The US battery supply chain has entered phase two

The Department of Energy has doled out no less than eleven loans to the EV sector in the last four years. 

And a handful of those have targeted obscure, somewhat niche components like wiring harnesses and battery separators. And, according to the department’s Loan Programs Office, demand for funding from those manufacturers is evidence that the U.S supply chain is maturing.

• The top line: Yesterday, LPO announced a conditional commitment to loan $1.2 billion to Entek Lithium Separators, an Oregon-based manufacturer of lithium-ion battery separators. Though not yet finalized, that loan targets a small but critical gap in the still-solidifying domestic battery supply chain, and signals the country’s arrival in a new phase in the effort to build an end-to-end domestic supply chain.
• The market grounding: Separators, which are membranes that separate the anode and cathode of a battery to prevent electric shorts, are essential to overall battery performance and safety. And according to DOE estimates, by 2030 the North American market for these membranes could be as large as 10 billion square meters.

The first phase of supply chain build-out focused on shoring up critical minerals and battery manufacturing, said LPO director Jigar Shah, while phase two involves building the other components that “were dependent upon the battery manufacturing going first,” he told Latitude Media.

Today the industry is “firmly in phase two,” as evidenced by private sector requests for government support to scale domestic manufacturing of components like wiring harnesses and separators. From an investor perspective, the question of who and where potential buyers are is key.

“When you see who the offtake agreements are from [for Entek], they’re from people who’ve already made the decision to make batteries in the United States,” Shah said. "Those are the folks who are then also starting to buy the rest of the supply chain.” (The U.S. now has over 400 gigawatt hours of battery manufacturing facilities under construction, he added.)

As Shah sees it, these “phases” aren’t necessarily sequential, but rather are concurrent. But the onset of phase three is already keeping DOE on its toes, he said — as soon as 2026, Shah expects a flood of technologies that are “ready to leapfrog” existing solutions.

“One of the things I’m so amazed by is how early we are in the technology curve for EV batteries,” Shah said. “We got here because Tesla decided that lithium-ion batteries were already made in somewhat large quantities for laptops,” he added, and all of the other technologies that weren’t chosen back in 2008 have spent the intervening years receiving lots of investment in research and development.

Those may soon be ready to enter the market at scale.

Emerging innovation loops

The imminent arrival of phase three is evident in the conversations LPO is currently having with companies that are still several years out from being ready for a loan from that office.

There's a pipeline of companies with commercially-proven technologies and demonstrated market interest that have already received funding for pilot projects from other offices within DOE that have already reached out to LPO to talk about potential future commercial facilities, Shah said.

“A lot of these companies are coming to us saying ‘Hey, we’re building our pilot plant now, can we start a two-year process to talk to you about the big commercial facility, once our pilot hits its metrics?” he said.

Those discussions are a promising indicator that the investments DOE has been making for the last several decades are starting to form a virtuous cycle, Shah added.

“We're excited that we now have this loop that's starting to form where all of the technologies that we've been so good at inventing here in the United States are now being viewed as good candidates for commercial commercialization, also here in the United States.”