Billions of dollars in deals can’t smooth the U.S. electric vehicle supply chain


When it comes to electric vehicles, there’s no big US supply chain. Legendary automakers General Motors Co. and Ford Motor Co. just proved it.

General Motors signed three major agreements last week. They include a $10.8 billion deal with South Korea’s Posco Chemical Corp. for battery components or high-nickel cathode materials, as it plans to manufacture 1 million electric vehicles by December 2025. Parts will come from the industrial company’s Gwangyang plant.

Meanwhile, Ford said it would import low-cost lithium iron phosphate batteries from China’s Contemporary Amperex Technology Ltd, the world’s biggest maker of power supplies, as it tries to secure supplies in a context of global scarcity. He has also sealed deals to explore the purchase of lithium, nickel and cobalt from other non-US companies.

The latest moves to secure raw materials and components – in mid-2022 – mean turning to the barely-ruffled and tightly-knit Asian supply chain. And that comes years after big promises. GM Chairman and CEO Mary Barra has long spoken lyrically about the company’s huge electric ambitions, while at Ford CEO Jim Farley has pledged to spend $50 billion through 2026 to produce 2 million electric vehicles per year.

Earlier this year, GM announced it was expanding its North American-focused electric vehicle supply chain in a joint venture with Posco in Canada, establishing a materials processing plant in Quebec. At the time, executive vice president of global product development, purchasing and supply chain Doug Parks said the company was “creating a new, safer and more sustainable ecosystem for electric vehicles” , building on “a base of North American resources, technology and manufacturing expertise” while working to secure lithium and develop a rare earth value chain.

The problem is, it’s quite late in the game to do that. These commitments will not have immediate results: there will not even be anything to show for the next few years. Building deep and functional supply chains and then making them effective takes years, as China and Tesla Inc. have shown. Bringing in new battery suppliers is also time-consuming because they have to go through a multitude of certification steps, safety checks and adjustments to make the batteries compatible with cars. They don’t just fit in.

Looking at it in this light, it’s worth asking why these companies have made so little progress despite their big commitments, and why these ambitions – heralded over the past decade – never materialized into a vehicle manufacturing ecosystem. electricity or deeper supply networks across borders. Was it because they were dancing to the American tune of policy makers and hoping for better incentives? Maybe they just strayed too far from reality to realize that they were never going to build electric vehicles for wide-scale adoption anytime soon. To say that they were victims of geopolitical tensions is a way out. The other is that they just had no incentive to make and sell green cars, because big SUV margins kept things comfortable.

It would be unfair to put the blame entirely on the automakers. Policymakers have all but ruled out the ability of the United States to take all the innovation that is happening to the next level. The incentives don’t provide capital to companies that actually have a chance of making large-scale electric vehicles in the United States.

In China, meanwhile, industrial policy has created both demand and supply side incentives. Over the years, it was fine-tuned to weed out weak and smaller players that either didn’t produce quality or couldn’t keep up with changing technology standards.

But the United States is an alternate reality: a reality where electric vehicles still make up only about 0.6% of all registered vehicles. Even the latest action to accelerate the transition – the Inflation Reduction Act – while quite progressive and bold, is off topic when it comes to batteries (the most important part of building green cars). The requirements that 40% of the minerals essential to a vehicle’s battery, or 50% of its components, must come from the United States(1) have effectively excluded China. At such a critical time in EV adoption, it will likely ensure that the United States stays where it is: always after Beijing.

Yet, although China now leads in battery and material safety, the United States can regain its footing and claim parts of the global supply chain. It can advocate for widely available materials like boron or fund startups that boost electric vehicles and bolster the power grid. Companies are finding cheaper and better ways to make batteries, but can’t get the money and therefore scale. Some avoid expensive materials like nickel and cobalt. But as China has shown, just having your hands on the materials isn’t everything – having the ability to process them for powerpacks is what matters.

At this point, the United States must leverage its existing advantages, not just play catch-up.

More from Bloomberg Opinion:

• Manchin shock gives cleantech a welcome jolt: Liam Denning

• Does anyone actually make electric vehicles? : Anjani Trivedi

Electric car subsidies are not the best climate policy: Tyler Cowen

(1) Either country having a free trade agreement with the USA.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

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