EV supply chains in spotlight with new US Act... What is clear, however, is that the US supply chain is in its infancy and has yet to wean itself off reliance on foreign sources of minerals or components that do not have free trade status. ... The snags
Here is where the potential problems start.
Only a handful of the US’ free trade partners have battery manufacturing capabilities or produce critical minerals on the list.
Current production of critical minerals occurs mostly outside of the US and its free trade allies. According to the US Geological Survey, China is the dominant supplier of 21 of the recognized critical minerals in the US.
China also has majority control of refining capacity for materials such as cobalt and lithium and produced the lion’s share of the world’s lithium-ion batteries last year, with four of the 10 biggest battery manufacturers based there.
To process its own cobalt, the US is likely to have to buy more from the Democratic Republic of Congo, which is responsible for 71% of global production.
The US’ main cobalt import source currently is Norway, with which it does not have a free trade agreement.
The US is also going to need to stop buying graphite from its dominant supplier, China, and boost imports from other sources, which are relatively insignificant producers by comparison.
It may need to negotiate a place for Indonesia, a key supplier to Ford, on the list of free trade partners, and ensure it steers clear of Russia, from where nickel remains exempt from sanctions related to the invasion of Ukraine.
The US is also going to either diversify away from its current Argentinian lithium supplies and Gabon manganese imports or quickly sign individual free trade deals with both these countries.
This is all to assume that the US’ free trade partners produce enough of the minerals that it will need and, perhaps more importantly, don’t have alternative buyers.
That is also not taking environmental, social and governance (ESG) factors, or resource nationalism and geopolitics, into account.
The US has been pushing to develop its own sources of critical minerals for batteries, invoking the Defense Production Act earlier this year.
But mines do not spring up overnight, and even those in the planning stage take years to pass regulatory hurdles.
It is going to make projects such as those of Talon Metals, Glencore and Electra Battery Materials to create an integrated and localized battery materials park for the EV market all the more important.
On the plus side, the free trade partner list includes South Korea and Japan, which are decent-sized battery manufacturers. Battery manufacturing capacity is meanwhile growing apace in Poland, Hungary, Germany and the United Kingdom, even though the latter countries don’t have free trade deals with the US.
Of course, there are likely to be exemptions to these rules when supply chain adjustments are made. After all, if it had been possible to make these changes already, then, in all likelihood, more of them would have happened.
For automakers, battery processing firms and mining companies, the Act means potentially unraveling some of the huge raw materials deals they have done in recent years.
Even if OEMs can convince their supply chain partners to build processing and manufacturing capacity in a US-friendly jurisdiction, they may still miss out on the portion of the EV credit focused on the source of the critical mineral.
Provenance
The provenance of materials is going to be increasingly important.
OEMs have realized that turning a blind eye to the origin of some of their materials in a world of heightened focus on ESG has become increasingly untenable.
The Inflation Reduction Act will make it impossible to operate without knowing exactly where material in a supply chain comes from.
This will make tracking and tracing solutions all the more important. Enter Circulor, MineHub, Trade Cloud and other digital and blockchain companies that are keeping abreast of supply chains, ESG standards and other criteria.
https://www.fastmarkets.com/insights/ev-supply-chains-in-spotlight-with-new-us-act-hotter-on-metals