Good morning, ladies and gentlemen. Thank you for the invitation to speak this morning to the Hamilton Commission. My name is Jim Greenberger and I am the Executive Director and founder of NAATBatt International, the trade association of developers, manufacturers and users of advanced battery technology in North America. Since 2008, NAATBatt’s mission has been to promote the use and manufacture of advanced batteries in the United States and the growth of the good American jobs that manufacturing will create. Today, NAATBatt has 164 corporate and institutional members representing all elements of the advanced battery supply chain in North America.
I want to begin my remarks by addressing the basic question of why battery technology is important to the United States. In truth, it is not because of batteries. Battery technology has been known to mankind for more than 2,000 years. For most of those 2,000 years, battery technology was a curiosity, a facilitator of magic tricks. It was not until the invention of the lead acid battery in 1859 that batteries could generate enough electricity to power major mechanical processes.
We are here today because of another, more recent discovery: the lithium-ion battery, first commercialized in 1991. Lithium-ion batteries are high power batteries enabled by the fourth lightest element in the universe: lithium. Because of their relatively light weight and high-power density, lithium-ion batteries can provide electric power to a device located anywhere in space without the need of an electricity cord. The significance of lithium-ion batteries is that they make electric power portable in ways and at a scale that has never before been possible.
Portable electricity is the real story. Whereas 20th Century technology was largely powered by heat-based fuels, 21st Century technology will be powered by electricity. Don’t blame the battery. Computers, wifi and databases just don’t run very well on gasoline.
Many people believe that the move to electric vehicles is driven solely by concerns about climate change. That is not true, though reducing carbon emissions is a very nice side benefit. The electrification of vehicles has been going on for 50 years. It started with power locks and power windows, moved on to heated seats and navigation systems, and is now working its way into the vehicle drivetrain. Vehicles are simply becoming computers on wheels. It is the natural progression of 21st Century technology.
Since the beginning of NAATBatt we have warned that “He who makes the batteries will one day make the cars.” That is a big deal considering that vehicle manufacturing employs about 1 million Americans and, when you consider indirect employment, it is the second largest employer of Americans after healthcare.
But even that undersells the importance of lithium batteries. We already know that lithium batteries will enable future cars, buses, drones, consumer devices, medical devices, monitoring systems, renewable energy systems, aircraft and high-power weapons systems. What we don’t know is what additional technologies and devices they will also power by 2040 and 2050.
Let me illustrate the potential with a question: What do the following five major U.S.-based companies have in common: Microsoft, Google, Facebook, Amazon and Apple? The answer: None of them makes semiconductors. Yet I will tell you to the point of virtual certainty that had U.S. companies, entrepreneurs and workers not dominated semiconductor and computer hardware manufacturing in the 1960’s, ‘70’s and 80’s, while all those companies might exist today, they would not have developed or be headquartered in the United States.
This is the challenge we face today with lithium-ion batteries. The difference is that unlike the semiconductor industry of the 1960’s, ‘70’s and 80’s, in lithium-ion battery manufacturing U.S. companies and U.S. workers are starting out 10 years behind our economic competitors and strategic rivals. We need to catch up, and we need to catch up quick.
Before I jump to my thoughts on how we can catch up and the challenges of the North American lithium-ion battery supply chain, I want to review briefly the basic components and structure of a lithium-ion battery.
The basic unit of a lithium-ion battery is the battery cell. The cell has two electrodes, one positive, one negative. The positive electrode is called the cathode. The negative electrode is called the anode. A cell produces electric power by moving electrons between the cathode and the anode. In moving between the two electrodes, the electrons travel through a liquid salt called an electrolyte. There is also a physical barrier between the cathode and the anode called a separator. The separator keeps the two electrodes from touching each other and shorting out the battery, but has properties that allow the electrons to pass through the separator uninhibited.
Of the four key elements of the battery cell—the cathode, anode, electrolyte and separator—the cathode, or positive electrode, is the most complicated and expensive part of the cell. The cathode consists of a number of different metal powders that are blended, shaped, and coated to the proprietary specifications of a battery cell makers based on what the cell maker wants the battery cell to do. The principal metals used in a lithium-ion battery cathode are lithium, nickel and cobalt. The cathode generally accounts for about 50% of the cost of the entire cell.
The anode, or negative electrode, is also a mix of metals that are mixed, shaped and coated to the proprietary specifications of the cell maker. Typical materials used in the anode are natural graphite, artificial graphite and silicon.
The electrolyte is generally a lithium-based salt that is dissolved in a solvent. Most electrolytes today are liquids and can be toxic and flammable. When you hear about solid state batteries, that generally refers to next generation batteries that will replace the liquid electrolyte with a solid electrolyte that solves the toxicity and flammability problems and enables the use of new anode materials that can make the battery more powerful.
Finally, the separator is a woven or non-woven material that is processed and coated in ways that are proprietary to each separator and cell manufacturer.
In a vehicle application, battery cells are strung together into units call modules. Modules are then assembled into larger units called battery packs. Battery packs include components such as battery management systems, which are essentially mini-computers that allow the cells within the pack to communicate with each other and with the vehicle. Battery packs also typically include thermal controls, which keep the cells cool and prevent fires. Light electric vehicles, such as passenger cars, generally contain one battery pack per vehicle. Battery packs are usually proprietary to the vehicle manufacturer and can very widely in shape, size and composition from vehicle model to vehicle model.
Electric vehicles are the largest users of lithium-ion batteries. It is estimated that by 2030, light vehicles, commercial vehicles, and buses will account for about 90% of the lithium-ion battery market.
So now that you are all experts in the importance of lithium-ion batteries and their components, let’s talk about the supply chain for lithium-ion batteries in the United States.
It will come as no surprise to any of you that the United States has fallen far behind Asian nations, in particular behind China, in the production of lithium-ion batteries and their components. The heart and soul of the lithium-ion battery supply chain is, of course, the lithium-ion battery cell. According to BloombergNEF, 78% of the global commissioned cell manufacturing capacity today is located in China.
As you move up the supply chain, into the component parts of the battery cell, the story is much the same. As I previously mentioned, the single most expensive and arguably most important part of the battery cell is its cathode, or positive electrode. Making cathode materials is a complicated chemical process. It is not just a matter of mixing metal powders into the right blend. You have to mix those powders in a correct environment, layered in a certain way, the particles must be of a certain size and shape, and in some cases the particles themselves must be coated. All of this must conform to the proprietary specification of the cathode makers who tend each to have close a relationship with a specific battery cell maker. Today, China, Japan and South Korea collectively account for about 94% of cathode materials manufacturing capacity worldwide.
Digging farther down into the supply chain of the metals that go into the cathode, it is a more complicated story, but one with the same unfortunate conclusion. In the mining of lithium, China, Australia and Chile account for 83% of the lithium mining nameplate capacity in the world. The United States accounts for less than 1%.
In cobalt, the Democratic Republic of the Congo accounts for 78% of all cobalt mining nameplate capacity in the world. Canada comes in at about 2%.
The supply of class 1 nickel, which is what is used in batteries, is somewhat less concentrated. Russia, China and Indonesia together account for about 37% of nameplate mining capacity, with Canada accounting for about 17% and the United States about 1%.
Recycling used battery cells can also contribute to the energy materials supply chain. But given the rate of growth in the electric vehicle market, which is starting at a near negligible base, and the long life of most lithium-ion vehicle batteries, it will be many years before battery recycling feedstocks are able to make a serious contribution to the upstream energy materials supply base.
The more pressing near-term bottleneck in the lithium-ion supply chain, however, is not in upstream energy materials as much as in the mid-stream refining of those materials into the processed chemicals that are used to make a battery cathode. Today, 61% of all lithium used in batteries is refined into lithium hydroxide or lithium carbonate in China. In cobalt, 72% of all cobalt refined into cobalt sulfates and oxides used in cathode material production is refined in China. The refining of nickel, which is used primarily in stainless steel, is a bit more widespread, with China and Russia accounting for about 37% of refining capacity while Canada, Japan, Australia and Europe collectively account for about 55% of capacity. The refiners of mined energy materials tend to have close relationships with individual makers of cathode materials.
For the sake of time, I will not go through the separate supply chains for anode materials, natural and synthetic graphite, silicon, electrolytes and battery management systems. But in all those areas, U.S. companies lag significantly behind their Asian competitors, some of which have been serving the battery market since the advent of the lithium-ion battery in 1991.
So why is it that the United States lags so far behind its competitors and trading partners in Asia, and increasingly behind its trading partners in Europe, in building out a lithium-ion battery supply chain? The answer is simple. I call it the “Willie Sutton Rule.” As you will recall, Willie Sutton was a bank robber in the 1920’s. When asked why he robbed banks, Willie thoughtfully replied “that is where the money is”.
The same is true in lithium-ion battery production. Cell manufacturing and the upstream battery supply chain will grow up where the batteries are, or where, more precisely, they are installed in vehicles. Battery cells are complex and heavy to transport. It makes economic sense to build them close to where the vehicles in which they will be installed are manufactured.
A little more than 10 years ago, China made a strategic decision to support the growth of a large electric vehicle industry in China, which it did using all the robust tools of a command economy. Up until last year, when it was surpassed by Europe, China was the largest market for electric vehicles in the world. There are more than 500,000 electric buses on the road in China today. In the United States there are just a few thousand. That is why China makes 78% of lithium-ion battery cells in the world. China has not out-competed the United States. It has just been where the money has been in lithium-ion batteries for the last 10 years.
There is no reason why a robust lithium-ion battery supply chain cannot be built in the United States. There have already been many announcements about new manufacturing projects and mineral extraction projects planned in anticipation of a growing electric vehicle market. All those projects need to be capitalized and move forward is a clear and consistent signal as to the timing of the electric vehicle market. That is what Chinese battery makers got from their government ten years ago. It is what European manufacturers and miners are getting from their governments today. Unfortunately, U.S. manufacturers have never gotten a consistent signal from their government as to when a real push into vehicle electrification is going to be made. If you need to invest a billion dollars or more in a plant or a mine, you really need that signal. Getting the timing wrong on when to make a major investment in a new technology is not a palatable option for most private companies.
So the good news is that if Congress and the Administration can send a clear and consistent signal to industry as to when vehicle electrification in the United States will be fully supported and encouraged, major investments will be made by the private sector and a robust lithium-ion supply chain will develop in the United States to service that demand. I am personally confident that there is little else the U.S. government will need to do, if the goal is simply to build a lithium-ion battery supply chain in the United States.
But commissions are not constituted to hear good news. Therefore, I want to honor your service by also giving you some bad news. The bad news is that if all we do is increase demand for electric vehicles in the United States without more, the resulting lithium-ion battery supply chain will have limited opportunities for U.S. companies, entrepreneurs, technology developers, and well-paid workers.
The reason for this is because the U.S. lithium-ion battery supply chain has a timing problem. The problem will impair the development of a domestic supply chain in two ways: First, even if we had certainty tomorrow about the size and timing of the electric vehicle market, it will take years to build out the lithium-ion battery supply chain businesses we need in the United States. A recent presentation by Benchmark Minerals Intelligence estimates that it takes 1 to 2 years to build a cell manufacturing plant, 2 to 3 years to build a cathode production plant, 3 to 5 years to build a plant dedicated to processing energy materials, and 5 to 25 years to open a lithium, nickel or cobalt mine.
So as the U.S. market for electric vehicles grows, we are going to be dependent upon foreign imports of materials and cells for the foreseeable future. The trick is how to allow the use of those imported materials without undercutting the business case for investing in their domestic production.
The second problem is that many of our foreign competitors, including China, Japan and especially Korea, are at least 10 years ahead of any U.S. company in lithium-ion battery cell manufacturing and its upstream supply chain businesses. This 10-year head start has given those companies manufacturing expertise in lithium-ion battery technology and, more importantly, an opportunity to grow to scale. That expertise and the cost advantages that come with scale will make it very difficult for start-up U.S. battery cell manufacturers to compete with those companies internationally or even, without some sort of assistance, in the U.S. market itself.
So the result of that 10 year head start is that if we build a lithium-ion battery supply chain in the United States today, it is likely to be dominated by foreign-owned multinational battery cell manufacturers. Those manufacturers have their own existing suppliers from whom they will either import battery components or bring those suppliers with them to the United States. Foreign battery cell manufacturers can be expected to use their own manufacturing engineers and scientists in order to protect their manufacturing know-how. They can also be expected to commercialize their own research and development in preference to research and development generated by U.S. companies and entrepreneurs. Foreign-based manufacturers will own any branding or spin-off technologies generated by their U.S. manufacturing operations.
So why is this a problem? After all, we will get a lot of new battery factories. Back in 1992, Stan Shih, the founder of Acer and now a director of TSMC, described graphically how value added varies across different stages of bringing a product to market. Mr. Shih suggested that the graph looks like a smile. The curve up the left cheek describes the significant value created by research and development of new technologies. The curve up the right cheek describes the significant value created by branding and sales and marketing. In between, the lowest part of the smile, is the value created by the process of fabrication. That value is significantly less than the value created at the cheeks.
What we are doing if we create a lithium-ion battery supply chain in the United States owned principally by foreign-owned multinational corporations is giving away the opportunity one day for American companies, entrepreneurs and workers to take advantage of the huge value creation opportunities on the cheeks of lithium-ion battery technology in exchange for assembly jobs. That is not to discount the value of assembly jobs to those that hold them. But, as Willie Sutton would say, that’s not where the money is.
The object of this commission should not be to figure out how to build a lithium-ion battery supply chain in the United States. That is going to happen anyway as soon as Americans start buying electric vehicles in large numbers. The object of this commission should instead be to figure out how America does not become to Asian battery manufacturers what Mexico is to the U.S. auto industry: a mere assembler of someone else’s products. That is a question worthy of your attention.
In conclusion, I would make four suggestions to this commission about how we can prevent that from happening:
First, focus first and most primarily on generating demand for electric vehicles in the United States. There is no more effective tool for building a supply chain than building predictable demand for a product that the chain will supply. NAATBatt is very excited about President Biden’s American Jobs Plan proposal to spend $174 billion on vehicle electrification in the United States. This demand-side approach to purchaser incentives is likely to be far more successful than the supply-side incentives for the battery industry which characterized the American Recovery and Reinvestment Act of 12 years ago.
Second, tie the purchaser incentives and government procurements to domestic battery manufacturing as much as possible and prudent. American taxpayer dollars should be used to support American manufacturers and American workers. Taxpayer-subsidized electric vehicles should have American-made batteries. Of course, defining what an American-made battery is will be the details in which the devil will live. But an intelligent definition that takes account of growing domestic battery supply chain capabilities over time is possible and warranted.
Third, we must encourage the development of domestic battery manufacturing champions. Domestic battery champions will be most likely to use domestic suppliers, engineers, scientists, sales managers and U.S.-developed battery technology. Encouraging the vertical integration of the lithium-ion battery supply chain, with U.S.-based vehicle manufacturers owning direct, controlling interests in battery cell manufacturers would in my view be optimal.
Fourth, to the extent that domestic battery champions will be foreign-owned multinational corporations, we need to find ways to encourage the U.S. domestication of many of their important business functions. This is not a novel challenge. The United States faced a similar challenge with Japanese auto companies back in the 1980’s. Today, companies such as Honda and Toyota are valued members of the U.S. automotive supply chain, employ many Americans in responsible and high-paying jobs, and conduct much of their research and development and sales and branding activities in the United States. We need to dust off our playbook from the 1980’s and see what in it may be applicable to the U.S. lithium-ion battery supply chain of 2021.
Thank you for your attention.