Yes, that’s the quote in The Wall Street Journal (Feb. 6-7, 2021). But its not what you might think. It refers to the internal combustion engine, which over 100 years has been engineered to near perfection. The innovation of the battery-powered electric vehicle, by contrast, has barely begun. Still, car experts believe battery-powered models—which are mechanically much simpler than those with gasoline engines—will prevail. Batteries recently scored a win at GM, which is phasing out gas powered vehicles by 2035.
The rise of rechargeable batteries is now a matter of national security and industrial policy. Control of the minerals and manufacturing processes needed to make lithium-ion batteries is the 21st-century version of oil security. The flow of batteries is currently dominated by Asian countries and companies. Nearly 65% of lithium-ion batteries come from China. By comparison, no single country produces more than 20% of global crude oil output.
To meet expected demand, global output of lithium, a metal also used to make nuclear bombs and treat bipolar disorder, has tripled in the past decade. Lithium is mostly mined in Australia and Chile. EV battery packs and motors currently cost about $4,000 more to manufacture than a comparable fossil fuel-burning engine. But by 2022, the difference will be $1,900—and will disappear by 2025. VW, Tesla, and GM are pushing battery prices down further as they race to lock up the giant capacity needed to power millions of EVs.
Last year, the U.S. established a consortium of agencies to promote a domestic battery industry, and used the Defense Production Act to speed development of mines for rare-earth elements. The U.S. Energy Secretary just stated, “We can buy electric car batteries from Asia or we can make them in America.” The E.U. is also using industrial policy to foster the development of a regional battery sector, saying it wants a “closed value chain for battery cells to be created in Europe” from processing raw materials through recycling used batteries.
Classroom discussion questions:
- About 4% of car sales last year were EVs. Why was that figure so small and why might it change?
- Why is the supply chain strategically important? (See Ch.11 in your Heizer/Render/Munson text)