Learn About the Latest Supply Trends in the Electric Vehicle Industry

With the rise of electric vehicle (EV) demand in the United States, original equipment manufacturers (OEMs) and battery manufacturers dominate the site selection headlines. However, suppliers are feeling the pressure to rise to the occasion. Site Selection Group, a full-service location advisory, economic incentives and real estate services firm, closely monitors the EV industry for the benefit of our locationally active clients.

The upstream EV supply chain is more complex than its ICE predecessor

The switch from Internal Combustion Engine (ICE) vehicles to EV platforms mandates a shift in the type of suppliers, materials and skills required to produce this new breed of vehicles. The transition to an EV platform necessitates the realignment of supply chains to support this new version of the automotive industry at scale. This new supply chain and its associated sourcing, processing and manufacturing capabilities are quite unlike the legacy ICE supply chain.

Electric vehicles utilize batteries and electric motors to propel the vehicle. Lithium-ion (Li-ion) battery technology currently offers the most commercially attractive battery technology. Li-ion batteries are comprised of two main components (anode and cathode) whose interaction is limited to provide controlled charging or energy release. Depending on the design, Li-ion batteries require varying blends of lithium, cobalt, nickel, manganese (referred to as “critical minerals”) and iron to construct the cathode. Graphite comprises most of the anode’s construction. These components are separated by various products and connected by familiar materials such as copper while cases are often made from steel. EV batteries then release energy into motors which utilize powerful magnets often made from “rare earth elements” to convert electricity to motion.

How will domestic supply chains keep up with EV demand?

Electric vehicle demand is anticipated to reach more than 40% market share by 2030 up from 14% in 2022. The battery supply chain is also anticipated to grow. However, despite a 30% projected growth by 2030, that may not be enough.

EV demand is outpacing supply chain development. Increasing supply requires significant investment and lengthy timelines for raw material procurement and processing. Existing and planned production capacity is not able to meet the massive growing demand required for electric vehicles. This is especially true for domestic U.S. procurement and manufacturing of battery materials given the historic lack of investment in this sector relative to others such as China and South Korea. Electric vehicle growth and adoption require solutions for increased material procurement and processing capacity which is a consideration that has long been settled for ICE vehicle manufacturers.

Addressing the issue of supplying source materials

The U.S. has placed a priority on developing its own supply chain. This is underscored by the “Buy American” requirement of the Bipartisan Infrastructure Law and Inflation Reduction Act and their massive public investments intended to attract private investment in key sectors like EV batteries to the United States. This begins with procuring critical minerals and rare earth elements. Material procurement requires sourcing from existing mines or the development of new sources and extraction methods. Developing new raw materials production will require long lead times. The National Mining Association estimates that a new mine requires on average 7-10 years to finalize permits alone. Despite prolonged development and permitting timelines, some efforts are underway to develop domestic raw materials extraction. Many of these programs are still years from mass production. However, even at full output, demand will continue to outpace capacity requiring further extraction efforts.

Pending the development of domestic production, manufacturers must procure materials from other countries. Still, some materials, such as cobalt, are not readily available in North America. Roughly 70% of the world’s cobalt is mined in the Democratic Republic of the Congo (DRC) which is an unstable country plagued by human rights concerns. In this case, manufacturers are working to reduce reliance on DRC cobalt. Battery manufacturers have little control over mineral sourcing unless they also control processing. This is one example of why battery manufacturers are developing their own processing capacity or seeking alternative processing capabilities. Combined with a shift to eco-friendly manufacturing techniques, it is apparent that new processing demand is on the rise by companies (many that are based in North America) seeking to ensure their battery materials are free of negative impacts on humanity and the environment which has resulted in a mass influx of development across the industry.

Material processing requirements and site selection drivers

Once raw materials are sourced, they must be processed into useful manufacturing inputs. These processing facilities often have specific site selection requirements such as access to a port, rail access or significant electric capacity. For example, nickel sulfate (NS) is useful to a battery cell manufacturer, but this form must be refined from raw materials. NS is produced from an intermediate material which itself may be produced by decomposing raw ore material in an electrolytic process. Like other processes that use electrolysis, this processing facility requires significant water and electric capacity.

In this example, a manufacturer would benefit from choosing a location that maximizes electric and water capacity while reducing the timeline to service. Reducing interruption risk, ensuring an adequate workforce and optimizing logistics considerations are also key factors. Furthermore, such projects’ viability may be driven by the electric or water rates and even their renewable attributes. Such goals may appear to be pitted against one another as one location may offer excess low-cost electricity with no renewable attributes and other sites might offer ideal renewable options with unacceptable rates.

Companies conducting their own location search in the current market will likely find meeting their goals to be very difficult since the easy-to-develop sites are “picked over”. Due to their complexity, many successful projects in these sectors leverage site selection advisors with knowledge of industrial real estate, utility capacities/rates, workforce and economic incentives. Site Selection Group streamlines this effort by leveraging an in-depth knowledge of industrial real estate, infrastructure capacities and rates, logistics, workforce and incentives.

Investment is also highly active in the U.S.-based critical minerals processing industry because of the “Buy American” incentives requirement. For example, Albemarle, American Battery Technology Company, Ascend Elements, Piedmont Lithium, and Talon Nickel were awarded a total of $780.1 million for cathode materials processing from the U.S. Department of Energy (DOE) in October 2022. These federally incentivized projects are associated with $3.4 billion in capital investment domestically. Independent of the DOE program, Tesla also announced a >$1 billion lithium processing facility in Texas which is currently under construction. These projects are merely the tip of an investment wave in this sector where each user has similar location requirements resulting in increased competition for the best sites.

Materials: Graphite and Separators

In addition to sourcing and processing minerals, other materials are also crucial, such as graphite, electrolytes, binders, cases and other supporting materials. Graphite is of particular interest domestically since it comprises most of the battery’s anode, is naturally occurring and is possible to synthetically manufacture. Demand is strong for synthetic graphite domestically since the U.S. does not produce much natural graphite. The U.S. does produce synthetic graphite. Domestically produced synthetic graphite comprises 60-80% of the graphite used in domestic battery manufacturing. This is a strong domestic percentage, but as more cell manufacturing domiciles are in the U.S., demand for graphite will outpace current supply capacity.

Like the mineral processing industry, graphite production is eligible for significant economic incentives ($486 million awarded in 2022 from the DOE), and manufacturing locations are driven by key factors such as electric rates and the time required to build the required electric infrastructure. It is important to note that location advisors who work with companies, utilities and governments can provide a streamlined experience for all parties.

Site selection consultants are apt translators with experience in multiple fields often resulting in an expedited process, higher success in negotiations, and fewer future issues for both utility considerations as well as economic incentives.

Manufacturers of domestically produced synthetic graphite along with other crucial materials such as battery separator films are actively engaged in the site selection process with several having recently announced their locations. These projects are actively being driven by market demand as well as economic incentives offered by both federal and state governments. SEMCORP announced a $916 million facility in Ohio in May 2022 that anticipates employing nearly 1,200 people to manufacture a battery separator film. Multiple state and local agencies have awarded the project economic incentives. SEMCORP anticipates beginning operations in early 2024.

Similar projects may also qualify for federal inducements because of programs like the Bipartisan Infrastructure Law and Inflation Reduction Act. Such federal support is quite impactful. This is exemplified by Entek, which has broken ground on a $1.5 billion manufacturing plant in Terre Haute, Indiana, to produce battery separators. Entek received a $200 million DOE grant for the project which is equal to 13% of its total investment.

Conclusion

The U.S. electric vehicle manufacturing growth potential is largely dependent in the midterm on the ability to site, staff and start significant industrial processing and manufacturing facilities such as those listed above. Governments and utilities are participating by providing economic incentives to projects in this industry. Site Selection Group serves as a strategic partner to help companies ensure they are strategically driving their location decision for long-term viability rather than simply reacting to various short-term benefits and inducements.