This story is part of our special series "Made in the USA: Ramping up clean energy manufacturing." Read more.

The US has big EV goals. Can the domestic EV industry meet them?

The IRA has unleashed investment in U.S. EV and battery manufacturing. But China’s dominance of the supply chain complicates Buy American” ambitions.
By Jeff St. John

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A stylized graphic showing a row of white EVs on a blue surface against orange backdrop patterned with stacks of $100 bills
(Binh Nguyen/Canary Media)

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Jay Turner is having a hard time keeping up with the flood of investment in the U.S. electric-vehicle supply chain that was unlocked by last year’s Inflation Reduction Act. Every week it seems there’s a new announcement, and that means he has to update his tally of the tens of billions of dollars and thousands of jobs flowing into the space.

The latest update in late May from Turner, a professor of environmental studies at Wellesley College and author of Charged, a book on the history of batteries, tallied 48 new projects representing a combined $50.3 billion in investment. That’s at least $3.8 billion more than he and his students had tallied just 30 days before.

Since late April, General Motors and Samsung SDI announced plans to invest more than $3 billion in a battery factory. Anovion, a maker of graphite for lithium-ion batteries, unveiled plans for an $800 million production facility in Georgia. And Tesla began construction of a $375 million lithium refining plant in Texas expected to supply enough material for the lithium-ion batteries in about 1 million EVs per year by 2025.

All told, the U.S. has seen 331 gigawatt-hours of new planned battery production capacity announced since the Inflation Reduction Act became law, and it’s on track to crank out 910 gigawatt-hours’ worth of batteries each year by 2030. That’s more than enough to supply the projected 5.3 million EVs per year the country will be able to produce by 2030 if current manufacturing plans come to fruition, up from 1.6 million per year today.

These are enormous, unprecedented investments,” Turner said. China has seen this in the past decades. But the U.S. has never seen it.”

Still, will it be enough?

Electric vehicles are a vital tool for reducing the roughly 29 percent of U.S. carbon emissions that come from the transportation sector. The Biden administration has set a goal of EVs making up half of all new light-duty vehicle sales by 2030, and the Inflation Reduction Act has boosted those ambitions with tax credits and incentives for domestic manufacturing of EVs, batteries and critical materials, and for the consumers and companies that buy them.

Those incentive structures are meant to help the U.S. lock in a significant share of EV manufacturing as the global car industry undergoes an epochal shift. According to an October 2022 analysis from Reuters, automakers including BMW, Ford, General Motors, Hyundai, Mercedes, Nissan, Stellantis, Volkswagen and a host of Chinese companies plan to invest a collective $1.2 trillion through 2030 in EVs and batteries globally. Washington, D.C.-based analysis firm Atlas Public Policy came up with a lower figure of $860 billion by 2030 in a January forecast but projected that nearly a quarter, or $210 billion, will be invested in the U.S., more than in any other country.

But for now, China overwhelmingly dominates much of the EV supply chain, from the refining of minerals to the production of cathode and anode materials to the manufacture of battery cells and EVs themselves. EV and battery capacity in the U.S. may be set to expand roughly twentyfold over the next decade, but that’s starting from a minuscule share of global supply, as indicated by this chart from a July 2022 report by the International Energy Agency.

All of this creates a fundamental tension for U.S. EV policy. How should the country balance the goal of getting as many EVs onto America’s roads as quickly and cost-effectively as possible with the goal of fostering the growth of a domestic industry that can supply as much of that domestic demand as possible?

The debate over consumer EV tax credits

For the U.S., that tension has come to a head in the debate over the Inflation Reduction Act’s 30D tax credits — the well-known credits of up to $7,500 for individuals or companies that purchase a plug-in EV or fuel-cell electric vehicle. But determining which vehicles are eligible for those credits depends on a complex and still-evolving set of rules regarding how much of a battery and the battery materials in it must come from the U.S. or U.S. free-trade partner countries. And under a future stage of implementation that could come as early as next year, the tax credits will not be available for EVs that contain any materials or products from foreign entities of concern,” a designation that includes China.

At the center of this debate is U.S. Senator Joe Manchin, the West Virginia Democrat who played a pivotal role in crafting the tax credit and enabling the Inflation Reduction Act’s passage in a closely divided Senate. He wants the tax-credit rules to strictly limit the eligibility of models with foreign battery components, a means of pushing EV manufacturers and their suppliers to set up shop in the U.S. Manchin has railed against the Biden administration’s slow rollout of the rules, and he threatened to sue the federal government in advance of the U.S. Treasury Department’s April rollout of relatively relaxed guidance on domestic and free-trade-partner content requirements.

Those rules require at least half of the value of battery components to be produced or assembled in North America to qualify for half of the credit, $3,750, and 40 percent of the value of critical minerals in those batteries to be sourced from the U.S. or a free-trade-agreement country to qualify for the other half. Those requirements will rise by 10 percentage points per year, ratcheting up the pressure on automakers to invest in and source from an increasingly domestic supply chain in the years to come. Also, rules in place since the start of this year require EVs to undergo final assembly in North America to qualify for the tax credit.

The rules on final assembly mean the credit won’t be available for EVs from Hyundai and its subsidiary Kia, which are now assembled in South Korea — a fact that’s prompted the two automakers to plan to move some of its EV production to the U.S. The domestic-content and free-trade-country rules for batteries and materials disqualify EV models from Audi, BMW and Nissan, and limit other models to only partial credits of $3,750, such as the Ford Mustang Mach-E.

But the full $7,500 credit is available for the best-selling EV in America — the Tesla Model Y — and about a dozen other EV models, including the Cadillac Lyriq, Ford F-150 Lightning, Volkswagen ID.4, the soon-to-be-discontinued Chevy Bolt, and three other Chevy EVs, the Blazer, Equinox and Silverado.

Those eligible models currently make up more than 90 percent of the U.S. EV market, said Albert Gore, executive director of the Zero Emission Transportation Association, a trade group that represents a wide array of automakers, battery manufacturers, mining companies, makers of EV charging equipment, utilities and other companies invested in a growing domestic EV market. (Gore is the son of the former vice president.)

That’s good news for the automakers that qualify, as well as for consumers looking for affordable EVs, Gore said. 

It’s not good news to Manchin’s ears, though. The senator wants to put much more pressure on the EV and battery industries to rapidly build facilities in the U.S., and he doesn’t want to support the EV sector until that happens.

Gore noted that it’s going to take time for North America’s EV supply chains to develop sufficient capacity to serve increasingly stringent sourcing requirements.”

I generally think about the Inflation Reduction Act as trying to accomplish three big overlapping goals,” Gore said. One key goal is making EVs plentiful and affordable. The other two, he said, are securing the supply chain, which means onshoring the capacity from vehicles to batteries and the minerals themselves, but also moving the supply chain away from China and toward countries with which we have free-trade agreements.”

Sometimes it’s difficult to untangle those [last] two things,” he said. For example, the Biden administration in late March announced a trade deal with Japan that could allow Japanese EV battery minerals to qualify under 30D tax-credit rules, and industry observers expect similar efforts with the European Union and other allies in the months ahead.

Big carrots for U.S. manufacturing

The $7,500 EV tax credit for consumers has been getting a lot of public attention, but its impact will likely pale in comparison to tax credits available to EV and battery makers. The pot of money for manufacturers is many times larger.

The 30D tax credit isn’t the most powerful lever to really encourage domestic production of things like cathodes and battery components,” Gore said. 45X is.” He was referring to the 45X production tax credits created by the Inflation Reduction Act — lucrative incentives for domestic production of not just EV batteries but a range of clean energy technologies.

Those include up to $45 per kilowatt-hour for domestically produced batteries, as well as credits of 10 percent of the cost of production for cathode and anode materials and critical minerals. The credits were designed to close the gap in cost between batteries made in the U.S. and those made in China. And because batteries are the most expensive part of an EV, the incentives also go a long way to close the gap on cost parity between EVs and internal-combustion-engine vehicles,” Gore said.

The 45X tax credits are one of the most significant of a number of EV industry supports created by the Inflation Reduction Act and the bipartisan infrastructure law passed in 2021. Atlas Public Policy has tallied at least $83 billion in loans, grants and tax credits from the two laws that could bolster the domestic EV industry and its supply chains, including $8.1 billion of grants and at least $25 billion of loans specifically for the production of low- or zero-emissions vehicles.

Chart of EV industry tax credits and incentives under the Inflation Reduction Act and Infrastructure Investment and Jobs Act
(Atlas Public Policy)

The U.S. Department of Energy also has $7 billion in grant money from the infrastructure law that it can use to directly fund battery and critical-mineral supply chains. The first round of grants in October awarded $2.8 billion to 20 companies that are expected to leverage more than $9 billion in private investment.

What if the manufacturer tax credits are not nearly enough? 

But not all of the companies striving to establish themselves as U.S. contenders in the EV supply chain see these supply-side supports as sufficient to overcome competition from China and other countries. Instead, they fear that lax rules may open loopholes for U.S.-based assembly and manufacturing plants to use imported products and materials at volumes that will stifle U.S. competitiveness in those portions of the battery supply chain.

Take 6K, a U.S.-based company that won a $107 million DOE grant in October to support the development of its plasma-based technology for refining minerals into cathode-grade materials. China now controls most of the world’s supply of cathode materials and cathodes. 6K says its technology can deliver higher-quality products with far less environmental waste than Chinese companies create. If we try to copy China, there’s no way to compete on cost,” said Thanh Nguyen, the company’s senior vice president of deployment. We have to leapfrog the technology.”

But while the 45X program incentivizes domestic cathode production, the Treasury Department’s current rules allow 30D tax credits to be claimed for EVs with batteries that contain cathodes made in China or other countries that aren’t free-trade partners with the U.S., as long as at least 50 percent of the value of the completed product comes from minerals or materials produced in the U.S. or by free-trade partners.

That may undermine the effort to get U.S. battery manufacturers to use domestically sourced cathode material, warned Mary Cronin, 6K’s senior vice president of government affairs. 

All of the supply-side incentives for U.S. manufacturing at present are a good start,” she said. They’re also a drop in the bucket.” 

Think about all the companies that are going to come online with these leapfrog technologies,” she said. We wouldn’t want to see that future not be supported and to have a narrow or limited focus on 30-year-old, dirty, archaic processes to make battery materials.”

Kevin Coakley, CEO of CelLink, sees a similar challenge for his U.S.-based company’s next-generation battery-pack interconnection circuits. CelLink has developed a new way to integrate the wiring, voltage and temperature-monitoring systems that connect individual battery cells in a battery pack, one that reduces about 70 percent of the weight and 90 percent of the space compared to the interconnection systems used in batteries today.

CelLink has won a conditional $362 million loan commitment from DOE’s Loan Programs Office to build its first large-scale U.S. manufacturing site in Texas. It has already integrated its technology into battery packs used by at least one major EV maker — he declined to say which one, although he did say it has about 2.5 million vehicles on the road.

We can compete with what we’d call cobbled-together solutions from China, where they take independent components and integrate them into a subassembly,” Coakley said. But that doesn’t mean that battery makers in China will choose to use CelLink’s technology in lieu of their own. Having a U.S. policy that specifies a value for having this part of a battery be made domestically could help his company’s technology gain traction — but the Treasury Department’s guidance on 30D tax credits doesn’t do that. It appears to discount the innovation,” he said. That creates enough ambiguity that I think you’ll see some loopholes that will be taken advantage of” by automakers and battery makers.

I can understand that we’ve got to start slow [and] not do something that stunts the [EV] industry,” he said. At the same time, the technologies that are used in these packs are very cutting-edge. That’s not something that we should just surrender to China.”

Gore acknowledged these kinds of challenges and noted that U.S. policymakers face a chicken-and-egg problem in crafting industrial policy that can accommodate the lack of U.S. battery-materials capacity today while also encouraging U.S. battery manufacturers to make domestically produced materials a core part of their supply chains.

There’s a wave of investment, some really exciting U.S. companies investing heavily in that capacity,” he said. It’s going to take a little bit of time, maybe a couple of years, to reach scale in manufacturing those subcomponents of batteries.”

Meanwhile, the U.S. has a number of free-trade partners that can meet upstream supply needs, Gore said. Those countries and companies are also investing heavily in the United States, mostly in joint ventures with U.S. automakers,” he said. Last month, South Korea announced it would make $5.3 billion in government loans and guarantees to South Korean companies to expand production in the United States, for example.

The challenge of competing with China

Things get more complicated when it comes to similar partnerships between companies based in the U.S. and ones based in China, however. Republicans in Congress have joined Manchin in attacking the Biden administration’s EV supply-chain policies on the grounds that they will benefit Chinese companies to the detriment of U.S. competitors.

Last month, DOE canceled a $200 million grant to Texas-based battery manufacturer Microvast on the heels of Republican attacks on the company, based on its inclusion in a 2022 U.S. Securities and Exchange Commission list of companies suspected of intellectual-property violations in China. Ford’s joint venture with Chinese-based lithium-ion battery giant CATL to build batteries in Michigan has also come under scrutiny.

The Treasury Department has yet to issue guidance on one key provision of the 30D program that could make Chinese products and partnerships a deal-breaker for automakers seeking to make their EVs eligible for tax credits in the U.S. Those rules would make the tax credits unavailable to a vehicle using any product or material sourced from a foreign entity of concern” — a designation that includes China, Iran and Russia.

How the Treasury Department administers this aspect of the Inflation Reduction Act will have major implications for automakers and battery manufacturers, Sam Jaffe, vice president of battery storage solutions at E Source, told Shayle Kann in an April episode of Canary’s Catalyst podcast.

If the Treasury Department rules end up barring battery materials and components that pass through China at any stage of their refining or manufacture, that could immediately cut out a large proportion of the EVs that are now eligible for tax credits.

That would, in turn, drive demand for battery materials and components produced in the U.S. or other countries outside China, of course. Whether or not those alternative sources will be able to supply the EV industry’s growing demand is an open question.

Eric Stopka, CEO of Anovion, would like the opportunity to try. Anovion — which was formed last year from the combination of assets of West Virginia–based Amsted Graphite Materials and the battery materials division of Spokane, Washington–based Pyrotek — won a $117 million DOE grant in October to support its production of graphite for EV batteries. The company says the $800 million facility it’s building in Georgia will be capable of producing 40,000 metric tons of synthetic graphite per year when it starts running in 2025 and will eventually scale up to 150,000 metric tons a year.

It takes about 1,200 metric tons of graphite to make a gigawatt-hour’s worth of lithium-ion batteries, Stopka said. That means that North America will need 1.2 million metric tons per year to supply a forecasted annual battery manufacturing capacity of 1,000 gigawatt-hours by 2030. China now controls more than 90 percent of global graphite production capacity, with virtually no production occurring today in North America,” he said.

Anovion will rely on supply-side tax credits such as 45X to bolster its cost-competitiveness over the coming decade, he said. That should give us sufficient time to set up our operations and get them competitive, to help ensure there’s a strong industrial base.”

But to attract additional investors willing to sink capital into a brand-new domestic industry, we need an opportunity to deploy this capital, and to start realizing the earnings on that capital, without learning in two or three years that the Chinese competitors are just undercutting prices so they can eliminate the competition in the United States,” he said.

Stopka acknowledged the complexities of setting policies that both get people to buy EVs but also support the establishment of a North American supply base.” At the same time, he worries that the yet-to-be-released Treasury Department rules on foreign entities of concern may fail to clearly establish what kind of supply chain will be needed to qualify batteries for 30D tax credits.

What you can’t do is create this historic legislation that’s really meant to build out an industry and then have it rife with loopholes that can be exploited,” he said. 

Headquartered in Coeur d’Alene, Idaho with clients on every continent, KORE Power provides functional solutions to meet the growing demand for green economic expansion and a decarbonized future. As a fully integrated provider of battery cells and clean energy technology and solutions, KORE drives the energy transition through direct access to superior tech, clean energy manufacturing, and unmatched support for clean energy jobs and resilient, sustainable communities worldwide. KORE Power’s robust portfolio provides the commercial, industrial, utility and defense markets with next-generation battery cells, advanced energy storage systems that scale to grid+, intuitive asset management, and EV power and charging infrastructure support.

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.