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Battery-production capacity, and supplies of the needed raw materials, are critical for the EV business.
Drew Angerer/Getty Images
The electric-vehicle business makes for strange bedfellows. A diverse group of stakeholders, ranging from oil companies to politicians, want to make sure America has the resources needed to build battery-powered cars.
That is good for shares of EV leader
Tesla (ticker: TSLA), as well as the stocks of traditional car companies that want to be significant EV players such as
Ford Motor (F) and
General Motors (GM). Those three companies alone want to be producing roughly 7 million EVs globally by 2026—more than twice the number sold around the globe in 2021.
The question for investors is whether the supply chain can keep pace. There are signs that it might be difficult.
Prices for battery materials are spiking as demand has started to outstrip production. A basket of metals that go into lithium-ion batteries was up about 40% year to date before Russia invaded Ukraine. It has risen another 13% since then as the war makes inflation worse.
Where the materials come from is another problem. China is the world’s largest market for electric vehicles and dominates the production of battery materials. Some estimates puts China’s share at about 80% of the global total.
That geographic reality has started to worry West Virginia Sen. Joe Manchin, who said at a March energy conference in Houston that he was reluctant to support the rollout of EVs because the supply chain is so reliant on China. Manchin, of course, declined to support President Joe Biden’s Build Back Better legislation, which included financial incentives for buying an EV.
He seems to be a roadblock in the way of the industry, though he did accompany Energy Secretary Jennifer Granholm at a March 18 event designed to strengthen the American battery-supply chain. Granholm unveiled $5 million of funding to train workers for the lithium-battery industry at the event, and Manchin mentioned a battery facility coming to his state.
The plant will be run by SPARKZ, a start-up trying to commercialize solid-state, cobalt-free batteries. Cobalt is expensive, and is produced mainly in the Democratic Republic of the Congo, a country that where labor and mining practices have raised concerns, so many EV makers, including Tesla, are moving toward cobalt-free options.
Manchin’s involvement in the battery supply chain might surprise EV investors. They also might be surprised by another firm quietly building positions in small-capitalization EV battery players.
The energy and materials giant Koch Industries owns significant stakes in several startups. According to regulatory filings, Spring Creek Capital, a Koch affiliate, owns almost 10% of battery start-up
FEYR Battery (FREY), and a $100 million convertible bond issued by battery material recycler
Li-Cycle (LICY).
Spring Creek was also an early investors in energy storage start-up
ESS Tech (GWH) and still holds about 14% of the stock in the battery-storage company
EOS Energy Enterprises (EOSE).
Shares of the four startups are up about 7% on average Tuesday, while the
S&P 500
has gained 1%. The
Dow Jones Industrial Average
is up 0.7%. The stocks seem to be getting a bump from a Wall Street Journal article that reported on some of the Koch battery-related holdings earlier Tuesday.
The money being spent by the Energy Department, and Koch, is relatively small, however. The Koch stakes in Feryr, Li-Cycle and EOS amount roughly $260 million, while batteries are a multibillion-dollar business. Sales at China’s
CATL (300750.China), the word’s most valuable battery maker, are expected to top $35 billion in 2022.
Both Ford and GM, meanwhile, have committed billions to building battery- production and materials-processing capacity in the U.S. Both are working with their current battery partners:
LG Chem (05191.Korea), for GM, and
SK Innovation (096770.Korea), for Ford.
Tesla isn’t only investing in its own battery capacity, it is putting money into the mining level of the supply chain. It has invested in U.S. production capacity for both lithium and graphite, which goes into battery anodes.
The entire chain of automotive stakeholders seem to recognize the need to develop a U.S. battery supply chain. For now, the dollars look like they will come from the auto industry. Politicians just have to offer support.
Write to Al Root at [email protected]
