To Decarbonize Transportation, We Must Invest in the US EV Battery Supply Chain

A circular EV battery economy can help strengthen the US EV battery supply chain and meet the nation’s growing demand for EVs. Here’s how to get there.

As the number of people adopting electric vehicles (EVs) continues to grow, many are concerned that the North American EV battery (EVB) supply chain won’t be able to meet the increasing demand. These worries make sense. The supply chain is vulnerable to disruption due to natural disasters, geopolitics, and changing trade alliances, as well as an insufficient number of operating mines. Critically, there are also not enough facilities to process, refine, and assemble EVBs.

Another major concern is the EVB supply chain’s role in generating emissions. While EVs produce significantly fewer emissions than gas-powered cars over the course of their lifetime, their production carbon footprint is roughly double that of internal combustion engine vehicles. And of that carbon footprint, 40 to 60 percent of emissions come from production of the large lithium-ion batteries used to power EVs.

Creating a robust circular battery economy can help address these challenges. In a circular battery economy, end-of-life (EOL) batteries that can no longer serve as mobile or stationary energy storage are recycled. Their raw materials are extracted to be used again in an EV or for another energy storage application. The processes of extracting and re-refining the critical minerals from a spent battery is less energy intensive than extracting and refining virgin materials.

While its benefits are widely recognized, building a circular battery economy will be challenging and require significant investment as soon as possible, given that it can take years to open the facilities we’ll need to effectively recycle and reuse the ever-increasing number of end-of-life batteries. If we don’t, we’ll miss opportunities not only to cut our carbon footprint, but to reduce the environmental and human harm associated with mineral extraction. Such a shift would also strengthen the EVB supply chain and accelerate EV adoption.

Benefits of a Circular Battery Economy, and How We Can Get There

A circular battery economy can help us reduce the EVB supply chain’s carbon footprint by onshoring many of its steps and increasing the use of secondary, or recycled, materials in EVB production. According to RMI analysis, emissions can be reduced by as much as 10 to 20 percent. Key actions to enable decarbonization include:

• Lessening our reliance on virgin materials. Mining and refining EVB materials accounts for, on average, approximately a quarter of total battery production emissions. The International Council on Clean Transportation (ICCT) estimates that by efficiently recycling EOL EVBs we can reduce the combined annual demand in the US for raw lithium, cobalt, nickel, and manganese by 3 percent, 11 percent, and 28 percent in 2030, 2040, and 2050 respectively, which will reduce mining-related emissions. Because current mining practices often involve human rights abuses and environmental degradation, reducing raw material demand also lessens these harms.
• Reducing the distances involved in EVB manufacturing. Today, battery minerals travel an average of 50,000 miles from extraction to battery cell production, resulting in unnecessary carbon emissions. EV production currently relies heavily on China, which, at the time of this writing, has more than 70 percent of the EVB manufacturing market and uses the most emissions-intensive production processes, according to an analysis from McKinsey & Company. The analysis also found that emissions from EVBs made in China are up to 45 percent greater than those made in the United States. Battery circularity requires onshoring many steps of the EVB supply chain, which will reduce the distance traveled for materials and, consequently, the emissions.

• Maximizing the lifetime value of batteries. Without a plan for circularity, EVBs risk following the linear path of many products: they are made, used once, then thrown away (much like plastic straws). By repurposing EOL EVBs into second life applications, we extend the life of an EVB and reduce the need to make new ones, resulting in fewer emissions.
• Making the production value chain more efficient. Today’s EVB value chain creates unnecessary emissions and wastes stakeholders’ time and money. RMI recently published a report that showed a significant gap in midstream processing in the United States. By building domestic midstream capacity — a key ingredient in domestic circularity — the United States can develop a more efficient EVB industry. Because battery circularity relies so heavily on laser-focused analysis of supply chain challenges and opportunities, working toward battery circularity can also serve as a powerful tool to identify issues and improve the supply chain as a whole.
• Helping other industries reduce their carbon footprint. Discarded EVB material outputs from production can be used as inputs for other industry value chains, reducing the need for new materials and contributing to more efficiently designed industrial processes.

Where Investment Is Needed

The United States may need more than $106 billion in capital investment in the domestic EVB supply chain by 2030 to make a resilient and circular battery economy a reality. These investments will substantially benefit the environment for the reasons mentioned above.

Investment needs to happen as soon as possible, given that it can take years to build upstream and midstream capacity. If these portions of the EVB supply chain are quickly strengthened, we can also ensure that battery manufacturers can maximize the Inflation Reduction Act’s (IRA’s) Advanced Manufacturing Production Credit before it expires in 2032.

The United States has made some progress with the Bipartisan Infrastructure Law, which has earmarked more than $7 billion to support domestic EVB manufacturing and shore up North America’s ability to extract, refine, and process the critical minerals that go into them. In 2022, the Department of Energy announced that it had given $2.8 billion of these funds to 20 companies to build and expand commercial-scale facilities that extract and process lithium, graphite, and other battery materials; manufacture components; and demonstrate new approaches. Together, these investments total more than $9 billion.

The IRA is also spurring investment in the US domestic EVB supply chain by requiring that, to be eligible for a tax credit, a certain percentage of an EVB’s components must be extracted or processed in the United States or in a country with which it has a free trade agreement.

Original equipment manufacturers are also pitching in. In just three years, from the beginning of 2020 to the end of 2022, several have committed to investing $75 billion in EV and EVB production.

The allocation of funds will need to be informed by robust data if they are to be effective in creating and scaling a circular battery economy. Based on existing analysis, we determined the following areas need the most investment in the United States:

Building Domestic Capacity

A truly circular supply chain will require strengthening the domestic supply chain, especially where there are significant supply gaps, particularly in the midstream and upstream segments. At the same time, battery manufacturers will have to expend capital to improve supporting infrastructure.

Mineral Extraction

Extracting the minerals used in EVBs (the “upstream” portion of the supply chain), overwhelmingly takes place in countries outside of the United States.

These minerals must travel great distances throughout the EVB production process. Investing in domestic extraction where there are available mineral resources is critical to meeting domestic demand in the near term and aiding the development of a regional supply chain. Once the closed-loop recycling system is fully developed, these materials will then re-enter the supply chain.

By onshoring mineral extraction where possible, manufacturers can centralize their EVB supply chains, making it easier for them to create a closed-loop production process, one in which batteries are recycled and repurposed in the same region where they were made. Some manufacturers have already begun to localize their EVB supply chains, and more are expected to join them.

To meet projected domestic EVB demand by 2030, we’ll need to exploit known available mineral reserves in the United States. Any extraction must be done responsibly and meet the Initiative for Responsible Mining Assurance (IRMA)’s responsible mining standard. For minerals that aren’t readily available domestically, such as cobalt, investment should go toward ensuring that we have access to reliable sources that employ responsible mining and processing practices; investments may take the form of joint ventures or supply agreements with companies in countries where these minerals are found.

Processing and Refining

Anode and cathode production (which form part of the “midstream” portion of the supply chain) also need significant investment. The United States has limited capacity to produce these electrodes, making it heavily reliant on electrodes made in China. This dependence may hamper EV adoption by limiting the number of passenger vehicles eligible for cost-saving IRA credits, but by investing in domestic cathode and anode production, we can come closer to achieving a domestic, circular recycling process, as more of its steps will take place in the United States.

Midstream investment can also strengthen recycling infrastructure. Today, there aren’t enough EOL EVBs to support recycling infrastructure at the scale needed for the wave of batteries that will begin to build in the next 10-15 years and grow rapidly to 2050.

However, investing in more domestic midstream production can help avoid that problem as it will produce more manufacturing scrap material, which is similar to the materials that come from scrapped batteries. Investment can provide the material inputs to help the recycling industry mature ahead of the future influx of EOL EVBs.

RMI estimates that the upstream and midstream portions of the supply chain will need up to $43.3 and $13.5 billion, respectively, of investment concentrated in areas of the supply chain where average US capacity across several key constituent minerals and intermediate products meets less than 25 percent of the projected demand in 2030.

RMI is currently investigating available cost data across distinct investment entry points to estimate the total, systems-level investment needed to build infrastructure for circularity and the return on investment in both dollar terms and avoided carbon emissions. Our qualitative assessment of the need for investment focuses on the following steps of the recycling/reuse process:

End-of-life Battery Collection

EOL EVB recycling and reuse can’t happen without a reliable, cost-effective way to collect and transport them — processes that currently make up nearly half of the recycling cost.

While the importance of EOL EVB collection and recycling is nearly universally acknowledged, there’s little research on the issue, resulting in piecemeal improvement strategies. Specific areas in need of investment include:

• Diagnostic tools and data disclosure about a battery’s state of health (SOH). SOH assessment does not often take place early in the recycling process, resulting in unnecessary shipmentsof EOL batteries or worse, serviceable batteries that could go to second use being shredded. To send used batteries to the most appropriate facilities, it’s important to know their remaining capacity and condition.
• Storage and transport. Since batteries may be classified as hazardous waste depending on their SOH, their transport to recycling facilities can be time and resource intensive. If waste classifications were better defined, and if battery diagnostics were embedded in the collection process, companies could transport and store batteries based on their specific risk profile instead of using a one-size-fits-all approach.

Second-life Use

In a circular battery economy, EVBs are given a second life before they are recycled. The battery may be able to be refurbished and reused in a same model vehicle. If the battery’s SOH is too poor to be given new life as an EVB, it can be repurposed to serve as stationary storage to collect energy from renewables like wind turbines and solar panels. When the wind isn’t blowing and the sun isn’t out, these batteries can help ensure that:

• Utilities can provide electricity to their customers, increasing the grid’s reliability. Given that clean electricity often costs less than that generated by fossil fuels, customers also benefit from lower energy bills.
• Loads are reduced during peak periods.
• Utilities have more time to develop and implement infrastructure improvement strategies to update today’s outdated grid, updates that can take years and incur significant costs.
• Buildings are equipped with cost-effective energy storage solutions, increasing the efficacy of solutions such as rooftop solar systems.

Utilities can reduce costs by using second-life batteries. By 2025, second-life batteries used for stationary storage may be 30 to 70 percent less expensive than new batteries.

Refurbishing EOL EVBs currently involves a time-intensive and costly process: each battery must be tested to determine its SOH, fully discharged, and then reconfigured before it can be used as stationary storage, which reduces the potential profit margin of second-life batteries.

Investment in battery refurbishment research and development can help decrease the cost of repurposing an EVB, thereby increasing profit margins and further strengthening the second life business case.

Recycling Infrastructure and Technology

When a recycling facility processes an EOL battery, it first crushes and shreds battery cells, creating what’s referred to as “black mass,” a mixture of valuable metals including lithium, manganese, cobalt, and nickel. This black mass is then sent to processing facilities to undergo the metallurgical refining processes that recover these materials. Investment in these recycling facilities needs to flow three to five years before the anticipated feedstock of EOL batteries to allow for the time it takes to get permits, construct and commission them.

As shown in the figure below, assuming that investment in metallurgical refining capacity is matched to EOL battery feedstock from passenger EVs in the United States, and an average plant capacity of around 17,000 tons per year of EOL batteries (per facility), the cumulative investment requirement rises steadily from 2023 to 2030 before accelerating exponentially in the 2030s — growing sevenfold between 2030 and 2035.

This anticipated growth means that another investment cycle will be required before 2035 to meet future recycling demand. Further, assuming 60 percent of EOL batteries are recycled in this period, each dollar of investment between 2023 and 2035 could, depending on battery chemistry and recycling method, avoid between 5.6-17.4 kg in carbon emissions assuming that a closed-loop system where recycled materials reenter the EVB supply chain is realized. Thus, a dollar of investment in recycling may avoid up to a fifth of EVB battery manufacturing emissions on a per kilowatt hour basis.

Battery Pack Design and Technology

Today, battery packs vary in size, chemistry, and form, which increases the complexity of refurbishing EVBs at scale. This complexity adds cost to the repurposing and recycling processes, which weakens battery circularity’s business case. Investment is needed in research and development to standardize the way in which battery packs are designed, which will make it easier and more cost-effective for facilities to repurpose and recycle EOL EVBs.

Beyond Investment

Beyond the considerable investment required, achieving a circular battery economy will involve intense collaboration, determined political will, and robust, informed policy. It’s important that the many stakeholders involved in the EVB supply chain prepare for the increasing number of EVBs that will be reaching their end-of-life in the coming years. By adopting a proactive approach to battery circularity, we can strengthen the EVB supply chain, meet growing demand for EVs, and decrease emissions related to EV production, for the benefit of people, communities, and the environment.