energy
October 11 2022
Several automakers operating in the United States plan to dramatically increase production of electric vehicles this decade, and in the process, are committing huge capital expenditures. Achieving these ambitious manufacturing goals will require batteries – many of them – as an electric vehicle (EV) can use hundreds to thousands of individual lithium-ion batteries.
As a result, there is a wave of new investment in giant factories – massive facilities dedicated to the production of lithium-ion batteries. The planned investment exceeds $40 billion, targeting parts of the United States in an effort to build a major part of the domestic supply chain for batteries and electric vehicles.
What is Giga Factory?
Individual batteries, technically known as “cells,” come in a variety of shapes, sizes, and chemistry. For example, a common AA battery is an alkaline cell.
Cells are produced in plants ranging in size from small pilot production lines to huge facilities covering hundreds of thousands of square feet that produce millions of cells annually. Their annual capacity is not measured in terms of the number of cells produced but rather in terms of the total energy capacity of all those batteries.
Giga factories get their name from the fact that their annual capacity exceeds 1 gigawatt-hour (GWh), or 1 billion watt-hours. To put this number in perspective, the typical US household consumes 30 kilowatt-hours of electricity per day, or 30,000 watt-hours, while the US generates several million gigawatt-hours of electricity annually.
The capacity of an EV battery, containing hundreds or even thousands of cells, is typically 50 to 100 kilowatt-hours (kWh). A giga plant with a capacity of 1 gigawatt-hour at full capacity could theoretically produce enough batteries each year to power 10,000 to 20,000 EVs.
Battery factory boom in progress
The United States saw an initial wave of investment in lithium-ion battery plants after the Great Recession, spurred in part by $2.2 billion in funding allocated in the 2009 American Recovery and Reinvestment Act. The capacity of those early plants was relatively small, reflecting a modest. Electric vehicle sales.
US capacity additions have been sporadic until recently when the pace of new ads rose. Six new facilities, worth more than $5 billion, were announced from 2018 to 2020. Since the beginning of 2021, more than 15 new facilities or expansions have been unveiled in the United States, reflecting a potential investment of at least $40 billion. Several plants have also been announced in Canada.
The production capacity of these recently announced giant plants generally dwarfs that of the earlier facilities, which were often less than 1 gigawatt-hour. All but one of them exceed 10 GWh, and their largest capacity exceeds 40 GWh.
The production of lithium-ion batteries is growing rapidly
Experts predict that these new investments, as well as future investments, will significantly boost US production of lithium-ion batteries (Chart 1). U.S. capacity is expected to grow more than fivefold from 2021 to 2026, according to data and estimates by Benchmark Mineral Intelligence, a provider of market data and intelligence. By 2031, US capacity is expected to expand by another 86 percent.
While this will boost the United States’ share of global capacity, current projections suggest it will remain modest, advancing from 5.5 percent in 2021 to nearly 11 percent by 2031. Other regions of the world—particularly China—are also seeing Booming in giant factories. The production capacity of China, which already outweighs all other countries, is expected to rise by about 460 percent from 2021 to 2031.
Electric vehicle production plans drive giga plant boom
What is driving these expansion plans? One factor is the growth of electric vehicle sales. While electric vehicles still make up a relatively small share of total sales in the United States, sales have skyrocketed in recent years (Chart 2).
Sales in 2021 totaled more than 466,000 units, double the level in 2020. These trends have been most pronounced outside the US where sales have doubled on average each year since 2010 and reached nearly 4.2 million units in 2021. China, in particular, has seen strong sales growth.
Perhaps more important than recent sales, many US automakers plan to rapidly expand production of electric vehicles this decade. For example, Ford plans to spend $50 billion through 2026 to expand its production of electric cars, while General Motors plans to invest $35 billion through 2025. Both also have ambitious global sales targets, with Ford targeting 2 million units by 2026 and 1 million GM by mid-decade, ten years. Other companies with a footprint in the US are also preparing plans to expand production in the region.
Automobile production of these companies is largely concentrated in the Midwest and South. Due to the high costs of transporting large quantities of lithium-ion batteries, most of the newly announced Giga plants will be in the same geographic area, an area that some have begun to refer to as the “battery belt” (Chart 3).
Another advantage of many of these investments is that they are partnerships between automakers and battery producers. For example, the largest investment recently announced is a $5.8 billion joint venture by Ford and SK Innovation for 43 GWh builders in Kentucky. These partnerships allow battery companies to secure demand while allowing automakers to get the supplies they need to produce electric vehicles.
More modest investment elsewhere in the chain
The supply chain for batteries is much more than just producing batteries. It begins by extracting the main raw materials, including lithium, nickel, and graphite, and later refining those minerals. The next step is to produce what are known as battery materials, which are the inputs used to produce the individual cells. Moreover, there are also companies that focus on recycling lithium-ion batteries.
US capacity in those parts of the supply chain is limited, and investment is modest, despite growing interest. A few new US facilities to produce battery materials have been announced over the past year, the largest being a $3.5 billion operation in Nevada. In addition, there are plans for several recycling plants, and there is a growing interest in lithium mining and refining.
The US government hopes to increase investor interest in these areas through several provisions of the Inflation Reduction Act of 2022. The act provides direct subsidies to the production costs of critical metals, battery components, and battery cells. Furthermore, the tax credit available to buyers of electric vehicles—up to $7,500 per vehicle—includes percentage requirements for both the value of battery components and the value of critical minerals to be obtained from local producers or free trade partners.
Notably, the subsidy also contains a ban on the use of critical metals, battery materials and other components from “relevant foreign entities”. This ban includes any production produced within China – a major player in various parts of the global supply chain for lithium-ion batteries. The critical minerals portion of the ban takes effect at the beginning of 2025; The ban on the components begins at the beginning of 2024.
Overall, these provisions create potentially powerful incentives to boost investment in other parts of the U.S. supply chain, although it’s too soon to tell how successful they will be.
About the authors
Michael de Plant
Blunt is a senior economist and advisor at the Federal Reserve Bank of Dallas.
Jessica Rendells
Rendells is a research analyst at the Federal Reserve Bank of Dallas.
The opinions expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.
energy industry
Originally published at San Jose News Bulletin
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