The latest trade tensions between the US and China have been sparked by graphite, a crucial component in electric vehicle batteries. The US has put pressure on EV and battery makers to develop a new supply chain for graphite anodes, as Chinese production currently dominates the global market. In response, the United States Trade Representative has announced tariffs on natural and synthetic graphite anodes from China, with further tariffs on natural graphite set to kick in from 2026. This move has been driven by the US government’s desire to reduce reliance on Chinese graphite in order to qualify for federal subsidies under President Joe Biden’s climate legislation.
Powdered anodes, which store charge in lithium-ion batteries, are typically made from a blend of natural and synthetic graphite. While natural graphite is abundant, processing for battery-grade anodes is primarily done in China. Chinese dominance in graphite anodes has led non-Chinese companies to neglect the necessary investments in securing alternative sources for the material. The US government is now pushing for the development of an alternative supply chain to ensure compliance with the Inflation Reduction Act by the end of 2027.
Despite the potential for the US to convert existing facilities for synthetic graphite production, analysts do not believe non-Chinese companies will match China’s capacity in time for the IRA waiver to expire. This presents a significant challenge for non-Chinese EV manufacturers, battery makers, and materials producers, who face the prospect of making substantial investments in a new graphite anode supply chain while dealing with cost-cutting measures due to lower EV adoption rates. The US automakers are facing losses on EVs, while Korean battery companies are considering cutting capacity, highlighting the financial strain on the industry.
There are various barriers for non-Chinese producers to overcome, including financing, environmental permits, energy costs, and lack of specialized expertise compared to their Chinese counterparts. This presents a challenge as these producers are expected to supply customers globally. Furthermore, the potential for Beijing to restrict graphite exports or flood the market with supply could further complicate the situation. While building a non-China, IRA-compliant anode supply chain is necessary, the process will be slow and costly, with market dynamics playing a significant role in the eventual outcome.
In the long term, the development of a non-Chinese graphite anode supply chain is inevitable, but it will require significant investments and time. The current focus on securing higher-value minerals like lithium, nickel, and cobalt for battery cathodes has led to neglect of alternative sourcing for graphite anodes. As companies scramble to comply with the Inflation Reduction Act regulations, the challenge of replicating China’s graphite anode capacity remains a daunting task. The next few years will be critical in determining the success of establishing a new supply chain for graphite anodes and reducing reliance on Chinese production.
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