America’s industrial policy is too flawed to achieve its goals

Earlier this month, the Joe Biden administration announced the first set of projects, which will be funded by the president’s bipartisan infrastructure legislation, to expand domestic production of EV batteries and grids, and “currently imported from other countries.” for materials and components.” Instead of focusing on manufacturing — its biggest weakness — the US Department of Energy has favored firms that will process lithium, “demonstrate new approaches” and recycle PowerPack.

That’s misleading—and it won’t get the US any closer to the height of China’s battery economy. The biggest issue is the outlay for parts of the supply chain that are either not difficult to install and scale, or further down the price ladder, such as the processing of lithium, graphite and other materials. It does not give enough attention to the most important elements, the cell and cathode construction. Government investment by recipients is expected to reach more than $9 billion.

Most of the 20 partner companies will either separate and process the material or make components such as anodes and separators. None are focused on making battery cells and packs or extracting raw metals and elements – the key processes at the beginning and end. It is difficult to start the production of SAIL due to the ever-evolving manufacturing practices including automation. In addition, their large size and electric charge, along with elements such as nickel and cobalt, make them difficult to handle and control for quality. Sourcing experienced battery engineers is also becoming increasingly difficult.

It is unclear where nickel, lithium and cobalt will be supplied, or how the US plants will grow, as most of the investment has been allocated toward fully proven PowerPack technology that is still not commercially viable. In the meantime, big battery makers have announced big plans—and they’ll need supplies, too.

This patchwork approach will not work. For example, countries like Indonesia are processing raw materials because they have vast nickel resources. Jakarta has used this to attract big companies such as Tesla, LG Energy Solutions and the contemporary Amperex Technology Co, and will then leverage it to build a domestic supply chain while maintaining a large share globally. Viewed from that perspective, it doesn’t make sense for the US to focus on different parts of the price ladder. Meanwhile, part of the Biden administration’s funding was meant to help create “well-paying” jobs as these sectors grow—in theory. If these projects are not scalable or commercially viable, how will they boost employment?

The sad reality is that America has been here before. It is reminiscent of the American Recovery and Reinvestment Act of 2009, when the Barack Obama administration earmarked more than $90 billion for clean energy. It was supposed to spur innovation, modernize the grid, and boost manufacturing. Companies such as industrial battery maker A123 Systems LLC, along with several other energy firms that had taken out grants and loans of more than $800 million and promised thousands of jobs, eventually filed for bankruptcy.

Billions of dollars were earmarked for lithium-ion powerpacks, recycling, EV components and charging stations. Even after a decade, the US was still not able to meet its own goals, which included dominating green areas and technologies, nor was it able to overtake China. This is because it never intensified its mish-mash of policy and failed to target the core sectors on which it could establish a firm grip.

Ironically, around the same time China turned its attention to batteries – a game-changer for EVs and energy storage. In 2012, when A123 was shutting down, Beijing designated the area a key strategic industry. The country’s focused policy around its automotive sector and deep supply chain has propelled it globally, allowing manufacturers like Tesla to lower prices and churn out hundreds of thousands of vehicles.

Elsewhere, carmakers haven’t been able to manage consistent price hikes without reducing margins or producing enough EVs to meet emissions targets and promises.

At this point, it’s not really a competition between the US and China, the world’s largest market for a maker of electric vehicles and batteries. It’s now about American industrial policy, well, itself.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.