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Tariffs beg the world to leave US behind over Lithium Ion

The US Energy Storage Association (ESA) repeated its fears this week that tariffs on Lithium Ion batteries, due to increase next week, could halt the shift to grid energy storage deployments, which are going ahead right now.

The press release was attributed to ESA CEO Kelly Speakes-Backman’s and was a revisit of a statement issued by the ESA back in June when it first voiced concerns as the tariffs were initially announced.

This is the problem with a technologically ignorant US president, conducting a trade war. He thinks renewables don’t matter and has tied himself to the fossil fuel brigade which thinks making renewables more expensive at the border, will just help them stay in power for longer. Actually the more likely outcome is that the trade war develops into a Lithium Trade War, one the US is ill -equipped to win and which may cost it any lead it may imagine it has in grid scale energy storage, but also in the far more important Electric vehicles marketplace, the latter being nothing short of disastrous.

We can see from our internal forecast in the attached table of major top ten Lithium Ion battery makers and their declared plans for global manufacturing. Even Tesla is ramping capacity in China as a mirror to its US operations, but these numbers are conservative and many others see the outputs as higher, with even more focus likely in China.

Most of the Asia Pacific output is from South Korea with some in Japan, and the trend shows the US underinvesting in what is likely to be the key technology to drive the car industry for the next 20 years, coming third to Europe for two separate reasons. The Chinese and Asian companies which are driving capacity at home, are finding it easier to work alongside European  carmakers and the European Union than the US. Half of those plants in Europe are responses from local firms, usually multiple car makers buddying up, and the others are Chinese and of course Tesla is expected to open a European plant.

But this leaves the USA, the home of the vehicle industry falling to 15% of the global capacity for the batteries which will eventually drive all cars.

Of course there is time to put those numbers right, and for Detroit to come back into consideration, by investing in its own native battery technology, but by the government putting up tariffs, it is placing yet another obstacle in the way of its EV ambitions.

The spin off from this is that it will HAVE to import lithium ion battery technology for energy storage, from both Europe and China, and putting tariffs on it makes it more expensive and therefore, less effective until later when prices come down further. This is not a matter of China dumping spare capacity on the US, but one where the US is going to require help.

As we said the US can find sources of Lithium and can work towards cathodes which do not use “rare earth” metals like conflict Congo-based Cobalt, or others mostly found in abundance only in China, and it can spend money ramping production and perhaps catch up, but the energy community is the tail, and it is the dog that needs to wake up and wag.

The energy community cannot single handedly create a battery industry, without EVs. Interestingly we are aware that Lithium is not the only game in town and probably not the best one.

But we have seen this in TV screens. They used to be Cathode Ray Tubes, and then China became the largest manufacturer of CRTs. It then became the largest buyers of CRT TVs, and began making flat TV screens using LCD technology, borrowing it from Korean and Japanese manufacturers who needed their cheap labor. From there China began to use more LCDs than anyone else, and then the plasma screen technology of Panasonic went bankrupt and fell by the wayside. This all has the unfortunate effect of pushing US firms who made phones and PCs to China for their screens and eventually the iPhone. Japan and South Korea merely kept up, but shifted manufacturing to China. Over this 20 year period China did steal many ideas and secrets on how to make LCD screens, but then further innovations – LED backlights, then quantum dot sidelights and quantum dots LEDs and then OLED screens all came and got absorbed into the great manufacturing hotpot that is China.

This is also the way with solar panels, and with Lithium Ion batteries. Right now Vanadium Flow energy storage is probably more effective for the grid. Everyone prefers pumped storage hydro, but no-one is building any and anyway when you look at it, it’s not as good as battery technology, it’s just been trusted for a long time. Molten Salt, Liquid Air and Hot rocks (ETES) and Energy Vault with its skyscraper high piles of 35 ton bricks, can all store energy. But their efficiency at starting with electricity and then turning it into heat or cold or potential energy and then turning it back, is vastly less efficient than Pumped Hydro, Lithium or Vanadium Flow. This may make the handful of Vanadium Flow suppliers quite a bit richer, but they do not have the capacity to fill the entire US market, nor the marketing presence.

The only reason that everyone is talking Lithium is because that’s what’s available in volume – turn around and ask someone about batteries and there are 40 guys calling you back telling you they have a cheaper one.

Once people realize they are really in a climate emergency, then the regulations that slow pumped hydro may get relaxed, until then it is the two battery technologies, and until Lithium has more disasters from thermal runaway (and it may improve designs so this goes away) then Lithium IS the market.

And if America has to pay more for one than everyone else, then it will simply get left behind.

The ESA said its member companies are changing the electric industry for the better, and “now is not the time to disrupt the international supply chain as we work to build a resilient, efficient, sustainable and affordable grid for all Americans.” Effectively it says that instead they should kill the tariff and extend the tax credits. Unfortunately Trump is in charge of one, and Congress the other. The ESA has asked for an exclusion process, but so far has not been heard, although one came for Bifacial solar.

The ESA initially complained in June, as the tariff increase from 10% to 25% looked like it would really happen but it comes in during September, so now it’s imminent.

In the US, a lithium-ion battery makes up about 40% to 60% of the total installed cost of a standalone battery storage asset, and applying tariffs to both the inverter and the battery could increase installed prices for a four-hour duration battery by about 15%.

Tariffs should theoretically give US battery makers such as Tesla a competitive advantage against imports, but all the Tesla batteries in Q1 were needed for EVs, and then shipments rose 80% but mostly direct to the consumer and anyway raw materials of lithium, cobalt and graphite, are also being tariffed.

In the background more companies have lined up for European manufacturing this week with Freyr AS, a startup planning to build a battery gigafactory in Norway, putting together $4.5 billion to do so and in the process creating what it hopes will be a Nordic battery belt.

And of course NorthVolt AB has already declared its plans raising $1 billion from investors including Volkswagen and Goldman Sachs for its Swedish Gigafactory, along with promises across Europe from LG Chem, CATL, Svolt Energy, Samsung SDI and SK Innovation.

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