Sales of electric vehicles (EVs) are booming. First-quarter results are in, and they rock. Despite supply chain issues and higher upfront costs, the auto industry reports strong performances in EVs, with Ford announcing a growth rate of 139%, Volkswagen of 65%, and Tesla
The recent strong performance of EV sales is believed to be due to consumers’ concerns over high oil prices and tax incentives. Rising inflation after pandemic recovery alongside the Russian invasion of Ukraine has resulted in global oil prices skyrocketing, with the average cost per gallon in the US at $4.25 compared to $2.92 a year ago. While high costs at the pump have led American consumers to consider buying electric cars, tax credits, including the federal tax credit of $7,500, have also encouraged consumers to make the switch.
Although the future is looking bright for EV sales, there are concerning shortages of vital materials which may limit automakers’ ability to meet demands while keeping prices down.
A combination of factors contributes to the shortages, including sanctions against Russian metals, China’s COVID lockdowns, embargos against Xinjiang sourced minerals, and the backlog in approving new mining projects in the US. The most severe shortage is lithium, the key ingredient needed for batteries. The price of lithium battery cells has already increased from $105 to $160 per kilowatt-hour compared to last year, and if supply shortages are not addressed, prices will continue to rise.
The warnings about the need for more lithium batteries are nothing new. Elon Musk warned about it in November 2021. Later in April, he joked on Twitter that Tesla might have to join the mining business to meet demands. But it is not just Tesla, Volkswagen has already sold all of its EV inventory in the US because it does not have enough batteries to produce more cars.
Currently, China controls the lithium battery market, with the nation refining 80% of the world’s raw materials, holding 77% of all cell capacity, and manufacturing 60% of global battery components. Government-imposed lockdowns have been devastating to global production. Since these batteries are used in electric vehicles and a range of defense technologies used by the US, these slowdowns not only threaten American industry, but national security too.
To address this threat, the public and private sectors must work together to increase investments, rapidly advance American and Western hemisphere mining and manufacturing, and diversify supply chains to decrease our dependency on Chinese lithium.
Companies have been rising to the challenge and investing in EVs and the vital elements needed to produce these vehicles. Tesla recently opened a Gigafactory in Texas to serve as its main manufacturing facility and purchased 10,000 acres in Nevada to begin mining. SK, a South Korean company, is preparing to open a massive battery factory in Georgia, where it will manufacture batteries for Volkswagen and Ford.
While GMC announced that it will invest in Controlled Thermal Resources, a company that uses geothermal energy to extract lithium, as part of its venture to obtain lithium from the Salton Sea in California’s Imperial Valley, where the Berkshire Hathaway Power Plant is attempting to produce up to 600,000 tons of lithium carbonate per year. Although these measures are commendable, the private sector cannot solve this issue alone. The Biden administration must encourage divestment from Chinese-produced strategic minerals.
Thus far, the White House has allocated more than $7 Billion to strengthen the country’s battery supply chain. Biden announced that $3.1 Billion will be granted to companies that manufacture and recycle lithium batteries as a part of that investment. Additionally, in March, the White House authorized the Defense Production Act to increase battery production rapidly.
Yet the Biden administration must do more. The White House should issue incentives to companies willing to invest in battery factories in the US while researching minerals that can replace lithium in batteries. China far exceeds the US in the number of massive battery factories, with China operating 93 compared to the US’ 4. The federal government must fast-track the approval process for new mining facilities. Eliminating regulatory roadblocks for mining will encourage investment, reduce the lead time for addressing critical shortages, and address a vital national security shortfall.
Finally, the US industry must diversify its resources to decrease its dependency on lithium entirely. Some companies have already found potential solutions. A Texas-based company Bemp Research is even exploring hemp batteries. An Oregon company, ESS Inc., is developing iron-based batteries for grids, decreasing the demand for lithium and increasing the supply for EVs. A German Tech Institute believes that they can filter seawater to gather additional lithium as the ocean is believed to have nearly 180 Billion tons of lithium.
The future of the auto industry is electric, but for this revolution to truly be successful, the private and public sectors must work together to decrease the regulatory burden on mining and production and diminish China’s dominance by encouraging investment in domestic or “near-shore” lithium resources and diversifying viable battery options.
With assistance from Jacqueline Evans