By Kenneth Rapoza, CPA Industry Analyst
Energy Secretary Jennifer Granholm gets emotional on American manufacturers losing out to cheaper destinations in the global supply chain, and warns that if the US government does not have a national plan for the post-carbon transportation economy then China, others, will dominate those supply chains next. In fact, China already is.
Holding back tears from a memory of her time as governor of Michigan, new Energy Secretary Jennifer Granholm recalled the day two manufacturers left small town Greenville for Mexico and, later, China.
Greenville used to manufacture Electrolux refrigerators. Some 300 people worked there in a town of 8,000. Electrolux decided to leave. Granholm tried to keep them there. “We offered them zero taxes for 20 years and said we will help you build a new factory and we had their managers talk to us in a town hall, but afterwards they came to me and said, ‘this is the most generous that any community has ever been, but there is nothing you can do to compensate for the fact that we can pay $1.75 an hour in Juarez, Mexico,’,” she recalled. “It was like a nuclear bomb went off in that community.” She then figured she could bring back manufacturing by tackling climate change, the new herald of the post-carbon economy aficionados. “We brought in a solar factory to take over that Electrolux factory.”
So the green economy would save them from old school, 1950s-era refrigerator making.
That didn’t last long.
“China undercut them on cost and the company went bankrupt and that factory in Greenville closed again,” she said. “The people there were left with nothing and I felt as their governor that I was bringing a knife to a gun fight because I did not have any Federal support for this. China has a national strategy and we do not. We are not doing that anymore. We are not going to sit idly by as other countries eat us for lunch. We can be at the table, or on the menu.”
Granholm was speaking to Robbie Diamond, founder and CEO of SAFE, a think tank advocating for electrification of the country’s transportation fleet. Granholm was on hand to discuss SAFE’s 89-page report titled “The Commanding Heights of Global Transportation.”
That report was at least as much a draw as Granholm herself.
In it, SAFE sought to show how much of the EV supply chain – from critical minerals to batteries to EV infrastructure – is in the control of the US. Not surprisingly, most of it is not. As we move away from oil and gas, a resource the US now has in abundance, Diamond says we are at risk of “going from the frying pan into the fire.”
When looking at what goes into making your Tesla Y, the supply chain numbers are terrible. Some 95 percent of all rare earth minerals needed for the permanent magnets used in EV and autonomous vehicle navigational systems are China controlled; 61 percent of cathodes are made in China and 0 percent in the US. Some 73 percent of cell manufacturing for batteries is in China; 10 percent in the US. Some 70 percent of lithium batteries are in China, 10 percent in the US. Of the roughly 142 gigafactories that are slated to be built in the next few years, only 9 are in the US and over 100 are in China, including Tesla’s monster factory in Shanghai. Anyone who thinks that those batteries will not be used for European bound cars, and eventually US bound ones, is spending too much time on Netflix.
“When you lose one key component of this supply chain, you’re going to be in trouble,” Diamond said. SAFE’s report laid out a plan for the minerals need for batteries here in the US, along with estimates on investments needed to retool and build the components for EV and digital transportation in what he referred to as a minerals-to-markets and markets-to-minerals strategy.
New Energy Secretary Granholm agreed. She said SAFE was singing her tune. You can see her full interview here.
“We have to fight for our supply chain from minerals to markets,” she said, adding that at the Department of Energy, she asked her team to look at the entire supply chain for batteries including the critical materials that are mined and recycled to make those batteries.
She also backs more mining for these materials.
“Many parts of the country are sitting on top of materials that we need to make EV batteries,” she said. “We are also exploring new battery chemistries that rely less on nickel and cobalt and stay tuned because we are going to have a great announcement coming on this next week.”
Granholm estimated that the US needs to have over 100 battery cell manufacturing locations in the US by 2035. Today, we have five. China has 96.
She also said “we have to figure how to recycle critical materials that we are already using. Our research shows that up to 40% of the minerals used to make batteries can come from recycled batteries.”
CPA member American Manganese is working on precisely this in a project they refer to as “urban mining”. They recycle metals off the shop floors of EV battery manufacturers to recycle them into cathode materials that can then be made into new batteries.
On March 12, LG Energy Solution said it plans to invest more than $4.5 billion over the next four years in the US to expand its battery production capacity. The expansion will give the company a total production capacity of more than 110 GWh here. In addition to a new battery facility, the company is working with GM on plans to maybe build a second joint venture battery plant as the Detroit automaker also turns to EVs.
LG Energy Solution invested $600 million to build a 5 GWh capacity plant in Michigan in 2012. Two years ago, it formed a joint venture with GM to build a $2.3 billion battery plant in Ohio. That facility is slated for completion in 2022.
“Reports suggest that the products that reduce carbon emissions, including batteries, are going to create a $23 trillion market globally over the next decade,” Granholm said. “The question is, where are those investments going to be? Are they going to be in China? Are they going to be in our other economic competitors’ countries?”
She recalled a trip to China a few years ago where she met a Chinese mayor who had asked her when the US was going to have a national clean energy policy. She said she didn’t know and that the mayor responded with “take your time”. She said that he saw “our passivity as an economic opportunity.”
But Granholm is likely wrong on that.
China will always have an opportunity in its domestic market of 1.2 billion people. It just has to mandate the use of EVs or solar and its local manufacturers can get to work. What China has always wanted was to build excess capacity to serve and dominate the US and European markets. In other words, China has taken its cue from Brussels and Washington to invest in clean tech not because it is worried about melting icebergs, but because it knows its main markets are going EV and solar. They want to be in control of those supply chains.
As SAFE shows and as Granholm knows, China already is in control of those supply chains.
Granholm tried once before to replace old tech with green tech in order to keep manufacturing in her home state of Michigan. It didn’t work, she said, because there was no national strategy on solar, let alone industrial policy. She hinted in her talk this week that those times have changed.
“I am totally obsessed with creating good paying jobs in America in a global economy,” she said. And we believe her. We hope that the rest of the Biden administration will support her in this effort, or China is ready to be our Green OPEC.