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In the race with China to lead the transition to electric vehicles (EVs), raw materials and building battery factories have captured the imagination in Washington. Policymakers have cheered the settlement between Korean manufacturers SK Innovation and LG Chem, as well as the new LG Chem-General Motors battery plant, as welcome measures toward building American battery capacity.
Yet while such projects are important steps towards making sure that the U.S. has batteries for the transition to electrification now, our nation’s supply chain is still far from secure.
The materials and components for these batteries are still being shipped to the U.S. and to our allies from China, which still has a stranglehold on the vital—yet frequently overlooked—processing and refining step in the EV supply chain. The development of this capability must be our top priority in this area.
Processing and refining these critical minerals occurs between the mining and manufacturing steps in the supply chain—and is overwhelmingly based in China. It involves crushing, separating, and concentrating mined materials, as well as smelting them in high temperature furnaces to further separate metals from the minerals that contain them.
If the U.S. wishes to realize true energy security through this transition, it must begin to process minerals and focus on the components like anode and cathode powders, separators, electrolytes, current collectors, and cells. From a supply chain security aspect, there is little to be gained from developing domestic mining and manufacturing capabilities, if the U.S. and our allies must ship its minerals in bulk to China for processing and foreign companies are simply importing most major battery components to U.S. factories for assembly which often go through China as well. This leaves a major vulnerability in our supply chain and leaves the U.S. little control.
The figures alone show the scale of China’s dominance. In 2019, China processed 65 percent of the world’s nickel, 82 percent of the world’s cobalt, 93 percent of global manganese supply, 59 percent of the world’s lithium and 100 percent of global graphite supply.
The U.S., on the other hand, processed just 4 percent of the world’s nickel and 1 percent of global lithium supply. Our nation’s processing for the other three minerals amounted to zero percent.
However, more telling is the geopolitical influence this processing dominance gives Beijing—and the Chinese government has shown little hesitation in using this weapon in times of diplomatic tension.
This is seen most clearly in rare earths—a swath of minerals vital for EV motors, U.S. weapons, and other applications—for which China holds at least 85 percent of global processing capacity.
In 2010, the Chinese government halted supplies of rare earths to Japan after the detention of a Chinese shipping trawler captain whose vessel had been sailing near disputed islands claimed by both nations. More recently, China had weighed doing so again as the U.S. – China trade war escalated, during which Beijing also slapped a 25 percent tariff on rare earths imports from the U.S.
If left unchecked, China’s ability to cut off minerals processing access in moments of political strife would leave the U.S. with nowhere to turn.
Working with allies such as Canada and Australia, both far ahead of us in this critical effort, the U.S. can create a diversified processing capacity beyond Chinese control that breaks the bottleneck both in the U.S. and among our allies. In addition to working with allies which is job one, the U.S. must also put emphasis on what is needed to create domestic capacity.
The challenge is that most of these businesses are low-margin, high-capital and of which many are subsidized by governments, which is similar to the semiconductor industry that has chosen not to build fabrication in the U.S. Recently this economic challenge to fabricate semiconductors in the U.S. prompted legislators to pass the CHIPs Act—which provides federal grants to incentivize semiconductor manufacturing in the U.S. and of which the Biden Administration has just proposed $50 billion in financing. After fully funding the Chips Act, there will be a need for a Chips Act II – let’s call it the Cells Act - related to this midstream battery supply chain.
The U.S. can create the necessary processing capacity to break the Chinese processing bottleneck and ensure that there is capacity in the U.S. to supply critical component of the cell. It must, however, work swiftly to ensure this vital step of the supply chain is not left behind.
General Michael W. Hagee served as the 33rd Commandant of the U.S. Marine Corps and is a member of the Energy Security Leadership Council, a project of SAFE.
Drew Horn recently led U.S. government efforts on critical minerals development as a former senior leader at the White House, the Office of the Director of National Intelligence, and the U.S. Departments of Energy and Defense, and is currently Chief Executive Officer at Greentech Minerals Holdings, Inc.
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May 27, 2021 at 12:25AM
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