The EV Battery Supply Chain Explained
Introduction
The transportation sector is the largest emitter of greenhouse gases in the US economy, and about half its emissions come from light-duty vehicles alone. To avoid the disastrous effects of a 1.5°C increase in global temperatures, we will need to replace the more than 300 million internal combustion engine (ICE) vehicles currently on the road with electric vehicles (EVs).
Today, there are about 2.5 million EVs on US roads; this number will need to increase to 44 million by 2030 if we are to reach net-zero emissions. Every one of these 44 million cars will need to be powered by an electric battery produced in a long, complex process involving mining, refining, production, and assembly.
While research findings predicting expected growth in EV demand varies, there is consensus that it is expanding and will continue to do so: S&P Global Mobility forecasts EV sales in the United States alone could reach 40 percent of total passenger car sales by 2030, and more optimistic projections foresee EV sales surpassing 50 percent by 2030.
To meet this increasing demand for EVs, governments, policymakers, and public and private sectors around the world will need to strengthen supply chains to rapidly scale production of EV batteries.
In recent years, billions of dollars have been invested in this supply chain. Beyond addressing climate change and meeting growing demand for EVs, this increased investment is meant to:
- Provide economic opportunity and create new jobs;
- Increase the resilience of the global supply chain by increasing the number of countries involved;
- Address human rights and environmental abuses associated with the supply chain; and
- Comply with legislation like the Inflation Reduction Act (IRA), which requires that an increased percentage of EV battery supply chain activities take place in North America to be eligible for certain tax credits.
By providing this overview of the EV battery supply chain, the challenges it faces, and opportunities to improve it, we hope to give local and national governments, policymakers, and private and public sector actors a starting-point resource they can use to further explore these important issues. For more information on EV batteries and how they work, read “EV Batteries 101: The Basics.”
What is the EV battery supply chain?
The term supply chain describes the process by which a product is made and delivered to a consumer.
The steps involved in producing and using an EV battery fall into four general categories:
- Upstream: Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
- Midstream: Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials; commodities traders buy and sell raw materials to firms that produce battery cells.
- Downstream: Battery manufacturers assemble the battery cells into modules and then pack and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
- End of Life: When batteries no longer serve their original purpose, they can be reused or recycled.
Providing economic opportunities and creating new jobs
Domestic investments to improve the EV battery supply chain will have a range of economic implications.
The transition to EVs represents a major disruption to the automotive workforce, both in terms of its overall size and its geographic distribution around the country. Currently, more than 10 million people work in the US automotive industry. Since EVs are much simpler to produce than ICE vehicles, the automotive industry may need fewer workers in the future.
However, with overall car sales declining after a peak in 2017, EVs are the only growth area in the automotive market, meaning all future job growth in the industry will likely be in EV manufacturing and its supply chain. These new EV jobs will not necessarily be in states and regions where ICE manufacturing jobs are today. That being said, disruptions related to EVs can have all sorts of economic benefits when they lead to increased entrepreneurship pathways and the development of new industries around novel technologies. The growth of Tesla, Rivian, and a range of new battery manufacturers illustrates how this technology transition has encouraged startups to compete with legacy players, creating new competition and incentives to innovate in the marketplace. The transition to EVs is likely to continue to foster innovation in one of the most important sectors of the US economy, creating numerous productivity ripple effects throughout the country.
Localizing the EV battery supply chain also brings upstream investment opportunities, since batteries require a range of critical minerals, processing facilities, and component part manufacturing. For example, in just the few short months since the Inflation Reduction Act was passed, the United States has seen more than $40 billion worth of new investment announcements across the battery supply chain. These investments can help spur local economic development by supporting surrounding industries, fostering spinoff entrepreneurship, and contributing to the development of industry clusters that improve productivity and growth.
Increasing the resilience of the global EV battery supply chain
The EV battery supply chain is dispersed around the world — battery minerals travel an average of 50,000 miles from extraction to battery cell production. At the same time, much of the mineral supply is concentrated in just a few countries. This dispersion and concentration make the global supply chain vulnerable to disruptions, including:
- Extreme weather (e.g., hurricanes, tornadoes, and earthquakes that impact energy inputs and disrupt infrastructure like pipelines and shipping routes)
- Geopolitics (e.g., the war between Russia and Ukraine)
- Changing trade alliances between countries or regions
- Corporate consolidation: Today, when one of the many companies involved in the battery supply chain experiences a disruption, others are affected. As EV demand rises, it’s likely that there will be a few big players that will oversee more parts of the process. If one (or more) of these companies experience disruptions, the effects will be greater.
- A change in materials needed due to new technologies: Battery chemistries and designs are changing quickly; many of them use alternative and more abundant materials. These changes will affect the supply chain network and the countries and companies involved.
These disruptions can result in bottlenecks and negatively affect the rest of the battery supply chain; they can also impact economies, cause delays for suppliers, increase transportation costs, force employers to cut jobs, discourage investment, and hinder transportation decarbonization.
The global EV battery supply chain today
China currently dominates the supply chain. As broader geopolitical issues affect economic and trade relationships, the stability of the global supply chain is increasingly at risk when extracting, refining, processing, and assembling an outsized share of EV battery components occurs in any single country.
Several critics have described US efforts to increase domestic EV battery supply chain capacity as an attempt to “de-couple” from China, which is an oversimplification. A more accurate assessment is provided by US Trade Representative Katherine Tai, who labels the current administration’s approach “de-risking.” As the market for EV batteries and other advanced energy technologies expands, there will be plenty of growth opportunities for all producing nations, even as that production capacity diversifies.
It is important to recognize that strengthening the EV battery supply chain is not a zero-sum game with winners and losers. Creating a robust supply chain will benefit people around the world by providing economic opportunity, creating jobs, and making it easier for more people to purchase EVs.
We can significantly bolster EV battery supply chains by advancing partnerships with other countries, improving regulations, devoting more resources to domestic battery production, and increasing battery circularity.
Addressing human rights and environmental abuses
Around the world, the upstream portion of the EV battery supply chain (mining) is linked to human rights abuses, such as the use of child and forced labor. Many mines lack basic worker safety measures — endangering workers’ lives — and extraction often comes with an environmental cost. Mining practices often cause surface and groundwater depletion, soil contamination, biodiversity loss, and other negative consequences that can last for centuries.
Today, few automakers and battery manufacturers know where their battery minerals come from and how they’re extracted (although we have the power to increase supply chain transparency with more investment). As a result, human rights abuses and environmental damages often go undetected. A growing coalition of stakeholders are working on these issues, including activists and advocates, policymakers, regulators, those in the automotive industry, and others. Many in the extractive industry have also expressed a desire to address these issues. You can read more about what’s being done to address human rights and environmental abuses in the Upstream section below.
Complying with legislation
The US government is investing in strengthening EV battery supply chains using a variety of legislative tools:
The Infrastructure Investment and Jobs Act
Passed in November 2021, the Infrastructure Investment and Jobs Act provides funding for the programs and initiatives listed below, which are designed to address the above issues.
- Battery and Critical Minerals Mining and Recycling Grant Program ($125 million)
- Earth Mapping Resources Initiative ($320 million)
- US Geological Survey’s Energy and Minerals Research Facility ($167 million)
- Rare Earth Elements Demonstration Facility Program ($140 million)
- Battery Materials Processing and Battery Manufacturing Recycling ($2.8 billion)
- Electric Drive Vehicle Battery Recycling and 2nd Life Apps Program ($200 million)
- Advanced Energy Manufacturing and Recycling Grant Program ($750 million)
- Future of Industry Program and Industrial Research and Assessment Centers ($550 million)
The CHIPS and Science Act
Passed in August 2022, the CHIPS and Science Act will fund American semiconductor research, development, and production, which will help decrease US reliance on China for the semiconductors used in EVs and many other technologies. Two programs will fund research and development in advanced manufacturing and materials with a total of $2 billion.
The Inflation Reduction Act
Passed in August 2022, the Inflation Reduction Act focuses on improving clean energy manufacturing and recycling; industrial decarbonization; critical materials processing, refining, and recycling; incentivizing domestic production; improving supply chains; and electrifying heavy-duty vehicles. The Act:
- Extends and expands the Qualifying Advanced Energy Project Credit ($10 billion)
- Establishes the Advanced Manufacturing Production Tax Credit ($30.62 billion)
- Enhances use of Defense Production Act of 1950 ($500 million)
- Expands the Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program ($3 billion)
- Creates the Domestic Manufacturing Conversion Grants ($2 billion) and the Clean Heavy-Duty Vehicle Program($1 billion)
- Encourages people to buy EVs through the Clean Vehicle Tax Credit, which provides consumers up to $7,500 if they buy a new qualified plug-in EV or fuel cell electric vehicle.
- Aims to strengthen domestic EV supply chains by requiring critical minerals be extracted or processed in the United States or a Free Trade Agreement country, or recycled in North America, with final assembly in North America.
Understanding how the EV battery supply chain works and the challenges it faces will help us make effective policies to improve it and reduce the harms associated with it.
Upstream
Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
The “upstream” portion of the EV battery supply chain, which refers to the extraction of the minerals needed to build batteries, has garnered considerable attention, and for good reason.
Many worry that we won’t extract these minerals quickly enough to meet rising demand, which could lead to rising prices for consumers and slow EV adoption. There’s also concern that the US is missing out on economic opportunities, new jobs, and a chance to strengthen the supply chain.
More importantly, mining is routinely associated with human rights abuses and environmental degradation. Certain mines have used or are using child and/or forced labor to extract the minerals used in EV batteries; there are also many documented cases showing the devastating effects of mining on local communities and environments.
Across the world, there is particular concern about the negative impacts of new extractive developments on Indigenous communities. In the United States, the majority of nickel, copper, lithium, and cobalt reserves lie within 35 miles of Indian Country.
Below we explain the steps involved in the upstream portion of the EV battery supply chain, answer five questions about the challenges facing the mining industry, and describe what’s being done to address the industry’s negative impacts.
What is the “upstream” portion of the EV battery supply chain?
In the upstream portion of the supply chain, mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
Because of the energy required to extract and refine these battery minerals, EV production generally emits more greenhouse gases per car than cars powered by fossil fuels. However, the average EV makes up for this difference in less than two years. Over a typical vehicle’s lifetime, EVs produce significantly less emissions than traditional vehicles, making them an essential tool to combat climate change.
Lithium-ion batteries, the kind that power almost all EVs, use five “critical minerals”: lithium, nickel, cobalt, manganese, and graphite.
The Energy Act of 2020 defines critical minerals as a “non-fuel mineral or mineral material essential to the economic or national security of the U.S. and which has a supply chain vulnerable to disruption.” There are around 35 minerals categorized as critical.
Critical minerals are found across the world, but most economically viable deposits are found in only a few places. For instance, much of the world’s cobalt is located in the Democratic Republic of the Congo while lithium is concentrated in South America and Australia. As a result of this geographic diversity, the supply chain for electric vehicles is truly global.
Do we have enough minerals to make the EV batteries we will need?
Yes. While demand for these minerals is already high and expected to grow significantly in the coming years, there are enough minerals to meet today and tomorrow’s EV needs.
The problem is that the upstream portion of the supply chain is unprepared to meet this demand. Today, although there are enough minerals, there are not enough operating mines.
Since it can take years to establish a mine, we need to move very quickly to ensure that supply can meet growing demand while also respecting the expressed needs of local communities. This work will require significant investment to do so: in the United States alone, we’ll need to invest $175 billion in the next two or three years to match China’s battery production.
How do mining practices contribute to human and environmental injustice?
Today’s mining practices can involve:
Child and/or forced labor: According to the International Labor Organization, more than 1 million children are engaged in child labor in mines and quarries; many receive little to no pay. These practices are a form of modern slavery.
Tailings storage are another form of mine waste that harms local environments and residents. Once a mineral has been extracted from the ore, the rest of the ore is disposed of. These leftovers are called tailings and are usually dumped in above-ground ponds held together by humanmade dams. When these dams collapse, they can cause deadly mudslides that destroy farmlands and nearby towns. Collapses can also pollute bodies of water that local communities rely on for food, agriculture, and income. Since 1915, more than 250 tailings dam failures have been recorded around the world, killing 2,650 people. In 2019, a single dam failure at a mine in Brazil claimed the lives of 270 people in a tragic instant.
Water pollution and depletion: Drilling and excavation can contaminate surface water and groundwater reserves. As Earthworks notes, many mines in the US have historically failed to control their wastewater, which has led to polluted drinking water, harm to local habitats and agriculture, and negative public health impacts. Globally, mines dump more than 200 million tons of mining waste directly into lakes, rivers, and oceans every year. Mining also requires huge amounts of water; more than 2 million liters of water are needed to produce one ton of lithium. Because mining often occurs in arid and semi-arid regions, this can seriously stress local water supplies for communities and ecosystems.
Gender discrimination across the mining industry: Despite women’s significant contributions to mining, their work has been less valued and less protected than that of men, according to the International Labour Organization, which also notes that in large-scale mining operations, women rarely make up more than 10 percent of mineworkers. In many countries women are expressly prohibited by law from holding certain positions at mines.
What are the factors that contribute to human and environmental injustice?
There are many factors that contribute to human rights abuses and environmental degradation, including:
Some mineral reserves are in conflict-affected and high-risk areas: Many of today’s operating mines are in regions labeled as a conflict-affected and high-risk area (CAHRA), which the Organisation for Economic Cooperation and Development defines as places “identified by the presence of armed conflict, widespread violence, or other risks of harm to people.” The presence of civil and international wars, insurgencies, political instability and repression, and corruption are some examples of factors that determine whether an area is considered conflict-affected or high risk. At the time of this writing, the European Union has identified 28 countries with CAHRAs.
Economic dependence on artisanal and small-scale mining (ASM): Unlike large-scale mining, ASMs are operated by individuals, families, and/or groups and are often informal and completely unregulated, which leads to little to no health, safety, or environmental protections. They do not always use modern equipment; some rely on tools like shovels and pickaxes. As the European Union notes, in some cases, ASMs are controlled by armed groups, who use the extracted resources to finance conflicts.
Outdated mining laws: Current US laws governing mining do not address the complex challenges facing the sector. For instance, the General Mining Law of 1872 remains the most prominent mining regulation today in the United States. Governing the extraction of critical minerals on federal lands, it has not been meaningfully updated since President Ulysses S. Grant signed it more than 150 years ago to promote westward expansion. It does not require mining companies to pay federal royalties to taxpayers and includes no environmental protection provisions. Laws such as these do not reflect the complexities of today’s mining practices; it’s especially important that they require free, prior, and informed consent of Tribal nations, who often bear the brunt of mining’s negative impacts.
A lack of tools to monitor mining practices: Without good governance or transparency from organizations, there’s no way to definitively know how most mines treat their workers or affect the surrounding environment. Journalists have been largely responsible for uncovering human rights abuses and environmental degradation. We often rely on assurances from mining companies, which often prove to be inaccurate or incomplete. That’s why we need third-party tools to monitor mining practices: we must have data from trusted sources to meaningfully address destructive operations and hold bad actors accountable while continuously requiring responsible practices.
What is being done to address human rights abuses and environmental impacts?
Activists, advocates, policymakers, employers, governments, and others are working to integrate environmental justice in the EV battery supply chain by:
Onshoring/reshoring/friend shoring efforts: Though far from a complete solution, investing in EV supply chain capacity within the United States and its allies will help diversify supply and limit exposure to human rights abuses and detrimental environmental impacts. When upstream supply is concentrated in a few countries, downstream purchasers have little leverage over their suppliers’ human rights and environmental practices. In general, the United States and its allies have strong oversight over human rights concerns and high-quality environmental protections, although there is always room for improvement. The goal here is not self-reliance, however, but rather greater diversity and competition, helping put pressure on all countries to adhere to improved standards.
Leading efforts to update legislation: At the time of this writing, the Biden administration is convening an Interagency Working Group on Mining Regulations, Laws, and Permitting, which will provide recommendations to Congress on how to reform mining law to include provisions that protect the environment, involve local communities, and reduce the time, cost, and risk of mine permitting. Likewise, the Initiative for Responsible Mining Assurance (IRMA), has provided recommendations to the Department of State’s Clean Energy Resources Advisory Committee regarding what should be included in these updates. The US Department of State’s Minerals Security Partnership has also recently announced principles marking a public commitment to full integration of environmental, social, and governance standards into its work.
Improving EV supply chain transparency: “Battery passports” can help manufacturers certify where battery minerals are sourced and verify that these sources are following globally recognized ethical practices.
Convening stakeholders to drive action. IRMA brings together industry, affected communities, governments, and others to provide an independent third-party verification and certification against a comprehensive standard for all mined materials that provides “one-stop coverage” of the full range of issues related to the impacts of industrial-scale mines.
Automakers are also making commitments to ensure that materials are ethically sourced. For instance, Ford requests that suppliers source raw mined materials from entities committed to and/or certified by IRMA.
Although the upstream portion of the EV battery supply chain faces many challenges, we can address them with investment, improved laws and regulations, and public awareness. These steps will help ensure that we have the batteries we need for an electrified transportation future without harming people or the planet.
Midstream
Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials. Commodity traders buy and sell materials to producers who then assemble battery cells.
The “midstream” portion of the EV battery supply chain has the power to improve supply chain traceability, a practice in which products are tracked from their source to the consumer. Since companies participating in the midstream portion of the EV battery supply chain are the ones that interact most directly with upstream actors, they are essential to improving traceability and ensuring that materials are ethically sourced.
Another issue that has garnered some attention is the fact that EV battery manufacturing is concentrated in a handful of countries, raising concerns that supply chains could be vulnerable to geopolitical shocks or trade wars.
Many also believe that American communities are missing out on the economic opportunities associated with the energy transition. This issue has been the subject of congressional action and is reflected in recent legislation such as the Inflation Reduction Act, which includes provisions that require that a certain percentage of EV battery minerals be extracted and processed in the United States or a country with which the United States has a free-trade agreement (FTA).
To help you understand these issues and what’s being done to address them, we’ve provided a definition of midstream activities and compiled a list of answers to common questions regarding these activities.
What is the “midstream” portion of the EV battery supply chain?
After mines extract raw materials (the upstream portion of the EV battery supply chain), they are sent to facilities where they are processed, refined, and assembled into battery cells.
Processing involves removing unneeded materials from the minerals. Refining involves working with these processed materials to achieve a purity level that makes them suitable for use in many products, including batteries. Manufacturers then use these materials to make anode and cathode electrodes that are placed into battery cells, which store energy.*
After the midstream products are ready, manufacturers combine them into large battery packs and place them in EVs. These last two steps are part of the “downstream” portion of the EV battery supply chain, described below.
*(It’s important to note that there is no single industry consensus on whether battery cell manufacturing belongs to the midstream or downstream portion of the EV supply chain. RMI considers cell manufacturing part of the midstream portion.)
Where do the processing, refining, and battery cell steps take place?
Like the upstream portion of the EV battery supply chain, the midstream portion is concentrated in a small number of countries, mostly outside of the United States.
Asia dominates the midstream portion: according to BloombergNEF, China, South Korea, and Japan are the world’s three top battery manufacturing countries, with China dominating.
China produces three-quarters of all lithium-ion batteries and 70 percent of cathode capacity and processes and refines more than half of the world’s lithium, cobalt, and graphite. It is the leading refiner of battery metals globally and currently hosts 75 percent of all battery cell manufacturing capacity, 90 percent of anode and electrolyte production, and 60 percent of the world’s battery component manufacturing.
The next two countries on the list, South Korea and Japan, are responsible for significantly less battery production (South Korea produces 15 percent of the world’s cathode electrodes and 3 percent of its anode electrodes; Japan accounts for 14 percent and 11 percent, respectively).
How strong is the United States midstream?
The United States is currently not a midstream leader; however, its midstream capacity is growing quickly, driven in part by the Advanced Manufacturing Production Credit (45X) which offers up to $45 per KWh of battery capacity and has the potential to strengthen the US midstream sector.
The United States also has existing competitive advantages in automotive manufacturing that it can use to compete in the global EV supply chain, helping to leverage the economic benefits of transport decarbonization. As noted above, legislation like the IRA will help — it requires that to be eligible for a vehicle tax credit, a growing percentage of an EV’s battery metal value must be extracted or processed in the United States or in a partner country with an FTA.
Under this last provision, eligible countries like Australia, which supplies about 60 percent of the world’s lithium and has an existing FTA, would qualify; Indonesia, estimated to account for 37 percent of global nickel production, would not. Guidance released by the US Treasury in March 2023 also proposes a set of principles for identifying the countries with which the United States has an FTA in effect; this term could include newly negotiated critical mineral agreements. For example, Japan signed a critical mineral agreement in March with the United States, allowing the Treasury to add that country to its list of approved suppliers.
These dynamics, easily lost in the legislative fine print, will become major forces in shaping the geography of battery production in the coming decades.
Why is geographic diversity important in the midstream portion of the EV battery supply chain?
If the battery supply chain, or portions of it, are concentrated in just a few countries or regions, the global battery supply chain will suffer should any of these places be faced with disruptions like natural disasters, geopolitics, or changing trade alliances.
Some observers have suggested that efforts to boost local production capacity implies that every country should strive to dominate all portions of the EV battery supply chain. Not only is this domination impossible, it’s also undesirable.
That’s why it’s important that more countries, including the United States, work on strengthening their EV battery supply chains; if they do, global EV battery production will be better able to weather these disruptions.
How can the midstream portion of the EV battery supply chain help address human and environmental injustice?
Consumers and automakers are increasingly concerned with how the materials that go into EV batteries are extracted. They don’t want their EVs to be powered by minerals obtained through slave labor or mining practices that destroy local environments. But due to the opacity of EV battery supply chains, it’s very difficult for them to find out whether their batteries are responsibly sourced.
Midstream actors are uniquely positioned to address the human rights abuses and environmental degradation associated with the upstream (mining) portion of the supply chain (you can read more about these issues in the section above). As mentioned at the top of this article, companies that process and refine the minerals that go into EV batteries interact most directly with those that extract these minerals, which means that they have purchasing power. If those involved in the midstream portion of the supply chain had to follow strong due diligence procedures and were subject to robust audits, they could avoid buying materials from companies with questionable or downright unethical mining practices. Mines would be forced to improve or else face significant financial losses. Also, industry leaders could benefit from investing in responsible production in the same way fairtrade coffee sells at a premium.
As we note above and in another article, improving supply chain traceability would go a long way in ensuring that EV battery minerals are ethically sourced. Technology can replace current paper trails with online systems that will provide companies and regulators with an easier way to track, audit, and improve their supply chains — but any technology is only as effective as its stakeholder participation on the platform.
What efforts are underway to improve EV battery supply chain traceability?
“Battery passports” that track where and how battery minerals are sourced may also help improve the supply chain’s transparency. They would serve as a battery’s digital twin, which follows the physical battery as it makes its way from mineral extraction to placement in the vehicle.
Legislation could also improve battery traceability. The European Council recently adopted a new rule requiring companies to conduct due diligence along their entire supply chain. But in order to succeed, legislative efforts will need buy-in from diverse levels of stakeholders, including national and subnational governments and private sector leaders. Past efforts to improve sourcing, such as the United States’ Conflict Minerals Rule, have mostly foundered. Traceable, ethical supply chains remain an elusive but essential component of the energy transition.
Consumer demand, investor pressure, regulatory improvements, and responsible business practices all have a critical role to play in ensuring secure and ethical supply chains for EV batteries.
Downstream
Battery manufacturers assemble the battery cells into modules and then packs and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
What is the “downstream” portion of the EV battery supply chain?
The downstream portion of the EV battery supply chain involves the assembly of battery cells into modules and then packs before placing finished batteries into EVs. (To learn more about how EV batteries work and how they’re made, read “EV Batteries 101: The Basics.”)
To make a battery module, manufacturers stack battery cells in series or in parallel in a metal frame that protects the cells from the shocks and vibrations that come with driving. Modules house several battery cells, ranging from fewer than 10 to several hundred, depending on the cell type and vehicle range.
These battery modules are then placed into a battery pack. In addition to battery modules, the battery pack includes other components that protect the battery and help it operate within an EV. All of these components are housed in a structure to protect the battery from water, salt, and other outside elements that can damage the battery as a whole. These batteries are then sent to automakers who place them into EVs.
Where do downstream activities take place?
Chinese, South Korean, and Japanese companies dominate global battery manufacturing; together, these countries accounted for nearly 70 percent of the battery market in 2021. The top three companies were China’s CATL (33 percent), South Korea’s LG Energy Solution (22 percent), and Japan’s Panasonic (15 percent). China’s dominance has been attributed to its prioritization and investment in battery manufacturing, while South Korea’s and Japan’s rankings have been influenced by strategically building on their extensive experience and expertise in manufacturing consumer electronics.
How strong is the US downstream sector?
While the supply chain will remain global, North America is poised to become the second-largest player in the battery production market thanks to its efforts to strengthen local supply chains and increase investments in domestic assembly, according to a report from consulting firm LEK.
Today, the United States is responsible for only 7 percent of the world’s battery production capacity. As with the midstream portion of the supply chain, the Advanced Manufacturing Production Credit (45X), which offers up to $45 per KWh of battery capacity, is expected to strengthen the US downstream sector.
The current 72 GWh of battery manufacturing capacity in the United States — which includes midstream and downstream operations — could grow to over 1,000 GWh in just the next two years, as recent announcements and facilities currently under construction come online.
There are many reasons the United States is increasing its domestic investments in the downstream portion of the EV battery supply chain; chief among them is a desire to reduce reliance on overseas suppliers in certain nations, particularly China. By diversifying the supply chain for EVs and the batteries that power them, automakers will be able to endure disruptions in global supply chains and meet increasing domestic and foreign demand. They’ll also be better able to meet their ambitious climate goals and mitigate human rights and environmental abuses associated with mining.
How will American communities benefit from stronger domestic supply chains?
A stronger domestic supply chain translates to well-paying, in-demand jobs for workers in diverse fields ranging from mining to engineering to manufacturing, which in turn results in healthier, robust economies.
Federal legislation like the Inflation Reduction Act and the Infrastructure Investments and Jobs Act are already moving the needle. These two laws provide at least $83 billion in loans, grants, and tax credits that could support the production of low- or zero-emission vehicles, batteries, or chargers, according to an analysis from Atlas Public Policy (APP). RMI estimates that if the United States were to deploy EVs at the speed required to meet net-zero targets, this spending could reach over $200 billion since key tax credits have no upper spending limit.
In response to government investments and regulations, automakers are also upping their investments in EV production, confident that funding and demand will continue to grow. The APP analysis notes that US-based companies, led by Ford, General Motors, Tesla, and Stellantis, have announced that they will invest more than $173 billion in the transition to EVs.
Another significant market shift is increased partnership between automakers and battery manufacturers. For example, Ford is working on diversifying its raw material suppliers and General Motors and LG have partnered to co-locate battery pack and cell production; at the time of this writing, they have one active plant in Ohio and have plans to open two others in Tennessee and Michigan. Some are planning to create manufacturing facilities that house both battery and EV plants, while other downstream manufacturers are creating contracts that enable them to source directly from responsible mines.
Other countries and regions are also working on improving their domestic EV battery supply chains. The European Union has announced ambitious plans to strengthen regional EV production while Indonesia and Thailand aim to become regional market leaders by taking advantage of the fact that they already serve as important vehicle manufacturing hubs for global markets as well as rich upstream mineral and metal supplies.
How can downstream actors mitigate human rights and environmental abuses?
While downstream influence is limited by the current supply of the minerals that go into EV batteries, battery manufacturers and automakers still have considerable influence in improving the EV battery supply chain for one simple reason — downstream actors can influence responsible mining practices in the same way coffee shops can influence responsible coffee farming.
Consumers and automakers are concerned about human rights and environmental abuses and are therefore applying increasing pressure on upstream actors to improve their mining practices. This pressure has resulted in corporate commitments to implement stronger policies to protect local communities, workers, and the environment.
Increasingly, companies, including automakers, will demand to see auditable information showing where critical minerals like nickel and cobalt come from. To date, these systems are just beginning to take shape, led by a handful of enterprising firms and technology startups. Coupled with robust domestic legislation and regulations as well as internationally harmonized policies governing EV battery supply chains, negative impacts associated with the supply chains could decrease.
Moving Forward
It’s an exciting time for transportation electrification, a movement that gains momentum daily. As we collectively work toward decarbonizing the way people and goods move, it’s important that governments, policymakers, the private and public sectors, and communities understand the EV battery value chain so we can effectively address its challenges while also realizing electrification’s economic, health, and environmental potential.
The transportation sector is the largest emitter of greenhouse gases in the US economy, and about half its emissions come from light-duty vehicles alone. To avoid the disastrous effects of a 1.5°C increase in global temperatures, we will need to replace the more than 300 million internal combustion engine (ICE) vehicles currently on the road with electric vehicles (EVs).
Today, there are about 2.5 million EVs on US roads; this number will need to increase to 44 million by 2030 if we are to reach net-zero emissions. Every one of these 44 million cars will need to be powered by an electric battery produced in a long, complex process involving mining, refining, production, and assembly.
While research findings predicting expected growth in EV demand varies, there is consensus that it is expanding and will continue to do so: S&P Global Mobility forecasts EV sales in the United States alone could reach 40 percent of total passenger car sales by 2030, and more optimistic projections foresee EV sales surpassing 50 percent by 2030.
To meet this increasing demand for EVs, governments, policymakers, and public and private sectors around the world will need to strengthen supply chains to rapidly scale production of EV batteries.
In recent years, billions of dollars have been invested in this supply chain. Beyond addressing climate change and meeting growing demand for EVs, this increased investment is meant to:
- Provide economic opportunity and create new jobs;
- Increase the resilience of the global supply chain by increasing the number of countries involved;
- Address human rights and environmental abuses associated with the supply chain; and
- Comply with legislation like the Inflation Reduction Act (IRA), which requires that an increased percentage of EV battery supply chain activities take place in North America to be eligible for certain tax credits.
By providing this overview of the EV battery supply chain, the challenges it faces, and opportunities to improve it, we hope to give local and national governments, policymakers, and private and public sector actors a starting-point resource they can use to further explore these important issues. For more information on EV batteries and how they work, read “EV Batteries 101: The Basics.”
What is the EV battery supply chain?
The term supply chain describes the process by which a product is made and delivered to a consumer.
The steps involved in producing and using an EV battery fall into four general categories:
- Upstream: Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
- Midstream: Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials; commodities traders buy and sell raw materials to firms that produce battery cells.
- Downstream: Battery manufacturers assemble the battery cells into modules and then pack and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
- End of Life: When batteries no longer serve their original purpose, they can be reused or recycled.
Providing economic opportunities and creating new jobs
Domestic investments to improve the EV battery supply chain will have a range of economic implications.
The transition to EVs represents a major disruption to the automotive workforce, both in terms of its overall size and its geographic distribution around the country. Currently, more than 10 million people work in the US automotive industry. Since EVs are much simpler to produce than ICE vehicles, the automotive industry may need fewer workers in the future.
However, with overall car sales declining after a peak in 2017, EVs are the only growth area in the automotive market, meaning all future job growth in the industry will likely be in EV manufacturing and its supply chain. These new EV jobs will not necessarily be in states and regions where ICE manufacturing jobs are today. That being said, disruptions related to EVs can have all sorts of economic benefits when they lead to increased entrepreneurship pathways and the development of new industries around novel technologies. The growth of Tesla, Rivian, and a range of new battery manufacturers illustrates how this technology transition has encouraged startups to compete with legacy players, creating new competition and incentives to innovate in the marketplace. The transition to EVs is likely to continue to foster innovation in one of the most important sectors of the US economy, creating numerous productivity ripple effects throughout the country.
Localizing the EV battery supply chain also brings upstream investment opportunities, since batteries require a range of critical minerals, processing facilities, and component part manufacturing. For example, in just the few short months since the Inflation Reduction Act was passed, the United States has seen more than $40 billion worth of new investment announcements across the battery supply chain. These investments can help spur local economic development by supporting surrounding industries, fostering spinoff entrepreneurship, and contributing to the development of industry clusters that improve productivity and growth.
Increasing the resilience of the global EV battery supply chain
The EV battery supply chain is dispersed around the world — battery minerals travel an average of 50,000 miles from extraction to battery cell production. At the same time, much of the mineral supply is concentrated in just a few countries. This dispersion and concentration make the global supply chain vulnerable to disruptions, including:
- Extreme weather (e.g., hurricanes, tornadoes, and earthquakes that impact energy inputs and disrupt infrastructure like pipelines and shipping routes)
- Geopolitics (e.g., the war between Russia and Ukraine)
- Changing trade alliances between countries or regions
- Corporate consolidation: Today, when one of the many companies involved in the battery supply chain experiences a disruption, others are affected. As EV demand rises, it’s likely that there will be a few big players that will oversee more parts of the process. If one (or more) of these companies experience disruptions, the effects will be greater.
- A change in materials needed due to new technologies: Battery chemistries and designs are changing quickly; many of them use alternative and more abundant materials. These changes will affect the supply chain network and the countries and companies involved.
These disruptions can result in bottlenecks and negatively affect the rest of the battery supply chain; they can also impact economies, cause delays for suppliers, increase transportation costs, force employers to cut jobs, discourage investment, and hinder transportation decarbonization.
The global EV battery supply chain today
China currently dominates the supply chain. As broader geopolitical issues affect economic and trade relationships, the stability of the global supply chain is increasingly at risk when extracting, refining, processing, and assembling an outsized share of EV battery components occurs in any single country.
Several critics have described US efforts to increase domestic EV battery supply chain capacity as an attempt to “de-couple” from China, which is an oversimplification. A more accurate assessment is provided by US Trade Representative Katherine Tai, who labels the current administration’s approach “de-risking.” As the market for EV batteries and other advanced energy technologies expands, there will be plenty of growth opportunities for all producing nations, even as that production capacity diversifies.
It is important to recognize that strengthening the EV battery supply chain is not a zero-sum game with winners and losers. Creating a robust supply chain will benefit people around the world by providing economic opportunity, creating jobs, and making it easier for more people to purchase EVs.
We can significantly bolster EV battery supply chains by advancing partnerships with other countries, improving regulations, devoting more resources to domestic battery production, and increasing battery circularity.
Addressing human rights and environmental abuses
Around the world, the upstream portion of the EV battery supply chain (mining) is linked to human rights abuses, such as the use of child and forced labor. Many mines lack basic worker safety measures — endangering workers’ lives — and extraction often comes with an environmental cost. Mining practices often cause surface and groundwater depletion, soil contamination, biodiversity loss, and other negative consequences that can last for centuries.
Today, few automakers and battery manufacturers know where their battery minerals come from and how they’re extracted (although we have the power to increase supply chain transparency with more investment). As a result, human rights abuses and environmental damages often go undetected. A growing coalition of stakeholders are working on these issues, including activists and advocates, policymakers, regulators, those in the automotive industry, and others. Many in the extractive industry have also expressed a desire to address these issues. You can read more about what’s being done to address human rights and environmental abuses in the Upstream section below.
Complying with legislation
The US government is investing in strengthening EV battery supply chains using a variety of legislative tools:
The Infrastructure Investment and Jobs Act
Passed in November 2021, the Infrastructure Investment and Jobs Act provides funding for the programs and initiatives listed below, which are designed to address the above issues.
- Battery and Critical Minerals Mining and Recycling Grant Program ($125 million)
- Earth Mapping Resources Initiative ($320 million)
- US Geological Survey’s Energy and Minerals Research Facility ($167 million)
- Rare Earth Elements Demonstration Facility Program ($140 million)
- Battery Materials Processing and Battery Manufacturing Recycling ($2.8 billion)
- Electric Drive Vehicle Battery Recycling and 2nd Life Apps Program ($200 million)
- Advanced Energy Manufacturing and Recycling Grant Program ($750 million)
- Future of Industry Program and Industrial Research and Assessment Centers ($550 million)
The CHIPS and Science Act
Passed in August 2022, the CHIPS and Science Act will fund American semiconductor research, development, and production, which will help decrease US reliance on China for the semiconductors used in EVs and many other technologies. Two programs will fund research and development in advanced manufacturing and materials with a total of $2 billion.
The Inflation Reduction Act
Passed in August 2022, the Inflation Reduction Act focuses on improving clean energy manufacturing and recycling; industrial decarbonization; critical materials processing, refining, and recycling; incentivizing domestic production; improving supply chains; and electrifying heavy-duty vehicles. The Act:
- Extends and expands the Qualifying Advanced Energy Project Credit ($10 billion)
- Establishes the Advanced Manufacturing Production Tax Credit ($30.62 billion)
- Enhances use of Defense Production Act of 1950 ($500 million)
- Expands the Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program ($3 billion)
- Creates the Domestic Manufacturing Conversion Grants ($2 billion) and the Clean Heavy-Duty Vehicle Program($1 billion)
- Encourages people to buy EVs through the Clean Vehicle Tax Credit, which provides consumers up to $7,500 if they buy a new qualified plug-in EV or fuel cell electric vehicle.
- Aims to strengthen domestic EV supply chains by requiring critical minerals be extracted or processed in the United States or a Free Trade Agreement country, or recycled in North America, with final assembly in North America.
Understanding how the EV battery supply chain works and the challenges it faces will help us make effective policies to improve it and reduce the harms associated with it.
Mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
The “upstream” portion of the EV battery supply chain, which refers to the extraction of the minerals needed to build batteries, has garnered considerable attention, and for good reason.
Many worry that we won’t extract these minerals quickly enough to meet rising demand, which could lead to rising prices for consumers and slow EV adoption. There’s also concern that the US is missing out on economic opportunities, new jobs, and a chance to strengthen the supply chain.
More importantly, mining is routinely associated with human rights abuses and environmental degradation. Certain mines have used or are using child and/or forced labor to extract the minerals used in EV batteries; there are also many documented cases showing the devastating effects of mining on local communities and environments.
Across the world, there is particular concern about the negative impacts of new extractive developments on Indigenous communities. In the United States, the majority of nickel, copper, lithium, and cobalt reserves lie within 35 miles of Indian Country.
Below we explain the steps involved in the upstream portion of the EV battery supply chain, answer five questions about the challenges facing the mining industry, and describe what’s being done to address the industry’s negative impacts.
What is the “upstream” portion of the EV battery supply chain?
In the upstream portion of the supply chain, mines extract raw materials; for batteries, these raw materials typically contain lithium, cobalt, manganese, nickel, and graphite.
Because of the energy required to extract and refine these battery minerals, EV production generally emits more greenhouse gases per car than cars powered by fossil fuels. However, the average EV makes up for this difference in less than two years. Over a typical vehicle’s lifetime, EVs produce significantly less emissions than traditional vehicles, making them an essential tool to combat climate change.
Lithium-ion batteries, the kind that power almost all EVs, use five “critical minerals”: lithium, nickel, cobalt, manganese, and graphite.
The Energy Act of 2020 defines critical minerals as a “non-fuel mineral or mineral material essential to the economic or national security of the U.S. and which has a supply chain vulnerable to disruption.” There are around 35 minerals categorized as critical.
Critical minerals are found across the world, but most economically viable deposits are found in only a few places. For instance, much of the world’s cobalt is located in the Democratic Republic of the Congo while lithium is concentrated in South America and Australia. As a result of this geographic diversity, the supply chain for electric vehicles is truly global.
Do we have enough minerals to make the EV batteries we will need?
Yes. While demand for these minerals is already high and expected to grow significantly in the coming years, there are enough minerals to meet today and tomorrow’s EV needs.
The problem is that the upstream portion of the supply chain is unprepared to meet this demand. Today, although there are enough minerals, there are not enough operating mines.
Since it can take years to establish a mine, we need to move very quickly to ensure that supply can meet growing demand while also respecting the expressed needs of local communities. This work will require significant investment to do so: in the United States alone, we’ll need to invest $175 billion in the next two or three years to match China’s battery production.
How do mining practices contribute to human and environmental injustice?
Today’s mining practices can involve:
Child and/or forced labor: According to the International Labor Organization, more than 1 million children are engaged in child labor in mines and quarries; many receive little to no pay. These practices are a form of modern slavery.
Tailings storage are another form of mine waste that harms local environments and residents. Once a mineral has been extracted from the ore, the rest of the ore is disposed of. These leftovers are called tailings and are usually dumped in above-ground ponds held together by humanmade dams. When these dams collapse, they can cause deadly mudslides that destroy farmlands and nearby towns. Collapses can also pollute bodies of water that local communities rely on for food, agriculture, and income. Since 1915, more than 250 tailings dam failures have been recorded around the world, killing 2,650 people. In 2019, a single dam failure at a mine in Brazil claimed the lives of 270 people in a tragic instant.
Water pollution and depletion: Drilling and excavation can contaminate surface water and groundwater reserves. As Earthworks notes, many mines in the US have historically failed to control their wastewater, which has led to polluted drinking water, harm to local habitats and agriculture, and negative public health impacts. Globally, mines dump more than 200 million tons of mining waste directly into lakes, rivers, and oceans every year. Mining also requires huge amounts of water; more than 2 million liters of water are needed to produce one ton of lithium. Because mining often occurs in arid and semi-arid regions, this can seriously stress local water supplies for communities and ecosystems.
Gender discrimination across the mining industry: Despite women’s significant contributions to mining, their work has been less valued and less protected than that of men, according to the International Labour Organization, which also notes that in large-scale mining operations, women rarely make up more than 10 percent of mineworkers. In many countries women are expressly prohibited by law from holding certain positions at mines.
What are the factors that contribute to human and environmental injustice?
There are many factors that contribute to human rights abuses and environmental degradation, including:
Some mineral reserves are in conflict-affected and high-risk areas: Many of today’s operating mines are in regions labeled as a conflict-affected and high-risk area (CAHRA), which the Organisation for Economic Cooperation and Development defines as places “identified by the presence of armed conflict, widespread violence, or other risks of harm to people.” The presence of civil and international wars, insurgencies, political instability and repression, and corruption are some examples of factors that determine whether an area is considered conflict-affected or high risk. At the time of this writing, the European Union has identified 28 countries with CAHRAs.
Economic dependence on artisanal and small-scale mining (ASM): Unlike large-scale mining, ASMs are operated by individuals, families, and/or groups and are often informal and completely unregulated, which leads to little to no health, safety, or environmental protections. They do not always use modern equipment; some rely on tools like shovels and pickaxes. As the European Union notes, in some cases, ASMs are controlled by armed groups, who use the extracted resources to finance conflicts.
Outdated mining laws: Current US laws governing mining do not address the complex challenges facing the sector. For instance, the General Mining Law of 1872 remains the most prominent mining regulation today in the United States. Governing the extraction of critical minerals on federal lands, it has not been meaningfully updated since President Ulysses S. Grant signed it more than 150 years ago to promote westward expansion. It does not require mining companies to pay federal royalties to taxpayers and includes no environmental protection provisions. Laws such as these do not reflect the complexities of today’s mining practices; it’s especially important that they require free, prior, and informed consent of Tribal nations, who often bear the brunt of mining’s negative impacts.
A lack of tools to monitor mining practices: Without good governance or transparency from organizations, there’s no way to definitively know how most mines treat their workers or affect the surrounding environment. Journalists have been largely responsible for uncovering human rights abuses and environmental degradation. We often rely on assurances from mining companies, which often prove to be inaccurate or incomplete. That’s why we need third-party tools to monitor mining practices: we must have data from trusted sources to meaningfully address destructive operations and hold bad actors accountable while continuously requiring responsible practices.
What is being done to address human rights abuses and environmental impacts?
Activists, advocates, policymakers, employers, governments, and others are working to integrate environmental justice in the EV battery supply chain by:
Onshoring/reshoring/friend shoring efforts: Though far from a complete solution, investing in EV supply chain capacity within the United States and its allies will help diversify supply and limit exposure to human rights abuses and detrimental environmental impacts. When upstream supply is concentrated in a few countries, downstream purchasers have little leverage over their suppliers’ human rights and environmental practices. In general, the United States and its allies have strong oversight over human rights concerns and high-quality environmental protections, although there is always room for improvement. The goal here is not self-reliance, however, but rather greater diversity and competition, helping put pressure on all countries to adhere to improved standards.
Leading efforts to update legislation: At the time of this writing, the Biden administration is convening an Interagency Working Group on Mining Regulations, Laws, and Permitting, which will provide recommendations to Congress on how to reform mining law to include provisions that protect the environment, involve local communities, and reduce the time, cost, and risk of mine permitting. Likewise, the Initiative for Responsible Mining Assurance (IRMA), has provided recommendations to the Department of State’s Clean Energy Resources Advisory Committee regarding what should be included in these updates. The US Department of State’s Minerals Security Partnership has also recently announced principles marking a public commitment to full integration of environmental, social, and governance standards into its work.
Improving EV supply chain transparency: “Battery passports” can help manufacturers certify where battery minerals are sourced and verify that these sources are following globally recognized ethical practices.
Convening stakeholders to drive action. IRMA brings together industry, affected communities, governments, and others to provide an independent third-party verification and certification against a comprehensive standard for all mined materials that provides “one-stop coverage” of the full range of issues related to the impacts of industrial-scale mines.
Automakers are also making commitments to ensure that materials are ethically sourced. For instance, Ford requests that suppliers source raw mined materials from entities committed to and/or certified by IRMA.
Although the upstream portion of the EV battery supply chain faces many challenges, we can address them with investment, improved laws and regulations, and public awareness. These steps will help ensure that we have the batteries we need for an electrified transportation future without harming people or the planet.
Midstream
Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials. Commodity traders buy and sell materials to producers who then assemble battery cells.
The “midstream” portion of the EV battery supply chain has the power to improve supply chain traceability, a practice in which products are tracked from their source to the consumer. Since companies participating in the midstream portion of the EV battery supply chain are the ones that interact most directly with upstream actors, they are essential to improving traceability and ensuring that materials are ethically sourced.
Another issue that has garnered some attention is the fact that EV battery manufacturing is concentrated in a handful of countries, raising concerns that supply chains could be vulnerable to geopolitical shocks or trade wars.
Many also believe that American communities are missing out on the economic opportunities associated with the energy transition. This issue has been the subject of congressional action and is reflected in recent legislation such as the Inflation Reduction Act, which includes provisions that require that a certain percentage of EV battery minerals be extracted and processed in the United States or a country with which the United States has a free-trade agreement (FTA).
To help you understand these issues and what’s being done to address them, we’ve provided a definition of midstream activities and compiled a list of answers to common questions regarding these activities.
What is the “midstream” portion of the EV battery supply chain?
After mines extract raw materials (the upstream portion of the EV battery supply chain), they are sent to facilities where they are processed, refined, and assembled into battery cells.
Processing involves removing unneeded materials from the minerals. Refining involves working with these processed materials to achieve a purity level that makes them suitable for use in many products, including batteries. Manufacturers then use these materials to make anode and cathode electrodes that are placed into battery cells, which store energy.*
After the midstream products are ready, manufacturers combine them into large battery packs and place them in EVs. These last two steps are part of the “downstream” portion of the EV battery supply chain, described below.
*(It’s important to note that there is no single industry consensus on whether battery cell manufacturing belongs to the midstream or downstream portion of the EV supply chain. RMI considers cell manufacturing part of the midstream portion.)
Where do the processing, refining, and battery cell steps take place?
Like the upstream portion of the EV battery supply chain, the midstream portion is concentrated in a small number of countries, mostly outside of the United States.
Asia dominates the midstream portion: according to BloombergNEF, China, South Korea, and Japan are the world’s three top battery manufacturing countries, with China dominating.
China produces three-quarters of all lithium-ion batteries and 70 percent of cathode capacity and processes and refines more than half of the world’s lithium, cobalt, and graphite. It is the leading refiner of battery metals globally and currently hosts 75 percent of all battery cell manufacturing capacity, 90 percent of anode and electrolyte production, and 60 percent of the world’s battery component manufacturing.
The next two countries on the list, South Korea and Japan, are responsible for significantly less battery production (South Korea produces 15 percent of the world’s cathode electrodes and 3 percent of its anode electrodes; Japan accounts for 14 percent and 11 percent, respectively).
How strong is the United States midstream?
The United States is currently not a midstream leader; however, its midstream capacity is growing quickly, driven in part by the Advanced Manufacturing Production Credit (45X) which offers up to $45 per KWh of battery capacity and has the potential to strengthen the US midstream sector.
The United States also has existing competitive advantages in automotive manufacturing that it can use to compete in the global EV supply chain, helping to leverage the economic benefits of transport decarbonization. As noted above, legislation like the IRA will help — it requires that to be eligible for a vehicle tax credit, a growing percentage of an EV’s battery metal value must be extracted or processed in the United States or in a partner country with an FTA.
Under this last provision, eligible countries like Australia, which supplies about 60 percent of the world’s lithium and has an existing FTA, would qualify; Indonesia, estimated to account for 37 percent of global nickel production, would not. Guidance released by the US Treasury in March 2023 also proposes a set of principles for identifying the countries with which the United States has an FTA in effect; this term could include newly negotiated critical mineral agreements. For example, Japan signed a critical mineral agreement in March with the United States, allowing the Treasury to add that country to its list of approved suppliers.
These dynamics, easily lost in the legislative fine print, will become major forces in shaping the geography of battery production in the coming decades.
Why is geographic diversity important in the midstream portion of the EV battery supply chain?
If the battery supply chain, or portions of it, are concentrated in just a few countries or regions, the global battery supply chain will suffer should any of these places be faced with disruptions like natural disasters, geopolitics, or changing trade alliances.
Some observers have suggested that efforts to boost local production capacity implies that every country should strive to dominate all portions of the EV battery supply chain. Not only is this domination impossible, it’s also undesirable.
That’s why it’s important that more countries, including the United States, work on strengthening their EV battery supply chains; if they do, global EV battery production will be better able to weather these disruptions.
How can the midstream portion of the EV battery supply chain help address human and environmental injustice?
Consumers and automakers are increasingly concerned with how the materials that go into EV batteries are extracted. They don’t want their EVs to be powered by minerals obtained through slave labor or mining practices that destroy local environments. But due to the opacity of EV battery supply chains, it’s very difficult for them to find out whether their batteries are responsibly sourced.
Midstream actors are uniquely positioned to address the human rights abuses and environmental degradation associated with the upstream (mining) portion of the supply chain (you can read more about these issues in the section above). As mentioned at the top of this article, companies that process and refine the minerals that go into EV batteries interact most directly with those that extract these minerals, which means that they have purchasing power. If those involved in the midstream portion of the supply chain had to follow strong due diligence procedures and were subject to robust audits, they could avoid buying materials from companies with questionable or downright unethical mining practices. Mines would be forced to improve or else face significant financial losses. Also, industry leaders could benefit from investing in responsible production in the same way fairtrade coffee sells at a premium.
As we note above and in another article, improving supply chain traceability would go a long way in ensuring that EV battery minerals are ethically sourced. Technology can replace current paper trails with online systems that will provide companies and regulators with an easier way to track, audit, and improve their supply chains — but any technology is only as effective as its stakeholder participation on the platform.
What efforts are underway to improve EV battery supply chain traceability?
“Battery passports” that track where and how battery minerals are sourced may also help improve the supply chain’s transparency. They would serve as a battery’s digital twin, which follows the physical battery as it makes its way from mineral extraction to placement in the vehicle.
Legislation could also improve battery traceability. The European Council recently adopted a new rule requiring companies to conduct due diligence along their entire supply chain. But in order to succeed, legislative efforts will need buy-in from diverse levels of stakeholders, including national and subnational governments and private sector leaders. Past efforts to improve sourcing, such as the United States’ Conflict Minerals Rule, have mostly foundered. Traceable, ethical supply chains remain an elusive but essential component of the energy transition.
Consumer demand, investor pressure, regulatory improvements, and responsible business practices all have a critical role to play in ensuring secure and ethical supply chains for EV batteries.
Downstream
Battery manufacturers assemble the battery cells into modules and then packs and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
What is the “downstream” portion of the EV battery supply chain?
The downstream portion of the EV battery supply chain involves the assembly of battery cells into modules and then packs before placing finished batteries into EVs. (To learn more about how EV batteries work and how they’re made, read “EV Batteries 101: The Basics.”)
To make a battery module, manufacturers stack battery cells in series or in parallel in a metal frame that protects the cells from the shocks and vibrations that come with driving. Modules house several battery cells, ranging from fewer than 10 to several hundred, depending on the cell type and vehicle range.
These battery modules are then placed into a battery pack. In addition to battery modules, the battery pack includes other components that protect the battery and help it operate within an EV. All of these components are housed in a structure to protect the battery from water, salt, and other outside elements that can damage the battery as a whole. These batteries are then sent to automakers who place them into EVs.
Where do downstream activities take place?
Chinese, South Korean, and Japanese companies dominate global battery manufacturing; together, these countries accounted for nearly 70 percent of the battery market in 2021. The top three companies were China’s CATL (33 percent), South Korea’s LG Energy Solution (22 percent), and Japan’s Panasonic (15 percent). China’s dominance has been attributed to its prioritization and investment in battery manufacturing, while South Korea’s and Japan’s rankings have been influenced by strategically building on their extensive experience and expertise in manufacturing consumer electronics.
How strong is the US downstream sector?
While the supply chain will remain global, North America is poised to become the second-largest player in the battery production market thanks to its efforts to strengthen local supply chains and increase investments in domestic assembly, according to a report from consulting firm LEK.
Today, the United States is responsible for only 7 percent of the world’s battery production capacity. As with the midstream portion of the supply chain, the Advanced Manufacturing Production Credit (45X), which offers up to $45 per KWh of battery capacity, is expected to strengthen the US downstream sector.
The current 72 GWh of battery manufacturing capacity in the United States — which includes midstream and downstream operations — could grow to over 1,000 GWh in just the next two years, as recent announcements and facilities currently under construction come online.
There are many reasons the United States is increasing its domestic investments in the downstream portion of the EV battery supply chain; chief among them is a desire to reduce reliance on overseas suppliers in certain nations, particularly China. By diversifying the supply chain for EVs and the batteries that power them, automakers will be able to endure disruptions in global supply chains and meet increasing domestic and foreign demand. They’ll also be better able to meet their ambitious climate goals and mitigate human rights and environmental abuses associated with mining.
How will American communities benefit from stronger domestic supply chains?
A stronger domestic supply chain translates to well-paying, in-demand jobs for workers in diverse fields ranging from mining to engineering to manufacturing, which in turn results in healthier, robust economies.
Federal legislation like the Inflation Reduction Act and the Infrastructure Investments and Jobs Act are already moving the needle. These two laws provide at least $83 billion in loans, grants, and tax credits that could support the production of low- or zero-emission vehicles, batteries, or chargers, according to an analysis from Atlas Public Policy (APP). RMI estimates that if the United States were to deploy EVs at the speed required to meet net-zero targets, this spending could reach over $200 billion since key tax credits have no upper spending limit.
In response to government investments and regulations, automakers are also upping their investments in EV production, confident that funding and demand will continue to grow. The APP analysis notes that US-based companies, led by Ford, General Motors, Tesla, and Stellantis, have announced that they will invest more than $173 billion in the transition to EVs.
Another significant market shift is increased partnership between automakers and battery manufacturers. For example, Ford is working on diversifying its raw material suppliers and General Motors and LG have partnered to co-locate battery pack and cell production; at the time of this writing, they have one active plant in Ohio and have plans to open two others in Tennessee and Michigan. Some are planning to create manufacturing facilities that house both battery and EV plants, while other downstream manufacturers are creating contracts that enable them to source directly from responsible mines.
Other countries and regions are also working on improving their domestic EV battery supply chains. The European Union has announced ambitious plans to strengthen regional EV production while Indonesia and Thailand aim to become regional market leaders by taking advantage of the fact that they already serve as important vehicle manufacturing hubs for global markets as well as rich upstream mineral and metal supplies.
How can downstream actors mitigate human rights and environmental abuses?
While downstream influence is limited by the current supply of the minerals that go into EV batteries, battery manufacturers and automakers still have considerable influence in improving the EV battery supply chain for one simple reason — downstream actors can influence responsible mining practices in the same way coffee shops can influence responsible coffee farming.
Consumers and automakers are concerned about human rights and environmental abuses and are therefore applying increasing pressure on upstream actors to improve their mining practices. This pressure has resulted in corporate commitments to implement stronger policies to protect local communities, workers, and the environment.
Increasingly, companies, including automakers, will demand to see auditable information showing where critical minerals like nickel and cobalt come from. To date, these systems are just beginning to take shape, led by a handful of enterprising firms and technology startups. Coupled with robust domestic legislation and regulations as well as internationally harmonized policies governing EV battery supply chains, negative impacts associated with the supply chains could decrease.
Moving Forward
It’s an exciting time for transportation electrification, a movement that gains momentum daily. As we collectively work toward decarbonizing the way people and goods move, it’s important that governments, policymakers, the private and public sectors, and communities understand the EV battery value chain so we can effectively address its challenges while also realizing electrification’s economic, health, and environmental potential.
Processors and refiners purify the raw materials, then use them to create cathode and anode active battery materials. Commodity traders buy and sell materials to producers who then assemble battery cells.
The “midstream” portion of the EV battery supply chain has the power to improve supply chain traceability, a practice in which products are tracked from their source to the consumer. Since companies participating in the midstream portion of the EV battery supply chain are the ones that interact most directly with upstream actors, they are essential to improving traceability and ensuring that materials are ethically sourced.
Another issue that has garnered some attention is the fact that EV battery manufacturing is concentrated in a handful of countries, raising concerns that supply chains could be vulnerable to geopolitical shocks or trade wars.
Many also believe that American communities are missing out on the economic opportunities associated with the energy transition. This issue has been the subject of congressional action and is reflected in recent legislation such as the Inflation Reduction Act, which includes provisions that require that a certain percentage of EV battery minerals be extracted and processed in the United States or a country with which the United States has a free-trade agreement (FTA).
To help you understand these issues and what’s being done to address them, we’ve provided a definition of midstream activities and compiled a list of answers to common questions regarding these activities.
What is the “midstream” portion of the EV battery supply chain?
After mines extract raw materials (the upstream portion of the EV battery supply chain), they are sent to facilities where they are processed, refined, and assembled into battery cells.
Processing involves removing unneeded materials from the minerals. Refining involves working with these processed materials to achieve a purity level that makes them suitable for use in many products, including batteries. Manufacturers then use these materials to make anode and cathode electrodes that are placed into battery cells, which store energy.*
After the midstream products are ready, manufacturers combine them into large battery packs and place them in EVs. These last two steps are part of the “downstream” portion of the EV battery supply chain, described below.
*(It’s important to note that there is no single industry consensus on whether battery cell manufacturing belongs to the midstream or downstream portion of the EV supply chain. RMI considers cell manufacturing part of the midstream portion.)
Where do the processing, refining, and battery cell steps take place?
Like the upstream portion of the EV battery supply chain, the midstream portion is concentrated in a small number of countries, mostly outside of the United States.
Asia dominates the midstream portion: according to BloombergNEF, China, South Korea, and Japan are the world’s three top battery manufacturing countries, with China dominating.
China produces three-quarters of all lithium-ion batteries and 70 percent of cathode capacity and processes and refines more than half of the world’s lithium, cobalt, and graphite. It is the leading refiner of battery metals globally and currently hosts 75 percent of all battery cell manufacturing capacity, 90 percent of anode and electrolyte production, and 60 percent of the world’s battery component manufacturing.
The next two countries on the list, South Korea and Japan, are responsible for significantly less battery production (South Korea produces 15 percent of the world’s cathode electrodes and 3 percent of its anode electrodes; Japan accounts for 14 percent and 11 percent, respectively).
How strong is the United States midstream?
The United States is currently not a midstream leader; however, its midstream capacity is growing quickly, driven in part by the Advanced Manufacturing Production Credit (45X) which offers up to $45 per KWh of battery capacity and has the potential to strengthen the US midstream sector.
The United States also has existing competitive advantages in automotive manufacturing that it can use to compete in the global EV supply chain, helping to leverage the economic benefits of transport decarbonization. As noted above, legislation like the IRA will help — it requires that to be eligible for a vehicle tax credit, a growing percentage of an EV’s battery metal value must be extracted or processed in the United States or in a partner country with an FTA.
Under this last provision, eligible countries like Australia, which supplies about 60 percent of the world’s lithium and has an existing FTA, would qualify; Indonesia, estimated to account for 37 percent of global nickel production, would not. Guidance released by the US Treasury in March 2023 also proposes a set of principles for identifying the countries with which the United States has an FTA in effect; this term could include newly negotiated critical mineral agreements. For example, Japan signed a critical mineral agreement in March with the United States, allowing the Treasury to add that country to its list of approved suppliers.
These dynamics, easily lost in the legislative fine print, will become major forces in shaping the geography of battery production in the coming decades.
Why is geographic diversity important in the midstream portion of the EV battery supply chain?
If the battery supply chain, or portions of it, are concentrated in just a few countries or regions, the global battery supply chain will suffer should any of these places be faced with disruptions like natural disasters, geopolitics, or changing trade alliances.
Some observers have suggested that efforts to boost local production capacity implies that every country should strive to dominate all portions of the EV battery supply chain. Not only is this domination impossible, it’s also undesirable.
That’s why it’s important that more countries, including the United States, work on strengthening their EV battery supply chains; if they do, global EV battery production will be better able to weather these disruptions.
How can the midstream portion of the EV battery supply chain help address human and environmental injustice?
Consumers and automakers are increasingly concerned with how the materials that go into EV batteries are extracted. They don’t want their EVs to be powered by minerals obtained through slave labor or mining practices that destroy local environments. But due to the opacity of EV battery supply chains, it’s very difficult for them to find out whether their batteries are responsibly sourced.
Midstream actors are uniquely positioned to address the human rights abuses and environmental degradation associated with the upstream (mining) portion of the supply chain (you can read more about these issues in the section above). As mentioned at the top of this article, companies that process and refine the minerals that go into EV batteries interact most directly with those that extract these minerals, which means that they have purchasing power. If those involved in the midstream portion of the supply chain had to follow strong due diligence procedures and were subject to robust audits, they could avoid buying materials from companies with questionable or downright unethical mining practices. Mines would be forced to improve or else face significant financial losses. Also, industry leaders could benefit from investing in responsible production in the same way fairtrade coffee sells at a premium.
As we note above and in another article, improving supply chain traceability would go a long way in ensuring that EV battery minerals are ethically sourced. Technology can replace current paper trails with online systems that will provide companies and regulators with an easier way to track, audit, and improve their supply chains — but any technology is only as effective as its stakeholder participation on the platform.
What efforts are underway to improve EV battery supply chain traceability?
“Battery passports” that track where and how battery minerals are sourced may also help improve the supply chain’s transparency. They would serve as a battery’s digital twin, which follows the physical battery as it makes its way from mineral extraction to placement in the vehicle.
Legislation could also improve battery traceability. The European Council recently adopted a new rule requiring companies to conduct due diligence along their entire supply chain. But in order to succeed, legislative efforts will need buy-in from diverse levels of stakeholders, including national and subnational governments and private sector leaders. Past efforts to improve sourcing, such as the United States’ Conflict Minerals Rule, have mostly foundered. Traceable, ethical supply chains remain an elusive but essential component of the energy transition.
Consumer demand, investor pressure, regulatory improvements, and responsible business practices all have a critical role to play in ensuring secure and ethical supply chains for EV batteries.
Battery manufacturers assemble the battery cells into modules and then packs and sell them to automakers, who place the finished batteries in EVs. Some automakers like Ford and Stellantis have formed partnerships with battery manufacturers to produce their own batteries for the vehicles they sell.
What is the “downstream” portion of the EV battery supply chain?
The downstream portion of the EV battery supply chain involves the assembly of battery cells into modules and then packs before placing finished batteries into EVs. (To learn more about how EV batteries work and how they’re made, read “EV Batteries 101: The Basics.”)
To make a battery module, manufacturers stack battery cells in series or in parallel in a metal frame that protects the cells from the shocks and vibrations that come with driving. Modules house several battery cells, ranging from fewer than 10 to several hundred, depending on the cell type and vehicle range.
These battery modules are then placed into a battery pack. In addition to battery modules, the battery pack includes other components that protect the battery and help it operate within an EV. All of these components are housed in a structure to protect the battery from water, salt, and other outside elements that can damage the battery as a whole. These batteries are then sent to automakers who place them into EVs.
Where do downstream activities take place?
Chinese, South Korean, and Japanese companies dominate global battery manufacturing; together, these countries accounted for nearly 70 percent of the battery market in 2021. The top three companies were China’s CATL (33 percent), South Korea’s LG Energy Solution (22 percent), and Japan’s Panasonic (15 percent). China’s dominance has been attributed to its prioritization and investment in battery manufacturing, while South Korea’s and Japan’s rankings have been influenced by strategically building on their extensive experience and expertise in manufacturing consumer electronics.
How strong is the US downstream sector?
While the supply chain will remain global, North America is poised to become the second-largest player in the battery production market thanks to its efforts to strengthen local supply chains and increase investments in domestic assembly, according to a report from consulting firm LEK.
Today, the United States is responsible for only 7 percent of the world’s battery production capacity. As with the midstream portion of the supply chain, the Advanced Manufacturing Production Credit (45X), which offers up to $45 per KWh of battery capacity, is expected to strengthen the US downstream sector.
The current 72 GWh of battery manufacturing capacity in the United States — which includes midstream and downstream operations — could grow to over 1,000 GWh in just the next two years, as recent announcements and facilities currently under construction come online.
There are many reasons the United States is increasing its domestic investments in the downstream portion of the EV battery supply chain; chief among them is a desire to reduce reliance on overseas suppliers in certain nations, particularly China. By diversifying the supply chain for EVs and the batteries that power them, automakers will be able to endure disruptions in global supply chains and meet increasing domestic and foreign demand. They’ll also be better able to meet their ambitious climate goals and mitigate human rights and environmental abuses associated with mining.
How will American communities benefit from stronger domestic supply chains?
A stronger domestic supply chain translates to well-paying, in-demand jobs for workers in diverse fields ranging from mining to engineering to manufacturing, which in turn results in healthier, robust economies.
Federal legislation like the Inflation Reduction Act and the Infrastructure Investments and Jobs Act are already moving the needle. These two laws provide at least $83 billion in loans, grants, and tax credits that could support the production of low- or zero-emission vehicles, batteries, or chargers, according to an analysis from Atlas Public Policy (APP). RMI estimates that if the United States were to deploy EVs at the speed required to meet net-zero targets, this spending could reach over $200 billion since key tax credits have no upper spending limit.
In response to government investments and regulations, automakers are also upping their investments in EV production, confident that funding and demand will continue to grow. The APP analysis notes that US-based companies, led by Ford, General Motors, Tesla, and Stellantis, have announced that they will invest more than $173 billion in the transition to EVs.
Another significant market shift is increased partnership between automakers and battery manufacturers. For example, Ford is working on diversifying its raw material suppliers and General Motors and LG have partnered to co-locate battery pack and cell production; at the time of this writing, they have one active plant in Ohio and have plans to open two others in Tennessee and Michigan. Some are planning to create manufacturing facilities that house both battery and EV plants, while other downstream manufacturers are creating contracts that enable them to source directly from responsible mines.
Other countries and regions are also working on improving their domestic EV battery supply chains. The European Union has announced ambitious plans to strengthen regional EV production while Indonesia and Thailand aim to become regional market leaders by taking advantage of the fact that they already serve as important vehicle manufacturing hubs for global markets as well as rich upstream mineral and metal supplies.
How can downstream actors mitigate human rights and environmental abuses?
While downstream influence is limited by the current supply of the minerals that go into EV batteries, battery manufacturers and automakers still have considerable influence in improving the EV battery supply chain for one simple reason — downstream actors can influence responsible mining practices in the same way coffee shops can influence responsible coffee farming.
Consumers and automakers are concerned about human rights and environmental abuses and are therefore applying increasing pressure on upstream actors to improve their mining practices. This pressure has resulted in corporate commitments to implement stronger policies to protect local communities, workers, and the environment.
Increasingly, companies, including automakers, will demand to see auditable information showing where critical minerals like nickel and cobalt come from. To date, these systems are just beginning to take shape, led by a handful of enterprising firms and technology startups. Coupled with robust domestic legislation and regulations as well as internationally harmonized policies governing EV battery supply chains, negative impacts associated with the supply chains could decrease.
Moving Forward
It’s an exciting time for transportation electrification, a movement that gains momentum daily. As we collectively work toward decarbonizing the way people and goods move, it’s important that governments, policymakers, the private and public sectors, and communities understand the EV battery value chain so we can effectively address its challenges while also realizing electrification’s economic, health, and environmental potential.
