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Key points:
There are many topics debated in the lithium-ion battery anode market. For example, which cathode chemistry is most appropriate for which application be it nickel, cobalt, manganese or iron in varying ratios with lithium. Rarely up for debate, however, is the battery anode material. That's because it's almost always graphite.
US facing challenges in its attempts to diversify its graphite supply chain
The problem for the auto industry is that the US government is trying to build a resilient electric vehicle (EV) supply chain that levers away mainland China's influence on the EV battery supply chain. When it comes to graphite, this is a big problem, albeit not insurmountable. Mainland China is the world's largest graphite producer, producing 77% of the world's graphite demand in 2023, with the US importing 42% of its graphite requirements from China.US graphite demand gets to the crux of the problem — it imported 84,000 metric tons of graphite, while consuming 76,000 metric tons, meaning its production is negligible.
This has never been a problem until the US introduced the 2022 Inflation Reduction Act, a program stacked high with incentives for companies to build local EV supply chains. This was further magnified on Dec. 1, 2023, when the US government released guidance on the foreign entity of concern (FEOC), which listed four countries — the People's Republic of China (PRC), the Russian Federation, the Democratic People's Republic of North Korea and the Islamic Republic of Iran. The mandate added a new layer of FEOC requirements, pulling away the eligibility of EVs powered by batteries made primarily in China or using materials that are extracted and/or processed in China from qualifying for federal tax credits of up to $7,500.
Coincidentally on the same day, China imposed a temporary measure for companies exporting graphite. China's move is expected to hit the graphite supply to nations that are heavily dependent on it, including the US, Japan, South Korea, Europe and other regions. China also refines more than 90% of the graphite globally.
Fast developments in Canada and US graphite supply deals
The response in North America has been lightning-fast. At least five high-profile developments over the last fortnight hint that the North American graphite supply chains are beginning to work.
Projected Graphite demand, 2023-2030
According to S&P Global Mobility, global demand for AAM materials, mainly the graphite industry, will grow to 3,100 kilotons by 2030, from 790 kilotons in 2023. Particularly in North America, graphite demand will grow at a faster rate, with expected volumes to reach 620 kilotons in 2030 from 56 kilotons in 2023.
"The recent guidance on the FEOC designation disqualifies batteries that utilize materials produced in China at any stage of their processing. This stringent requirement has compelled American automobile and battery manufacturers to rush to secure their graphite supply from FEOC-qualified sources. However, the feasibility of decoupling from China remains uncertain due to China's extensive monopoly over the graphite supply chain, its cost competitiveness and the fact that most anode projects in North America are still in the developmental phase," explains S&P Global Mobility's senior research analyst Ali Adim.
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.