Biden's plan to rev up electric car market is complicated by battery supplies
Washington — President Joe Biden's plan to jump-start the U.S. electric vehicle market faces a roadblock: a weak supply chain that is making it difficult for American automakers to get enough batteries to scale up production.
And that shortage could get worse, depending on whether Biden intervenes this week in a dispute between two top South Korean manufacturers over moves by one to open a battery plant in Georgia to serve the U.S. market. Hanging in the balance are plans by Volkswagen AG and Ford Motor Co. to roll out about 340,000 new electric vehicles over the next several years.
The two South Korean rivals, SK Innovation and LG Energy Solution, are fighting over a factory that SK has been building in Commerce, Ga., to serve VW and Ford, among others. LG accused SK of stealing trade secrets, and the U.S. International Trade Commission agreed, ruling that SK can make batteries in Georgia for four years before it must essentially shut down its new plant.
Biden has until April 11 to overturn the ITC ruling.
"Remember that old proverb," Biden said in February when he signed an executive order to review supply chain issues involving electric car batteries. " 'For want of a nail, the shoe was lost. For want of a shoe, the horse was lost.' And it goes on and on until the kingdom was lost, all for the want of a horseshoe nail. Even small failures at one point in the supply chain can cause outside impacts further up the chain."
Many companies are eager to answer Biden's call, offering myriad solutions, including scooping up rare minerals that lie in softball-size nodules on the ocean floor, changing battery chemistry and assembling and packing battery cells in factories across the United States.
"There is an arms race around the world to build as much lithium capacity as possible to gain dominance in the electric vehicle space," said Simon Moores, managing director of London-based Benchmark Mineral Intelligence, specializing in lithium-ion batteries and the electric vehicle supply chain.
The decision in the trade case, which was before the U.S. International Trade Commission, would force SK to shut down its Georgia plant. Moores, who was paid by SK to study the U.S. market, says closing that factory would take 15% of batteries off the market this year and 8% in 2030, reducing U.S. capacity by more than 50,000 vehicles a year.
The race to create a better supply chain is not limited to lithium-ion batteries. One of the people trying to get in on the supply chain portion of the $174 billion worth of electric vehicle spending proposed in Biden's infrastructure package is Gerard Barron, chief executive of DeepGreen Metals, a start-up that raised about $600 million in March to collect the mineral-rich rocks from the ocean floor. Despite some issues with environmentalists, company officials have met with Energy Department officials and visited Texas, Quebec and Norway in search of a place to build a processing plant and to offer cheap energy to run it.
U.S. battery makers must import minerals such as lithium, cobalt and nickel, which make up about half the cost of their product.
"If we want to decouple from China, that's a dangerous game," Barron said. He noted that the Chinese own 40% of the world's cobalt, but that more than 90% goes to China for processing.
Other companies are improving batteries or components.
"We don't have a supply chain in the United States. I think we're trailing behind," said Francis Wang, chief executive of Chicago-based NanoGraf, which has developed a silicon anode that can be dropped into batteries to improve their longevity and recharging speed.
Doing more than that is an imposing task. "The battery business is a tough business," Wang said. "It's incredibly capital-intensive. It costs millions if not billions of dollars to get a factory off the ground. The margins are pretty tight. Razor thin. And there is a tremendous amount of risk."
Those tensions are what have raised the stakes in the Georgia battery case.
It began with LG accusing SK of stealing LG's technology and violating 22 of its trade secrets for the giant plant that's under construction. The ITC said that for a limited time, SK could make batteries only for its two big future customers, Ford and VW, to give them time to search for alternatives. Then the factory would have to effectively close down.
Ford and VW had been SK's main customers - Ford for its popular F-150 and VW for its MEB brand. Now the companies will try to find an alternative supplier during a surge in industry demand.
But that's not easy. Electric vehicles are judged, in part, by the quality of their batteries. "It's not the kind of thing where you can flip a switch and go to different chemicals and different costs," one industry executive said. Moreover, he said, "we need all the battery supply we can get," and "there is more than enough business" for both LG and SK.
SK has lined up prominent advocates to press its case. One, former deputy attorney general Sally Yates, said the factory should stay open to avoid disrupting the American economy and the fight against climate change. She said the two South Korean firms should fight it out in U.S. District Court, where LG is suing SK.
"We have a severe shortage of EV batteries in the U.S. with insufficient domestic production and the SK plant in Georgia is necessary to address this supply chain threat," she wrote.
Recently, two administrative judges at the ITC issued their decisions that found no violation of LG's patents. SK's lawyer Sturgis Sobin, a partner at Covington & Burling, wrote to Katherine Tai, the new U.S. trade representative advising Biden on his decision, though she has no authority of her own. Sobin urged the matter be left to the District Court "rather than rush headlong into the shuttering of this critical plant and the loss of thousands of jobs associated with it."
LG's lawyers say the Biden administration should let the process work - and the deadline pass. David Callahan, a partner at the Latham & Watkins law firm, said the two recent ITC cases were unrelated to the first case, even though LG was suing SK in one case and SK suing LG in the other.
Callahan also disputed the idea that the United States is heading toward a shortage of EV batteries. He said LG Chem has a plant in Holland, Mich., that has been making batteries for about eight years and a joint venture with General Motors in Lordstown, Ohio. Last month, he said, LG announced $4.5 billion in commitments for two additional battery plants. Separately, Samsung announced last month that it would build a plant to make battery cells, which Samsung already imports and assembles.
The process resembles the auto industry today, which imports a variety of parts then assembles or sells them. For example, Cars.com's 2019 American-made index said: "The Chevrolet Bolt EV is built in Lake Orion, Mich., but with a drivetrain from South Korea, U.S. and Canadian content is 18 percent."
In the case of electric vehicles, automakers and their contractors must make battery cells, configure them into modules, build those modules into packs, then stick control devices on the packs. Samsung has been assembling packs from cells made overseas for years, Callahan said.
Even if there is an energetic effort to bolster the U.S. electric vehicle supply chain, it could be slow going. "Any battery plant that wants to start up now won't be ready until 2025 at best," Moores said. Although actual construction might take 2 1/2 years, it takes more time to find a site and get permits. Lithium mines take seven years, he said. Then the batteries must undergo tests to avoid failures.
Meanwhile, China continues to build its own plants and export its components, even as U.S. and European leaders talk of competing against it.
Moores said that "when you hear the government or even Detroit guys talking about millions and millions of electric vehicles, if you're not going to make them in America, you will have to import them - most likely from China."