Can the US Take Charge in the Global Battery Market?

By Erin Smith

Innovation is key to securing America’s security, competitiveness, and prosperity. Breakthroughs in technology have the potential to create entirely new markets and improve the productivity of existing ones, which is why most economists view innovation as a reliable driver of long-term economic growth. Advances in energy technology deserve particular attention because access to affordable energy enables virtually every facet of an industrialized society. These advances also present huge economic opportunities – the global energy market is roughly $6 trillion today and is poised to grow 48% by 2050 from a 2012 baseline. Ongoing research and development (R&D) is crucial to seizing these opportunities and the federal government plays a vital role by filling research gaps where it is too risky for the private sector to sufficiently invest. In fact, many of the benefits provided by the recent resurgence in U.S. energy production can be traced to past federal investments in energy R&D, such as the development of hydraulic fracturing, which contributed $430 billion to U.S. GDP in 2014 alone. Unfortunately, federal funding for energy R&D has remained flat relative to inflation and in fiscal year 2015 received less than 2% of the total U.S. R&D budget. The United States ranks 10^th in energy innovation investments and foreign countries have begun to take the lead in a number of emerging energy technology markets. However, the United States enjoys several strategic advantages and with meaningful increases in smart R&D investments, we can revitalize our economy by capturing market share in the 21^st century energy economy.

The federal government plays a vital role by filling research gaps where it is too risky for the private sector to sufficiently invest.

The global battery market is one area where the United States is at risk of permanently falling behind. Rechargeable lithium-ion batteries (LIBs) have become ubiquitous in consumer electronics and power everything from laptops and cell phones to grid storage systems to electric vehicles (EVs). LIBs comprise a family of batteries that use a variety of materials and today, most plug-in hybrid electric and all-electric vehicles use LIBs – typically Nickel Manganese Cobalt (NMC). Together, China, Japan, and South Korea constitute 85% of global fully commissioned LIB production capacity for all end-use applications and 79% of total automotive LIB production. Unlike the United States, Asia has a well-established LIB supply chain and lower manufacturing costs. As a result, the United States depends on these countries to manufacture raw and processed materials as well as battery cells, which constitute roughly 60% of a battery pack’s total cost. American electric vehicle manufacturers like Tesla, Chevrolet, and Ford rely on battery cells from Japanese and Korean companies. As demand for electric vehicles and other products that rely on batteries grows, the United States risks missing out on an industry expected to grow from $29.68 billion in 2015 to $77.42 billion by 2024 if it doesn’t make the necessary upstream investments in battery research to enable American companies to compete.

The United States is already conducting basic research that could lead to a breakthrough in battery technology. The Department of Energy (DOE) set a goal of reducing the cost of battery packs for electric vehicles 75% by 2022 as part of the “EV Everywhere” Grand Challenge. To meet this goal, researchers at Argonne National Lab’s Joint Center for Energy Storage Research (JCESR) are working to develop EV batteries with better performance than conventional LIBs. Likewise, researchers at Argonne’s Materials Engineering Research Facility (MERF) are investigating ways to manufacture new battery materials at commercial scale. In the private sector, Tesla has invested $5 billion in its “gigafactory,” which is already producing lithium-ion battery cells and prioritizes using raw materials sourced in the United States. While the gigafactory will strengthen America’s domestic LIB supply chain, its focus on deploying conventional LIBs contrasts with the need to develop breakthrough battery technology. What’s more, many innovative battery startups lack the scale of Tesla’s private financing and can only access small federal grants. As a result, many of these startups have started building their facilities in Asia where there are willing investors and low manufacturing costs. The United States cannot simply rely on other countries to pay the upfront capital costs for R&D and reap the spillover benefits from new technology. By failing to sufficiently invest in energy R&D, the United States is ceding its intellectual capital and much of the value chain of new technologies as our most promising innovators and businesses start to flee overseas.

Much of Asia’s success in the global battery market can be traced to government-funded R&D. Japan was an early adopter of LIB technology and bolstered private investments in the 1990s by investing public dollars in R&D and providing access to low-cost capital to establish manufacturing plants. The Korean government likewise committed to building up its battery supply chain in the 2000s while China utilized government R&D, investment incentives, domestic content requirements, and export constraints to expand LIB production. Public R&D helped several Asian companies emerge as the top players in the battery market. Yet today these companies are focused on gradual improvements to existing LIBs rather than technology breakthroughs, creating an opportunity for innovative companies in the United States and abroad. Many researchers believe LIBs are reaching the upper limit of energy density and productivity and that new battery technology will be needed to reach range and cost goals. China is already working on this—the government recently announced it would shift funding from EV subsidies to energy R&D. Researchers at the Chinese Academy of Sciences also just developed a new aluminum graphite dual-ion battery (AGDIB) that is lighter weight, lower cost, and more energy-dense than conventional LIBs. As China and other countries race to discover and deploy the next game-changing battery technology, investing in early-stage energy R&D is fundamental to our ability to compete.

The United States is well-positioned to extend its technology leadership into global energy markets, including the battery industry. When properly supported, our world renowned national labs and researchers have consistently delivered world-changing innovations that strengthened our economy and improved lives around the globe. The battery market is expected to grow by nearly $50 billion a year over the next decade. To capitalize on this opportunity, the United States needs to significantly increase federal support for the domestic innovation ecosystem, starting with energy R&D.