lithium-ion battery supply chain – NAATBatt

Re-Thinking Energy Security and Lithium-Ion Batteries

Jim Greenberger — Fri, 23 Apr 2021 17:11:55 +0000

Lithium battery technology will be one of the most important technologies of the 21^st Century. That is not because there is anything special about batteries. Battery technology has been known to man for 2,000 years. But the development of batteries based on the lithium atom, the fourth lightest element in the universe, has made batteries a critical, strategic technology.

The significance of the light weight, high energy lithium-ion battery is that it can supply electricity to any point in space without the need of an electrical cord. This has opened the possibility of consumer electronics, electric vehicles, drones, renewable energy, implantable medical devices, and high energy weapons at a scale and quality not before possible. It is a virtual certainty that lithium-based batteries will power numerous new devices that will shape human society in 2050 in ways we cannot even conceive of in 2021. Regardless of what becomes of infrastructure packages or clean energy standards, lithium batteries are set to become a critical technology of the 21^st Century.

On April 16, NAATBatt held a webinar “Developing a Supply Chain for Lithium-Ion Batteries in North America”. The program focused on five segments of the lithium-ion battery supply chain: raw energy materials, processing energy materials, cathode and anode materials manufacturing, cell and pack manufacturing, and recycling and reuse of the lithium-ion batteries. The webinar explored the question of what would need to happen for North American companies and workers to become world leaders in those business segments, or even to just become viable. Today North American companies lag dangerously behind foreign rivals in all of those business segments.

What the program did not focus on was exactly why it is important that North American companies become leaders in those business segments, rather than just relying on imported battery-related goods and technologies. That question has been a frequent focus of this column in the past. The first reason for that importance is because lithium-ion battery technology and manufacturing will be a significant driver of future economic development. Lithium battery production is likely to spin out new technologies, manufacturing techniques and industries that will be major sources of future job and wealth creation.

The second reason is energy security. Energy security is a broader topic than it may seem. Much has been written about the potential ability of China, which today manufactures about 70 percent of all lithium-ion battery cells and refines 90% of the cobalt used to make those cells, to cut off supply of lithium-ion batteries to the United States in the event of a military conflict. This is a serious and real concern, as lithium-ion batteries power much military kit today.

But the likelier energy security risk of not having a viable domestic lithium battery supply chain is not the risk of military conflict, but the risk of serious economic disruption. It is not just that lithium, nickel and cobalt will become the new oil. It is that the nature of electric vehicles will move the immediate risk of supply constraint-induced price spikes from consumers onto the vehicle makers and battery makers themselves. Given that the auto industry is the second largest employer in North America (after healthcare), this threat has to be taken seriously.

A useful analogy may be found in the airline industry. Fuel price spikes somewhat routinely force weaker airlines into bankruptcy. The problem is that airlines cannot easily pass sudden fuel price spikes through to consumers. Stronger carriers hedge that risk by entering into long-term futures contracts for fuel. Those long-term contracts reduce a carrier’s vulnerability to fuel price spikes, allowing them to survive a spike and live to fight another day.

Electric vehicles basically move the risk of fuel price spikes from consumers, who buy the vehicle fuel today, to car makers and battery makers, who will buy the lithium battery “fuel” of the future (i.e., lithium, nickel, cobalt, etc.). Properly understood, what China is doing in buying up energy materials reserves around the world and domesticating energy materials refining capacity is buying a long-term futures contract on lithium-ion battery supplies that will allow their auto makers and battery makers to survive any future supply shortages or disruptions and resulting price spikes. The European Community seems set to following the same strategy. If the United States does not do the same, it risks having companies such as General Motors, Ford and Stellantis go the way of Eastern Airlines, Pan American and TWA. The resulting disruption to the U.S. economy and job market would be profound.

It is important to understand exactly what the supply chain for lithium-ion batteries is and the degree of redundancy within each segment of that chain. Domestic manufacturing or supply of each such segment is not essential, if redundancy can be assured in other ways. But having a robust domestic source of supply will in many if not most cases be the best way to assure that redundancy.

Earlier this year, several NAATBatt committees worked together to create a mind map of the entire supply chain for lithium-ion battery technology. This coming week, NAATBatt expects to enter into a contract with the National Renewable Energy Laboratory (NREL), to create a database listing every company in North America that is active in each segment of that supply chain. The database will provide an excellent resource for our members in outlining potential business opportunities in the lithium-ion battery supply chain. It will also provide the U.S. and Canadian governments with a good illustration of the supply chain segments where lack of redundancy may be a serious concern.

The Conundrum of the North American Lithium-Ion Battery Supply Chain

Jim Greenberger — Thu, 22 Oct 2020 15:50:43 +0000

Electricity unattached to the grid will power the technologies that shape the 21^st Century. Unless and until fuel cells, green hydrogen and other electricity micro-generation technologies mature, advanced batteries, and in particular lithium-ion batteries, are likely to be the source of much of that power.

Where those batteries are made and who makes them matters. Ensuring adequate supplies of lithium-ion batteries will be an important national security issue. Lithium-ion batteries are also an important tool in the fight to reduce greenhouse gas emissions. But most importantly, lithium-ion batteries and the technologies they enable are likely to create substantial wealth and many jobs in the 21^st Century. Nations around the world are already competing to see which can best capture this important economic development opportunity.

The importance of developing a lithium-ion supply chain in North America is widely acknowledged. But what that actually means is a bit unclear. For example, a bill of materials for a completed automotive lithium-ion battery pack would list thousands of items. Few would argue that all those items need to be made in North America. Instead, the North American supply chain discussion should focus on those elements of the supply chain that are strategic.

But what does it mean to be a strategic part of the North American lithium-ion battery supply chain? The answer lies what we want a domestic lithium-ion supply chain to do. While energy security and environmental responsibility are important reasons to develop a domestic source of lithium-ion battery supply, the principal reason for building up a domestic supply chain is economic. It is a way to generate new wealth and new jobs. It is also necessary to preserve jobs in existing industries, such as the automobile industry, that may well be lost to foreign competition in the absence of domestic lithium-ion battery expertise.

So the measure of something being strategic in the lithium-ion battery supply chain is whether that something is an important driver of wealth and job creation. Unfortunately, identifying those strategic elements is complicated in the lithium-ion world.

In 1992 Stan Shih, the founder of Acer Inc., proposed something called the “smile curve” as a way of explaining where value is created across different stages of product development. According to Mr. Shih, the highest values are created in the first stages (technology creation) and last stages (consumer branding) of the product cycle, while the middle stage (fabrication) creates the least. It is called a “smile curve” because if you plot these stages of development on a graph against value created, you get a smile.

Apple is an example of a business based on the smile cure. Apple tightly controls the development of the technology that goes into its iPhones and the branding and sale of those phones to consumers. But Apple does no manufacturing. It happily outsources the less valuable middle stage of its product development–fabrication–to companies such as Foxconn and its low-wage workforce. If you wonder how this strategy is working for Apple, just take a look at its stock price.

At first blush, the lithium-ion automotive battery business would seem to have a lot in common with the cell phone business. Creating new lithium-based technologies and their spin-off products can be quite profitable. At the other end of the product development cycle, controlling the customer is also highly lucrative. Tesla and its stock price vividly illustrate the value of using a lithium-ion battery-based product to control consumer sentiment and loyalty.

But the middle part of the product development cycle in batteries–the fabrication of battery cells–is a lousy business. It involves huge capital investment, razor thin margins and extraordinary risk. Every major U.S. corporation that has considered getting into the business of manufacturing lithium-ion automotive batteries at scale has taken a pass. Even the most enthusiastic supporters of domestic lithium-ion supply chain development must grudgingly admit that every one of those corporations made a good business decision.

Based on the smile curve and the lack of North American corporate interest in large scale lithium-ion battery production, it is tempting to conclude that lithium-ion battery cell fabrication is not strategic, that it can safely be offshored much as Apple has offshored the manufacture of its iPhones. But that conclusion would be wrong. In fact, the lousy business of fabricating lithium-ion battery cells that no major North American corporation wants to do is the key to controlling the entire supply chain. That is the great conundrum of the lithium-ion battery business.

The lithium-ion business is not the cell phone business. Unlike makers of cell phones, lithium-ion battery makers do not have a direct nexus with customers that battery makers can leverage and turn into value. Few consumers know or care who makes the battery that powers their electric car. Fabricating battery cells is the last step in the lithium-ion battery supply chain. There is no branding opportunity or consumer contact. As a result, in Stan Shih’s model the lithium-ion battery product development cycle looks more like a half smile than a full one.

But the fact that a battery cell maker cannot extract a lot of value from the fabrication itself does not mean that fabrication is without value. In fact, it is the lithium-ion battery cell maker that controls the supply chain, including the much higher value processes towards the early part of the development cycle. Cell makers determine what R&D will be commercialized, what manufacturing machinery will be used, and what cathode, anode and separator materials will be employed in the cell. Car manufacturers may provide cell makers with specifications that the cells must meet. But how the cell maker meets those specifications is up to the cell maker. It is that discretion which gives cell makers their inordinate power in the supply chain.

Even more important is the possible ability of cell makers to move downstream. It will always be tempting for cell makers to move downstream, into assembly of the applications their batteries power. Selling those applications, rather than battery cells, is where the highly valuable nexus with consumers lies. In electric vehicles the battery accounts for nearly half the cost and most of the complexity of the vehicle. It would not be overly complicated for a cell maker to try to get into the business of assembling the rest of the automobile in order to capture the important second half of Stan Shih’s value creation smile.

When China went all in on its lithium-ion battery manufacturing sector 10 years ago, China was probably not really interested in fabricating lithium-ion batteries. What interested China was, and still is, the global automobile market. There is little doubt that as the market for electrified vehicles grows, a large number of Chinese consumer-branded electric vehicles will be competing for market share, perhaps successfully, with offerings from incumbent manufacturers in North America, Europe and Japan. It is from the manufacture and sale of those vehicles that the Chinese government hopes to earn a return on its substantial investment in battery fabrication.

The challenge to building a robust lithium-ion battery supply chain in North America is this conundrum: the strategic part of the supply chain you most need to build (i.e., cell fabrication) is the most commercially unattractive part of the entire supply chain.

There are two approaches to solving this conundrum. The first is the China Approach and the second is the Tesla Approach. They are not mutually exclusive.

The China Approach recognizes that battery cell manufacturing is lousy commercial business but that it has long-term benefits for other parts of the supply chain. The Chinese government expects to recoup its investment in cell fabrication not through the cell makers but through the product applications that the cells enable. Over the last 10 years, the Chinese government has supported its domestic cell manufacturers in many ways. The most successful has been a hard push for vehicle electrification combined with a “white list” of domestic cell manufacturers from which the vehicle batteries effectively had to be purchased. The China Approach anticipates a return on investment. But the return will come from other businesses, not from the cell makers themselves.

The Tesla Approach is vertical integration of the entire lithium-ion battery supply chain, including cell materials, cell fabrication and the vehicles that the cells power including their important and highly valuable relationship with the ultimate consumer. This appears to be what Tesla has in mind and announced at its last Battery Day. Whether Tesla will ultimately follow through with its ambitious battery cell manufacturing plans is anyone’s guess. But the principal behind the plan is clear. Tesla hopes to recoup its investment in what would otherwise be an unprofitable cell fabrication business from the sale of its cars. Cell fabrication will, in theory, allow Tesla to sell its vehicles at a lower price and in higher volume. Like the China Approach, the Tesla Approach anticipates a return on its investment in cell fabrication. The return just comes in a different way.

North America can choose the China Approach or the Tesla Approach, or both. But it is difficult to see how North America can build a robust lithium-ion supply chain without including domestic lithium-ion cell fabricators at the core of that chain. In the lithium-ion battery world, the cell makers control the supply chain. Without one or more domestic cell maker champions that have the ability and inclination to purchase goods and services from other domestic supply chain companies, developing a robust North American lithium-ion battery supply chain may not be possible.

Testimony to Senate Environment and Public Works Committee on Lithium-Ion Battery Recycling

Jim Greenberger — Fri, 19 Jul 2019 23:48:15 +0000

I had the honor of testifying on July 17 before the U.S. Senate Environment and Public Works Committee on the subject of lithium-ion battery recycling in the United States. The Senate’s interest in the topic is timely, given NAATBatt’s just ended workshop on the same subject in Buffalo, New York. A copy of my oral testimony is reproduced below. The longer and more detailed written version of my testimony can be seen by clicking here:

Oral Remarks

Good morning Chairman Barrasso, Ranking Member Carper, and members of the Committee. My name is James Greenberger. I am the Executive Director of NAATBatt International, a trade association of about 120 corporations and research institutions working to promote advanced battery technology and the industries it will power in North America.

The subject of my testimony is the important role that recycling of lithium-ion batteries can play in developing new industry and supporting reduction of greenhouse gas emissions.

Advanced battery technology will be one of the most important technologies of the 21^st Century. Lithium-ion battery chemistry, which was invented in the United States, represents the most powerful new battery technology widely used in commerce today. Lithium-ion batteries not only power but enable electric vehicles, wearable and implantable medical devices, mobile robotics, consumer electronic devices, drones, the Internet of Things, high energy weapons and a variety of other, new electric devices.

Several new technologies will shape human society in the 21^st Century. Advanced battery technology will be but one of them. But advanced battery technology is unique in that it will enable many of those other technologies. Nations wanting leadership in those technologies will need a vibrant advanced battery industry within their borders.

For the United States to have a vibrant lithium-ion battery industry, it needs to ensure that U.S.-based manufactures have access to the energy materials and compounds needed to manufacture batteries. Few of those energy materials, such as lithium, nickel and cobalt, are found in great quantities in the United States and almost none of the chemicals into which those energy materials must be processed to make batteries are manufactured here.

Recycling lithium-ion batteries used in the United States offers a partial solution to this supply chain problem. Recycling batteries can create a strategic reserve of battery materials, which can provide supply and some assurance of price stability to domestic manufacturers. Building a strong lithium-ion industry in the United States is critically important. Few other industries have the potential to create more jobs, both upstream and downstream of their immediate products, than advanced battery manufacturing. As we have long pointed out at NAATBatt: He who makes the batteries will one day make the cars.

Recycling high voltage lithium-ion batteries is also important for the environment and for public safety. Making lithium-ion battery cathode materials from recycled batteries can use as little as 18% as much energy, 23% as much water, and produce only 9% as much SOx emissions as producing those compounds from virgin materials.

Recycling high voltage lithium-ion batteries at the end of their useful lives also removes them from potential contact with incautious adults and curious children. A high voltage battery no longer powerful enough to power a car is still powerful enough to electrocute a human being. Recycling lithium-ion batteries is a matter of public safety as well as good environmental stewardship.

But recycling lithium-ion batteries in the United States has a major problem: It is impossible using current recycling technology to make money from recycling most lithium-ion batteries. The costs of shipping, storing and recycling those batteries is simply greater than the revenues to be made from selling the recycled materials. As a consequence fewer than 5% of lithium-ion batteries reaching the end of useful life are recycled in the United States today.

New recycling technologies, such as the direct recycling technology being developed at the Department of Energy’s new ReCell Center, may in time change this dynamic. But unless and until it does, the only way to recycle lithium-ion batteries will be to require consumers, directly or indirectly, to pay for the costs of recycling.

Electric vehicles and stationary energy storage of renewably generated electricity are powerful tools in the fight against greenhouse gas emissions. Imposing recycling costs on consumers, on top of the still expensive cost of lithium-ion batteries, will inevitably impact market demand and greenhouse gas mitigation efforts. It is essential that recycling costs be kept as low as possible.

I would respectfully recommend that the Committee consider four actions to protect U.S. economic competitiveness and greenhouse gas reduction efforts:

First, ensure that any program requiring the recycling of high voltage lithium-ion batteries be implemented on a consistent, nationwide basis.

Second, encourage environmental and transportation regulations that differentiate between sophisticated, high voltage lithium-ion batteries of the kind used in electric vehicles and the smaller, far less consistent lithium-ion batteries used in consumer devices.

Third, limit the export of used lithium-ion batteries in order to ensure a steady supply of battery materials to U.S. manufacturers; and

Fourth, fund more research into next generation technologies that may make recycling lithium-ion batteries safer, cheaper and, in time, hopefully, profitable.

Thank you for your attention.