When it comes to electric vehicles, there is no great American supply chain. Storied automakers General Motors Co. and Ford Motor Co. have just proved as much.
General Motors last week signed three significant deals. They include a $10.8 billion dollar agreement with South Korea’s Posco Chemical Corp. for battery components, or high-nickel cathode materials as it looks to make 1 million electric vehicles by December 2025. The parts will come from the industrial firm’s Gwangyang plant.
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Meanwhile, Ford said it would import low-cost lithium iron phosphate batteries from China’s Contemporary Amperex Technology Ltd, the world’s largest powerpack manufacturer, as it attempts to secure supplies amid global shortages. It also sealed agreements to explore buying lithium, nickel and cobalt from other non-American companies.
The latest moves to secure raw materials and components — in the middle of 2022 — means turning to the hardly ruffled and tightly-knit Asian supply chain. And it comes years after some big promises. GM’s chief executive officer Mary Barra has long waxed lyrical about the company’s huge electric ambitions, while at Ford, CEO Jim Farley has committed to spending $50 billion through 2026 to produce 2 million EVs a year.
Earlier this year, GM said it was expanding its North America-focused EV supply chain in a joint venture with Posco in Canada, setting up a plant to process materials in Quebec. At the time, executive vice president of g lobal product development, purchasing and supply chain, Doug Parks, said the firm was “creating a new, more secure and more sustainable ecosystem for EVs,” building on “a foundation of North American resources, technology and manufacturing expertise” while working to secure lithium and develop a rare earth value chain.
The trouble is, it’s quite late in the game to be doing that. These commitments won’t have immediate results: there won’t even be anything to show over the next few years. Setting up deep and functional supply chains and then making them efficient takes years, as China — and Tesla Inc. — have shown. Bringing on new battery suppliers also requires significant time because they have to go through a host of certification steps, safety checks and adjustments to make the batteries compatible with the cars. They don’t just slot in.
Looking at it through this lens, it’s worth wondering why these companies have made such little progress despite their big commitments and why those ambitions — announced over the past decade — have never materialized into an ecosystem for manufacturing electric vehicles or deeper supply networks across borders. Was it that they danced to policymakers’ America-only tune and hoped for better incentives? Perhaps they just veered too far from reality to realize they were never going to be building electric vehicles for wide-scale adoption anytime soon. To say they were victims of geopolitical tensions is one way out. The other is, they just weren’t incentivized to make and sell green cars, as fat margins from SUVs kept things comfortable.
It would be unfair to place the blame entirely on auto companies. Policy makers have all but shut out the US’ ability to take all the innovation that is happening to the next level. Incentives aren’t driving capital to the companies that actually stand a chance of manufacturing EVs to scale in the US.
In China, meanwhile, industrial policy created incentives from the demand and supply side. Over the years, it was finely tuned to wash out the weak and smaller players that weren’t producing quality or able to keep up with evolving technology standards.
But the US is an alternate reality: One where EVs still only account for about 0.6% of all registered vehicles. Even the latest action to push the transition — the Inflation Reduction Act — while fairly progressive and bold, is off-point when it comes to batteries (the most important part of building green cars). Conditions requiring that 40% of a vehicle’s battery critical minerals, or 50% of its components, must come from the US(1) effectively shut China out. At such a critical juncture in EV adoption, this will likely ensure the US remains where it is: always following Beijing.
Still, although China leads on batteries and materials’ security today, the US can regain its footing and lay claim to parts of the global supply chain. It can push the case for widely available materials like boron or fund startups that boost EVs and bolster the power grid. Firms are finding cheaper, better ways to make batteries but can’t get money and therefore, scale. Some are avoiding expensive materials like nickel and cobalt. But as China has shown, just having a hold on the materials isn’t all — having the ability to process them for powerpacks is what matters.
At this point, the US needs to leverage its existing advantages, not just play catch-up.
Bloomberg
