of three factors: decreasing material costs, decreasing manufacturing costs and increasing the energy density of the battery.  Ms. Holzinger’s slide begs the question:  Among materials costs, manufacturing costs and energy density improvements, which represents the best opportunity for reducing the battery cost?

Long term cost reductions in basic energy materials seem unlikely.  As several speakers warned, increasing demand for lithium-ion batteries is likely to put substantial price pressure on energy materials, including lithium, Class I nickel and cobalt.

Improvements in battery energy density are certainly possible.  This is the sexy part of the battery business.  Investors are sinking billions of dollars into solid state technology, improved silicon anodes, high voltage electrolytes and a variety of other technologies intended to improve the energy density of cells.  Some will succeed.  But speakers at NAATBatt 2021 were in general agreement that there are no breakthroughs on the horizon that are likely to improve dramatically the energy density and overall performance of today’s lithium-ion battery technology.

That leaves battery manufacturing technology.  As NAATBatt’s CTO, Bob Galyen, pointed out, the basic roll-to-roll process of fabricating battery cells and batch processing of energy materials, while subject to continuous refinement, is more than half a century old.  Current lithium-ion battery manufacturing processes are by their nature inefficient, consuming large amounts of heat, space and time.  Incumbent battery manufacturers have invested billions of dollars in current manufacturing technologies.  Those investments are sunk costs, which have not been amortized.  Accordingly, incumbent manufacturers have little incentive to invest in expensive new manufacturing technologies.

In short, battery manufacturing technology is ripe for disruption.

In 2008, NAATBatt advocated the formation of a national consortium, based on the example of Semitech in the semiconductor industry, to study and improve the manufacture of lithium-ion batteries in the United States.  It is time to dust off and reconsider that proposal.

A national battery manufacturing consortium would study and develop next generation tools for manufacturing lithium-based battery cells at scale.  The consortium would license and test manufacturing technologies from multiple North American-based companies.  It would also draw on the expertise of U.S. semiconductor manufacturers, as next generation electrode printing technologies could draw heavily on manufacturing processes developed in the semiconductor industry.

It is worth noting that while the European Commission’s recent approval of $3.5 billion in subsidies for European battery supply chain companies threatens to leave their potential North American competitors behind, none of those subsidies appear directed towards developing next generation manufacturing technology.  Advanced semiconductor manufacturing technology is also not an area in which China has world-leading expertise.

A North American battery manufacturing consortium would be expensive.  Capital costs for battery cell manufacturing equipment are very large, just as in the semiconductor industry.  But the consortium could generate revenue to offset its cost to the government by toll manufacturing battery cells for North American battery companies serving smaller markets.  This would be an important resource for battery consumers in North America, most particularly for the U.S. Department of Defense, which has a critical shortage of domestically-manufactured lithium-ion batteries.

Establishing a consortium to develop next generation manufacturing technology for lithium-based batteries is the third part of an advanced battery industry plan for North America.  While this is the longest-term part of the plan, it is the part that may one day make North American companies and workers leaders in the advanced battery industry rather than just consumers of other nations’ superior technologies.