Following the heels of Wednesday’s hearing in the House on climate change legislation impacting the automotive sector, the House Manufacturing Caucus held a briefing with Hill congressional staffers and industry experts on Thursday about all that goes into making a Tesla and the Ford Mach-E Mustang (Made in Mexico). The outlook is not pretty. If the U.S. wants any modicum of control of its supply chain – from “soup to nuts” as one person on the call described it – then the government is going to have to support and possibly even create a market for rare earth minerals, lithium, lithium and other mineral processors, and battery makers. If not, the key starting materials for making an EV will be run by Asia. More particularly, China.
The new LG Chem plants going up in Michigan are mostly assembly plants, with battery cells and the starting ingredients coming from South Korea or China. For everyone on the panel, being just on the IP, design, and final assembly end of the automotive supply chain was an economic risk the U.S. cannot afford to take.
“The oil cartel runs about 34% of oil and we always recommended policies to get around that. We moved to EVs, but sadly realized we only created a greater dependence,” said Robbie Diamond, CEO of SAFE, an advocacy group that was created in order to wean the U.S. from its dependency on fossil fuel imports. The animated Diamond says we are at risk from “going out of the frying pan and into the fire. We are handing this over to a rival who will have even more control than OPEC ever did over oil.”
That rival being China.
The battery supply chain is tightly enmeshed in China state-owned supply chains. Witnesses at the hearing stated that China controls over 80% of the minerals refining for EV batteries; roughly two-thirds of cathode development and upwards of 70% of battery capacity is in China due to its domestic market, and China’s outlook as the usual go-to manufacturing hub for the big OEMs like Ford and BMW.
“China is also where all of that capacity expansion is occurring in preparation for this market’s future,” said Andrew Miller, product director of Benchmark Mineral Intelligence. He said the U.S. EV automotive industry “doesn’t have the momentum to sustain growth.”
The U.S. has undergone some major battery cell capacity expansion, first led by Tesla and now by GM’s Joint Venture with LG producing Ultium Drive batteries for its new fleet of EVs. The problem lies downstream, in sourcing and processing the lithium, cobalt, and nickel that goes into making the battery cells. This also includes recycling, seen as a tiny portion of the market for now because there are not enough car-sized batteries that have outlived their life cycle. Companies that do recycling, like CPA member American Manganese, are using scrap metals from the shop floor of battery producers to see what they can make out of it. Elon Musk states that Nevada alone can provide all the necessary lithium, and Tesla is making its own investments extraction and refining accordingly.
Western leaders often marvel at just how fast China was able to ramp up its manufacturing base for new clean tech. There are three reasons for this. First, China listened closely to what its two biggest trading partners — Europe and the United States – have been saying about climate change. They wanted more wind, more solar, and battery-powered cars. For Beijing, China was already the go-to manufacturing hub for EU and U.S. multinationals, why not be the go-to source for their green tech needs, as well.
Second, middle-income Chinese in polluted urban centers have woken up to the detrimental health effects of poor air quality. The documentary “Under the Dome” – the China version of Al Gore’s “An Inconvenient Truth” – turned the average Chinese against polluting industries. The newfound influence of middle-class Chinese urbanites, many of them ranking members of the CCP, were able to convince Beijing of the need to improve air quality.
China used government procurement to create a market for battery-powered busses and taxies. Warren Buffet got richer off of China EV BYD for this reason – BYD was a huge manufacturer of EV cabs.
In the process of this build-out, China created a White List of companies that were allowed to bid. American firms thought they’d get in on the action. They were easily disappointed. Only Chinese companies were allowed. This helped build China’s supply chain, from the rocks being dug out of the ground in Botswana by Chinese SOE miners to the processing plants in China, to the battery cell makers like BYD and CATL, now some of the biggest in the world.
“Ten years ago, China did not make lithium-ion batteries. Now, they are a world leader because their government decided that they were going to go in the direction,” said Jim Greenberger, Executive Director of the National Alliance for Advanced Technology Batteries. Greenberger brought up the history of China’s EV market, starting from government procurement and Beijing’s strict “Buy Chinese” policies.
“By contrast, what do we do here. We give tax credits and have no qualifiers attached to them. You can buy a Chinese battery-powered car and get the same tax if you were buying a Tesla,” Greenberger said. “We really need to rethink that.”
Worth noting, you can also get the tax rebate if you buy the Ford Mach-E Mustang, made in Mexico.
Austin Devaney, head of the commercial office for Piedmont Lithium, a miner in North Carolina, said that more investment needed to be made downstream – in the companies like Piedmont and others who are working on the starting materials to make the future automobile.
“When you look at the investments, they are all coming from and going into the big EV manufacturers and when you look at the private equity investment, it’s the same, or it is into battery plants. There is limited investment lower down the supply chain,” Devaney said.
The warning from those on the call: other countries will control those supplies, and that means they will control the main part of the EV – the battery that makes it run. “When 80% of those materials are in China and China wants to use those materials for their own market, it is going to impact the world there is no doubt about it,” he said.
That alone sounds a lot like the semiconductor shortage the auto sector is going through now thanks to an over-reliance on two companies, mainly Taiwan Semiconductor.
The Biden Administration said it will invest $50 billion to get semiconductor foundries built in the United States, which is a long-term plan CPA supports. The same should be done for rare earths and battery cell manufacturing here at home.
The auto sector is the subject of three new bills in the House. The push to electrify the nation’s auto fleet is being led by the big OEMs now, following in Tesla and Nissan’s tracks. But if the auto industry was globalized before, imagine the impact on the automotive supply chain when fewer parts are in the hands of even fewer players.
Diamond said the auto industry and the government need to “roll up their sleeves” and do something together to protect this critical supply chain. At the heart of this is not Ford and GM; it is the unknown, small to midsized companies – often headquartered in “flyover country” – that manufacture for them. They’re the ones at risk. Ford and GM will be fine.
“The auto industry is the industrial base of the U.S. It was the ‘arsenal of Democracy’ in World War II and in the pandemic, automotive manufacturers and their suppliers were the ones who were tasked to build ventilators because there is a lot of skill sets in that industry,” Diamond said. “Their suppliers all have the tooling and other skill sets that we need, and if we lose this new auto sector, we will be in a world of hurt,” he said. “This is a massive concern whether you believe in climate change or not. This is where the world is going and the U.S. is being left behind.”
During Wednesday’s hearing by the House Committee on Energy and Commerce, Rep. Tom O’Halleran (D-AZ-1) had this to say about the push into climate change policies impacting the automotive sector: “We owe it to the American people that we do not fall behind in the manufacturing of this new product,” he said. “We lost solar and wind (to China). We cannot lose auto, too.”