EV tax credits could stall out on lack of US battery supply

However, he adds, the timelines are “hugely ambitious,” and the bill is “basically setting targets that people may be unable to meet.”

Last week, E&E News reported that climate activists are already worried about whether carmakers will be able to satisfy the new requirements.

Battery manufacturing is growing in the US and Europe, and leading domestic car makers, like GM, have recently announced investments to build massive new battery factories. But the US has a lot of catching up to do.

About 80% of lithium-ion battery cells are made in China today. The country also dominates the supply chain for many of the materials used in batteries, including critical minerals, says Henry Sanderson, executive editor at Benchmark Minerals Intelligence.

Almost all the graphite used for battery electrodes comes from China and is processed there, Sanderson says. Lithium, while mined mostly in countries such as Australia and Chile, is processed in China as well.

Nickel could also be difficult to source for automakers hoping to qualify for the credits, Sanderson says, since most of it is processed in Indonesia, which doesn’t have a free-trade agreement with the US.

Planning and building new mines can take upwards of seven years, meaning that mineral supply isn’t something that can change overnight. Recycling could eventually supply a significant amount of battery materials, but it’s unlikely it will make a dent anytime soon, Sanderson says, since the number of EVs reaching the end of their life right now can’t keep up with the exponentially rising demand.

In any case, setting requirements for batteries tied to consumer tax credits won’t be enough to actually transform supply chains, Nahm says. Other supporting programs included in the new bill, like production tax credits and loans for building new factories, will also be key. 

The ambitious EV tax credits could play a role in building domestic battery manufacturing and encouraging new supply chains in the US. But whether those changes will come fast enough to keep up with booming EV sales remains very much an open question—one that will likely determine just how effective the new bill is in transforming the US vehicle fleet.