In the beginning, there was Tesla and almost no one else. For nearly two decades, Tesla was one of the very few options for anyone who wanted to drive an electric vehicle.
Cut to 2023 and Tesla still dominates the U.S. electric vehicle market. But a battalion of competitors is lining up for a fight.
This won’t be a stealth attack. Drive past Ford’s construction site for an electric vehicle battery plant on a former corn field in central Kentucky and dozens of cranes and steel trusses rise over the landscape. They’re signs of the awakening of a new U.S. industry made up of millions of square feet of manufacturing space as executives and elected officials try to revitalize domestic supply chains and cut reliance on China.
This new manufacturing looks a lot like your grandfather’s auto industry, but with one big difference. Heavy, expensive batteries are needed to make these new electric cars run. As a result, many new factories popping up across the country make batteries, not vehicles.
Legacy automakers like Ford, General Motors, Hyundai and Toyota are scrambling to catch up with Tesla. Their playbooks include the development of multibillion-dollar factories in the United States to make and process all the raw materials needed for electric vehicle batteries.
Tesla isn’t sitting still, either. The company is spending hundreds of millions of dollars to expand its Austin, Texas, electric vehicle plant to add more capacity to make and test batteries. Tesla wants to control a critical part of the battery supply chain. In May, Tesla broke ground on a lithium refinery in South Texas.
This new American industry will supply a product line that has barely resonated with U.S. consumers. While electric-vehicle sales are expected to soar in the next decade, only about 7% of new U.S. auto sales in the first quarter were electric vehicles, according to research from Cox Automotive.
In addition, the United States is far short of having enough charging stations needed for the coming wave of electric cars. S&P Global recently said the country needs to quadruple the number of chargers by 2025 to meet expected demand.
But the Biden administration has promised to spend billions of dollars to add more chargers and that could help companies play nice with others. Last month, Ford reached a deal with Tesla to address one of the industry’s thorniest issues — the fact that Tesla’s legacy electric vehicle chargers don’t work on non-Tesla cars.
To put more electric vehicles on the road, there must be lithium-ion batteries to power them. And to qualify for myriad local and federal tax breaks, many of the materials such as lithium must be mined in the United States and assembly work must be done in the country. At least $65 billion of U.S. battery projects, spanning dozens of companies and states, had been announced as of January, according to mining company Piedmont Lithium.
To make the point about the massive scale of investment the transformation to electric vehicles could require, Volkswagen executive Scott Keogh said at an industry conference in June 2022 the effort would make the industrial revolution look like a cakewalk. Volkswagen, the German automaker, is investing billions of dollars on electric vehicle and battery manufacturing plants in the United States and Canada.
Though at assertion may seem like overkill, Scott King, a senior vice president of project and development services at property brokerage JLL, told CoStar News, “I don’t think we are anywhere near saturation.” He advises battery makers on site selection and financial incentives.
Automakers want their supply of batteries located as close as possible to their electric vehicle factories, if not inside the factory itself, according to industry executives and consultants. Battery parts suppliers want to be near companies that make the final battery product.
“The shorter your supply-chain routes, the cheaper your costs,” King said. “You don’t want to ship batteries from California to Detroit.”
Many electric-vehicle battery clusters have emerged in the Southeast and Midwest. States in both regions successfully recruited battery companies through tax breaks and other financial incentives. The Southeast has the additional selling point of a relatively union-free workforce, saving companies money on employee salaries.
The Clarksville, Tennessee, area has lured several large battery projects, including LG Chem’s planned $3.2 billion facility to make cathode, a key material needed for lithium. Clarksville is halfway between Ford’s two massive electric vehicle and battery plants under construction in Glendale, Kentucky, and Stanton, Tennessee.
Clarksville’s transportation connections have helped it be a magnet for auto projects. Interstate 24 passes through Clarksville, connecting it to Nashville, Tennessee, and Paducah, Kentucky. It’s served by freight barges on the Cumberland River. And CSX and R.J. Corman railroad lines pass through Clarksville. Industry analysts expect electric vehicle batteries and parts will be shipped by trucks, rail and barges.
A widespread push by U.S. lawmakers to reduce the nation’s reliance on China is also a major factor in efforts to make more batteries and to mine more lithium domestically. China is by far the largest maker of lithium-ion batteries, producing 685 gigawatt-hours in 2021, according to S&P Global Intelligence. The United States produced only 38 GWh.
The United States relies heavily on China for electric vehicle batteries. It imported 165,000 tons of lithium-ion batteries from China in the fourth quarter, according to S&P Global. The second-largest exporting country, South Korea, sent 11,000 tons to the United States in the fourth quarter.
The Department of Energy under President Biden released a blueprint for how the United States can boost its battery industry and set production goals. The federal government is awarding billions of dollars in grant money to various types of projects related to batteries.
With all the attention and money that the electric-vehicle battery industry is getting, it remains an open question who will succeed in this new realm, Steve Hilfinger, an automotive industry attorney at Foley & Lardner in Detroit, told CoStar News.
“Some of these plants will be wildly successful and some won’t and there will be a shakeout,” he said. “This is not going to be a straight line to the moon.”
One issue that could decide the winners and losers is the supply of raw materials needed for batteries in addition to lithium, such as cobalt and graphite, Hilfinger said. Not all companies will have equal access to those materials. Supply chain problems have dogged Rivian Automotive‘s production schedules at its electric vehicle plant in Normal, Illinois.
Other companies may stumble during the factory construction phase, or while implementing manufacturing processes, Hilfinger said.
It’s also an open question how many American drivers want to buy electric vehicles. The consumer tax credit of $7,500 for new electric-vehicle purchases requires that final assembly of the vehicle take place in North America.
Manufacturers are also required to source certain mineral and battery components domestically to qualify.
Battery plants are being built in all shapes and sizes. Some are embedded inside a facility that also makes electric vehicles. Others will make only one part for the battery, such as cathode and anode powder.
Toyota was an early leader in electric cars with its hybrid Prius model. But Toyota leadership admits the company had been taking it slow on shifting to electric vehicles.
Now Toyota is accelerating. It’s investing $5.9 billion to build a battery factory near Greensboro, North Carolina, one of the largest economic-development projects in the state’s history.
In South Carolina, a company led by a former Tesla executive plans to build the largest industrial factory in that state’s history. Redwood Materials is developing a $3.5 billion facility near Charleston to make parts for batteries.
“We’re ready to support this region and U.S. electrification by driving down battery costs, emissions, and reducing reliance on foreign supply chains,” JB Straubel, the former Tesla executive who founded Redwood, said in a statement.
Ascend Elements is one of several companies that recycle spent batteries to make new ones. At its planned $1 billion plant in Hopkinsville, Kentucky, Ascend plans to shred battery scrap, recover essential minerals and manufacture new batteries or cathode powder. Ascend has lined up Honda and SK as customers, Roger Lin, vice president of global marketing, told CoStar News.
With all the new battery production capacity about to come online in the United States, some companies will struggle to find enough skilled employees, said Foley & Lardner’s Hilfinger.
“In Michigan, Ohio, Indiana, you’ve got a great supply of workers who are really good at building cars with internal combustion engines,” Hilfinger said. “Making electric-vehicle batteries is another thing” and will require retaining thousands of workers, he said.
“That’s a long-term, ongoing challenge,” he said, “making sure we have enough skilled folks to build all of these things.”
Legacy automaker Ford is trying to get ahead of that problem. At Ford’s $5.8 billion BlueOval SK Battery Park under construction on 1,500 acres in Kentucky, the company is also building a 42,000-square-foot training center where it expects to train about 5,000 workers through a partnership with Elizabethtown Community and Technical College.
Ford and its South Korean joint venture partner SK Battery America say BlueOval SK Battery Park will be the largest U.S. factory that makes lithium-ion batteries, and that it will supply advanced batteries for future Ford and Lincoln electric vehicles with production expected to start in 2025. Ford’s goal is to produce 2 million electric vehicles annually by the end of 2026.
The project is significant not only for its effect on the burgeoning electric vehicle industry. It’s also part of the wider effort to bring manufacturing jobs back to the United States. The practice of reshoring is boosting domestic demand for industrial space as U.S. companies increasingly relocate manufacturing and distribution operations in their home country to avoid dealing with overseas political tensions and supply chain disruptions.
“I saw firsthand what can happen for a community when these jobs arrive,” U.S. Transportation Secretary Pete Buttigieg said during a tour of the Glendale plant in March, referring to his hometown of South Bend, Indiana.
“For too many years,” he said, “America has watched manufacturing move in one direction, which is away.”