The CHIPS Act Is Essential. So Is a Resilient EV Battery Supply Chain
This week, both houses of the U.S. Congress approved the $280 billion bill aimed at boosting the semiconductor industry. But opponents object to the $52.7 billion subsidy for semiconductor firms such as Intel to expand their manufacturing facilities when their profits are high and the market is strong.
However, if one can look beyond this controversial direct subsidy, the CHIPS and Science Act of 2022 offers a new opportunity to rejuvenate the semiconductor industry that was once dominated by the United States in the 1980s. The bill allocates $11 billion for supporting advanced semiconductor manufacturing research, and a $2 billion fund to support technology transfer from laboratory to applications. This funding can stimulate research and development that are needed to develop future generations of semiconductors.
The CHIPS Act is an essential step to build a resilient supply chain for semiconductors. However, one should not downplay the importance of developing a sustainable supply chain for EV batteries that are critical for reducing greenhouse gas emissions, and for achieving the 50% electric vehicle adoption rate by 2030.
Semiconductor shortages began in September 2020, but lithium batteries for electric vehicles could be in short supply by 2024, followed by a lack of raw materials such as lithium and cobalt by 2027. The Biden administration must take some proactive steps to support the EV market in the U.S. and beyond. I propose the following steps.
First, almost 40% of the world supply of lithium batteries is controlled by Chinese firms such as BYD and CATL. As the United States calls for decoupling from China, securing alternative suppliers of lithium batteries with Korea’s LG Chem and Japan’s Panasonic is an immediate step. This step also fits U.S. Treasury Secretary Janet Yellen’s friend-shoring agenda to trade with trusted partners, dividing countries into friends or foes.
Second, like the CHIPS Act, the Biden administration should develop incentive programs for producing EV batteries in the United States, creating more jobs. The European Union is taking the lead to allocate $3.5 billion to support battery manufacturing and research so that it can become less dependent on Asian suppliers. In the United States, General Motors is working with Korea’s LG Chem to develop a plant to produce EV batteries in Ohio. But more government support is necessary to create a thriving EV battery industry in the United States.
Third, lithium and cobalt are two essential minerals for producing lithium batteries, but these two minerals are in short supply. There is a need to increase supply of lithium as worldwide demand will outstrip its total supply by 2025, according to the International Energy Agency (IEA).
Fortunately, the United States has approximately 10% of the world's lithium reserves, located in states including Nevada, North Carolina and North Dakota. For instance, North Carolina has one of largest and richest spodumene ore-deposits in the world, and Piedmont Lithium of North Carolina is the only fully integrated spodumene-to-lithium hydroxide mining operation in the United States. (Spodumene is a mineral that lithium is extracted from.) Also, in July 2021, General Motors made a multi-million dollar investment in Australia’s Controlled Thermal Resources (CTR) to bolster the mining firm’s efforts to extract lithium from California’s Salton Sea Geothermal Field with an estimated reserve of 600,000 tons of lithium carbonate annually. However, extracting lithium would face opposition because of their environmental concerns over mining operations.
Increasing cobalt supply will be even more challenging because 70% of the world’s cobalt is first mined from the Democratic Republic of the Congo, a process that involves forced and child labor, and then refined in China. To secure the cobalt supply from Congo in the future, China took proactive steps in navigating Congolese politics, lobbying powerful politicians in mining regions. In 2020, Chinese firms owned or had a stake in 15 of Congo’s 19 cobalt-producing mines.
To develop a sustainable supply chain for EV batteries, there is an urgent need to develop alternative battery technology that reduces or eliminates the use of lithium or cobalt. Tesla partnered with China’s CATL to develop battery cathodes without cobalt in 2020, and Oak Ridge National Laboratory is developing a new class of cobalt-free cathodes for EV batteries. In the longer term, Toyota has developed its solid-state batteries, which appear to be more promising because of their light weight and faster charging properties.
Ultimately, government support is essential to stimulate collaborations between private firms and research centers and laboratories to conduct research that can be used to develop innovative EV batteries that are powerful, sustainable, and environmentally friendly.
Christopher S. Tang is the Edward W. Carter chaired professor at the UCLA Anderson School of Management.
