Bloomberg analysis: How the United States will win the next stage of the electric vehicle race

Bloomberg published an article by Anjani Trivedi on Nov. 22 analyzing how the U.S. won the next stage of the electric car race.

The battery products of CATL Technology Co., Ltd., which are used in vehicles of almost all of the world's major car brands, will also power electric vehicles produced at Tesla's factory on the outskirts of Shanghai starting this month.

The race to build and occupy large areas of the global electric vehicle supply chain is accelerating. At this rate, it won't be a question of who will arrive first, after all, it's already clear, but who can do it best.

China is already far ahead of its competitors, and the discussion about the supply chain of electric vehicle batteries is still mostly just talking about. It wasn't until June that the U.S. announced that it would establish large-scale production plans over the next decade. While it has developed different parts of the supply chain, the United States is still a long way from having a complete, integrated ecosystem. Because, this system needs to be ready to produce hundreds of thousands of batteries to power all predicted vehicles.

The multibillion-dollar investment is a good hype, but the global challenge is that there is currently no standardized, best-in-class battery. This, in turn, means that there is no finish line. Despite all the progress made in recent years, different battery chemistries still face a host of problems. However, manufacturers and up-and-comers are constantly forging ahead. Morgan Stanley analysts recently noted that "the birth of the battery economy is reshaping century-old supply chains and creating a new industrial order."

In all these changes, what should manufacturers of batteries and cars be working on? This is undoubtedly a difficult decision. Either you choose the best and safest technology to date, promising to build capacity by investing in factories and machines, securing raw materials, and spending a lot of money on research and development. Or, you wait for the moment, focus on the future, and don't invest too much in today's business viability. In this case, hopefully you'll be one step ahead in the coming years.

The world's largest battery manufacturer, China's Cataline Times Technology Co., Ltd. (CATL), shows that the only profitable way forward so far is Option A. The company has managed to keep a foot in old battery technology, improve the production process, and ensure that it has a supply of mass-produced power batteries. At the same time, it also invests in the latest developments, acquiring or working with material suppliers, miners and automakers. Its batteries are now used in many Tesla cars that will be exported around the world. There is no doubt that the company has been helped by subsidies from the Chinese government.

Being able to enter every link of the supply chain, from raw materials such as lithium to cathodes, anodes and packaging of batteries, is giving CATL, and even the wider China, a head start. The company's position helps to avoid the pain caused by sharp rises in raw material prices to competitors. The control of suppliers and the close relationship with customers have resisted some cost pressures. The company, in turn, protected its own profit margins, enhancing its ability to expand and raise capital.

In the broader market, however, there are growing imbalances, and there are fears that we may face a global battery shortage as manufacturers race to put in capacity. The shortage means automakers will choose any product currently available. That's where the risk lies. The momentum of demand will force supply chains to focus on near-term technologies, although the pace of progress is so fast that it may be difficult to abandon. While China and its manufacturers are building capacity to accommodate both goals – now and in the future – it's too early to say whether this approach is sustainable.

For the United States, this is an opportunity. In June, the U.S. Department of Energy released a roadmap calling for a domestic battery supply chain by 2030. According to China, this deadline is too far away to remain competitive in the current wave. It does offer an opportunity, though, to leapfrog the challenge of promoting early adoption and to get in as electric vehicles become a massive reality and consumer awareness.

Companies in North America and Europe can help create supply chains, not in a hurry, but instead create sustainable, flexible enough supply chains to keep up with evolving technologies in a more environmentally friendly way. Sparkz Energy Systems, incubated at the U.S. Federal Laboratory, is seeking to commercialize domestic cobalt-free batteries next year.

The supply chain of the future will have to look different. We will need flexible manufacturing systems to accommodate evolving chemistry and production processes, as well as a variety of raw material sources, while providing more leeway for trial and error rather than developing fixed battery manufacturing methods. The result should be a more sustainable and lower-emission way forward. The establishment of the supply chain also needs to know that things will change, and it will be very fast. Companies that aren't ready are bound to face problems very similar to those of traditional automakers, who, despite their promises to invest billions of dollars to produce electric vehicles, are stuck in the old way of production and have a hard time getting started.

Much will depend on the amount of policy and capital support, as well as the company's focus on battery manufacturing and production. While the U.S. has missed out on the first wave of opportunities, it now has a chance to win the technology race and ensure that the best batteries keep popping up and mass-producing. If the process is dynamic, then the supply chain will also be dynamic. Otherwise, companies such as China and CATL will stay ahead.