How the U.S. Can Win the Next Leg of the EV Race
(Bloomberg Opinion) -- The race to build and capture large swathes of the global electric vehicle supply chain is gathering pace. At this rate, it won’t be about who comes in first — that’s already clear — but who can do it best.
China is well ahead of its competition, whose talk about EV battery supply chains is still mostly that — just talk. It took until June for the U.S. to announce it would establish large-scale production plans over the next decade. While it has developed disparate parts of the supply chain, the country is a long way from having a full, integrated ecosystem that’s ready to churn out hundreds of thousands of batteries that will power all of the vehicles forecast.
Billions of dollars of investment make for good hype, but the global challenge is that there is no standardized, best-in-class battery yet. That, in turn, means, there isn’t a finish line. For all the progress that’s been made in recent years, different battery chemistries still face a plethora of issues. Yet manufacturers and upstarts are forging ahead. Already “the birth of the battery economy is reshaping century-old supply chains and creating a new industrial order,” as Morgan Stanley analysts noted recently.
In all this flux, what should manufacturers of batteries and cars commit to? It’s a tough call. Either you go with the best — and safest — technology to date, pledging to build capacity by investing in factories and machinery, securing raw materials, and funneling heaps of capital toward research and development. Or you wait it out, focusing on the future without investing too much in what’s commercially viable today. In this scenario, hopefully, you’ll be one step ahead in the next couple of years.
The world’s largest battery maker, China’s Contemporary Amperex Technology Co., or CATL, shows that the only profitable way forward, so far, is Option A. The company has managed to keep one foot in older battery technology, improving the production process and ensuring it has the supplies to make powerpacks at scale. At the same time, it’s investing in the latest advances, scooping up or partnering with materials suppliers, miners and automakers. Its batteries are now used in many Teslas that will be exported across the world. No doubt, the company has been helped along by Beijing’s subsidies.
The ability to access every part of the supply chain — from raw materials like lithium, to the cathodes and anodes and packaging for cells — has given CATL, and China more broadly, a head start. The company’s position has helped avoid the pain of sharp price rises of raw materials that have hit competitors. The control over suppliers and tight relationships with customers have warded off some cost pressures. In turn, the company has protected its profit margins, bolstering its ability to expand and raise capital.
Yet growing imbalances in the broader market, and worries that we could face a global battery shortage as manufacturers race to put capacity in place, mean that automakers go with whatever is available right now. That’s where the risk is. The momentum of demand will pressure supply chains to focus on near-term technology, despite the rapid pace of advancement, potentially making it tough to abandon. While China and its manufacturers are building capabilities to suit both goals — present and future — it’s still too early to say whether this approach is sustainable.
For the U.S., that’s an opportunity. In June, the Department of Energy put out a roadmap to have a domestic battery supply chain in place by 2030. Based on where China is, that deadline is too distant to remain competitive in the current wave. But it does present a chance to leapfrog the challenges of boosting early adoption and enter right when electric vehicles become a large-scale reality with consumer awareness.
Companies in North America and Europe could help create supply chains that aren’t backed by a rush to be first, but instead ones that are sustainable and flexible enough to keep up with evolving technology in a greener way. Sparkz Energy Systems, incubated at a federal lab in the U.S., is looking to commercialize domestically made cobalt-free batteries by next year.
The supply chains of the future will have to look different. Instead of developing fixed ways to make batteries, we’ll need flexible manufacturing systems that can adapt to evolving chemistries and production processes, and a variety of sources for raw materials, while providing more margin for trial and error. The result should be a more sustainable and lower-emission way forward. Supply chains also need to be built with the knowledge that things will change — very soon. Companies that aren't ready will face problems that look very much like those of traditional carmakers right now, which are stuck in their old ways of manufacturing and struggling to start churning out EVs, despite pledging billions of dollars to do so.
Much of this will depend on the amount of policy and capital support, but also companies' focused approach to battery-making and manufacturing. Though the U.S. has missed the first wave of opportunity, it now has a chance to win the technology race and make sure the best batteries keep coming out and are manufactured at scale. If that process is dynamic, then supply chains will be, too. Otherwise, China and the likes of CATL will stay ahead.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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