Friendshoring the Lithium-Ion Battery Supply Chain

Introduction

Establishing a more localized lithium-ion battery supply chain, often referred to as friendshoring, involves considerable policy intervention at every level. The sourcing and processing of essential minerals is largely concentrated in a limited number of countries. Although various nations are involved in midstream and downstream processes, U.S. manufacturers are facing increasing difficulties in securing access to these vital components due to uncertainties in both domestic and international contexts.

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The challenges posed by the current supply chain structure are significant, and addressing them is crucial for the United States to achieve its green transition objectives. A reliable and stable supply of lithium-ion batteries is necessary for transitioning away from fossil fuels, which is essential for meeting long-term environmental targets.

There is a growing call to accelerate the uptake of renewable energy, accompanied by legislation that profoundly affects U.S. trade and economic policies. Recognizing China's substantial control over the supply of various crucial goods, lawmakers are committing to reducing risks in these supply chains by diversifying import sources beyond the People's Republic of China (PRC) and establishing redundancies to shield against unexpected shocks, such as those caused by pandemics. This de-risking agenda aligns with government initiatives aimed at revitalizing domestic manufacturing prowess in the U.S., perceived as a strategic defense and a gateway for more equitable economic opportunities for workers.

In response, Congress and the Biden administration have launched multiple initiatives targeting three key objectives: speeding up the U.S. green transition, reshoring necessary production capabilities, and lessening reliance on the PRC in critical sectors. While all three goals contribute to long-term economic security, focusing on reshoring could inadvertently limit consumer access to essential lithium-ion battery technologies.

This brief, the second installment in a three-part series, expands on previous analysis concerning refining and processing by exploring the production of active materials—an essential segment in the lithium-ion battery supply chain. It delineates the technical procedures necessary for the production of active materials, including mixing, coating, calendaring, and slitting, as well as the manufacture of separators and electrolytes. Furthermore, it evaluates the current capabilities of the U.S. within this sector in relation to global benchmarks, while reflecting on ambitions surrounding nearshoring and onshoring.

Additionally, this brief examines incentives from the Biden administration, such as tax credits from the Inflation Reduction Act and funding programs from the Infrastructure Investment and Jobs Act. Moreover, it reviews existing regulations and their possible repercussions on the scaling capacity of lithium-ion battery input manufacturers due to heightened demand. Finally, it assesses recent Congressional recommendations relevant to the nearshoring of the lithium-ion battery industry.

Manufacturing a Battery Cell

Active Materials Production

Technical Steps: Following the mining or extraction of critical raw minerals like lithium, cobalt, manganese, nickel, and graphite, processors purify these materials. The resulting substances are utilized to produce cathode and anode active materials, known as the midstream segment of the lithium-ion battery supply chain. This phase is marked by complex methodologies and advanced technologies, creating substantial barriers for new entrants.

Typically, a lithium-ion battery comprises several cells, which serve as integrated components. Each cell is primarily constructed with an anode, cathode, separator, and electrolyte. The anode serves as the negative electrode, while the cathode is the positive counterpart. When charged, lithium ions transfer from the cathode through the separator to the anode.

The cathode structure can feature various formulations and compositions. Active materials for cathodes are often derived from metal oxides that include cobalt, nickel, manganese, aluminum, iron, and phosphate, among others, supported by necessary binders and additives like polyvinylidene fluoride (PVDF). Such components are critical for enhancing battery performance, particularly for stable and high-capacity applications. As previously mentioned, graphite is vital for anodes, but industries are exploring alternatives such as silicon or lithium to boost energy density and output.

The conversion of refined minerals into functional electrode components—that is, the positively charged cathode and the negatively charged anode—entails five principal phases: mixing, coating, calendaring, slitting, and electrode assembly.

Mixing: In this stage, active materials for both the cathode and anode are dry blended in a planetary vacuum mixer, ensuring an optimal consistency for efficient battery performance. It is crucial that the anode and cathode components are mixed separately to avoid any adverse chemical reactions. Various solvents are incorporated to enhance viscosity, a key factor influencing battery life and functionality.

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Coating: This process entails applying the already produced aluminum-cathode and copper-anode slurries onto metal foils. The slurries are dried within a temperature range that optimizes production costs without compromising battery longevity. The successful implementation of this step is critical for ensuring optimal performance.

Calendaring: During this phase, the coated electrodes are compressed against collector metal foils, enhancing battery energy density and managing dust and humidity. Employing a roller calendar facilitates achieving an even density in the dried slurry, which has a direct impact on battery performance and lifespan.

Slitting and Electrode Assembly: The coated electrodes undergo slicing through roller slitting machines before being assembled into the finished battery product, ready for market entry. This interdiction ensures precise marking and functionality of each component.

Separator Production: The creation of separators involves either a dry or wet method, both of which play a pivotal role in the battery's operational efficiency by dictating ionic conductivity. Separators made via either process are crucial to maintaining performance metrics for lithium-ion batteries.

Electrolyte Solution Production: Electrolytes are crucial for conductivity in lithium-ion batteries and consist of soluble salts, acids, and various other bases. The right mixture of these components facilitates the effective transfer of lithium ions, significantly enhancing battery performance.

Current U.S. Capabilities: Presently, China leads in the production of active materials essential for lithium battery supply, followed by South Korea and Japan. The U.S. occupies a distant fourth position and is expected to maintain this status for the next several years, despite substantial investments being made.

The high production costs in the U.S. create a significant barrier to onshoring initiatives, further complicating efforts to establish a robust domestic lithium-ion battery manufacturing sector. Nevertheless, increasing domestic demand for battery cells is projected to continue rising, outpacing supply availability throughout the coming decade.