Will batteries usher in a new era of global energy sovereignty?

Look around you. Batteries power nearly all the devices we depend on throughout our lives.

As the world shifts toward a more sustainable future driven by electrification, batteries are more important than ever. The complex dynamics of global policies, supply, and innovation will impact the battery industry in the coming decades.

How will nations and governments perceive the future of electrical energy? And what role will technology innovation play?

We must reflect on our past with fossil fuels as our primary energy source. The United States’ dependence on oil has long influenced its domestic and foreign policies. Should we expect the same with the future of batteries?

Lessons of sovereignty learned from the petroleum industry

In 1938, Standard Oil of California (the precursor to Chevron) discovered one of the world’s largest oil reserves in Saudi Arabia, catapulting the Arabian peninsula to one of the top economic priorities for energy security.

In 1945, in an iconic meeting, President Franklin D. Roosevelt met with King Abdul Aziz of Saudi Arabia on a U.S. Navy destroyer, highlighting the importance of the new energy source to U.S. strategic interests. This led to decades of U.S.-Saudi relations and the formation of the Arabian American Oil Company (Aramco), which today has a market cap in excess of $2 trillion.

As the petroleum industry flourished, nations around the globe started asserting their rights to economic interests. In September 1960, five major oil-producing countries — Saudi Arabia, Kuwait, Iran, Qatar, and Venezuela — founded the Organization of the Petroleum Exporting Countries (OPEC) with the purpose of championing “the inalienable rights . . . of all countries to exercise permanent sovereignty over their natural resources.”

As oil shortages wreaked economic havoc in 1973, the U.S. mandated strict fuel efficiency standards for new automobiles and established the strategic petroleum reserve. Arguably, the U.S. has a global naval presence today to maintain the security of energy.

The war in Ukraine and its impact on natural gas supplies to Europe brought back to prominence energy independence. U.S. Congress has passed no less than 25 energy acts over the past century. The most recent, the U.S. Inflation Reduction Act (IRA) of 2022, sets the guidelines to guarantee energy security for batteries.

The question is: Will electrical energy, and in particular, stored energy in batteries, be subject to the same global economic and geopolitical forces that shaped fossil fuels? How long before nations with mineral deposits critical to the battery industry come together to create the Organization of Battery Exporting Countries or something similar, to assert their rights to sovereignty over their natural resources?

The race to secure the stability and security of battery manufacturing

Battery technology and innovation will dominate this century. Yet unlike the polarized world of petroleum, the protagonists are different and the interpretation of energy independence is also different.

While petroleum was itself the source of energy, it is batteries that become the focal point in an electrified economy. From extraction of raw materials to battery manufacturing, from advanced battery software to recycling, innovation and policies will determine winners and losers.

The battery supply chain starts with the mining and refining of several ores, from lithium to graphite, cobalt, nickel and other rare earth materials, as well as copper and aluminum for electrical wiring. The world’s deposits of such minerals exist over many continents, which is why Chinese enterprises have invested heavily in mining operations around the world.

Most notable cobalt mines are in the Democratic Republic of the Congo, where nearly 70% of the mining sector is controlled by Chinese operations. China has also opened lithium mines in Africa (e.g., Zimbabwe), often referred to as “white gold” due to its market value for powering electric vehicles.

China’s president Xi Jinping’s first foreign visit following his election in 2013 was to Africa with repeated visits to the continent since then. His attention on Africa is reminiscent of President Roosevelt’s attention on Saudi Arabia 68 years earlier.

Today, China accounts for less than 6% of global reserves, but it controls over 60% of the world’s lithium refining capacity. According to Benchmark Mineral Intelligence, China has 125 gigafactories — factories producing electric batteries at huge scale — to support its electric vehicle and energy storage industries. By 2030, their lead is expected to grow to 226 operating battery plants, representing 70% of global capacity.

There is nothing analogous to China in the petroleum history book. The Guardian calls it a “battery arms race” suggesting national priorities will supersede global economic development where the U.S. is dependent on China for much of its battery supply. China underscored its strategy for technological independence in their “Made in China 2025” national plan.

As we saw with petroleum, countries that find themselves in the enviable position of supplying strategic natural resources will begin to assert their national economic interests. Australia and Chile are the top producers of lithium, accounting for almost 77% of global production in 2022. Argentina, Bolivia, and Chile — otherwise known as the “lithium triangle” — are estimated to control about 60% of the planet’s known lithium deposits.

Chile, which has the world’s largest lithium reserves and is the second-largest producer of lithium ore, announced earlier this year that it plans to nationalize its lithium mining industry. Mexico nationalized its lithium reserves in 2020, ensuring they have a major sway on price going forward.

Largely in response to China, the U.S. has increased its investments in batteries. The passage of the Inflation Reduction Act of 2022 (IRA) committed over $20 billion during the year to the domestic U.S. EV supply chain.

The U.S. is on track to reach 950 GWh in domestic battery manufacturing by 2030, including 250 GWh of new capacity announced since the passing of the IRA. The Infrastructure Investment and Jobs Act of 2021 allocates approximately $6 billion for grant awards for battery technology.

The funding will work to expand research and development capacity for the U.S. battery industry, with the goal of reducing foreign dependency and shoring up the supply chain. The U.S. Department of Energy (DOE) announced funding of more than 20 projects expanding the domestic manufacturing of batteries for electric vehicles and the electrical grid. The White House’s economic agenda places strong emphasis on driving U.S. battery technology and manufacturing.

We are witnessing a reversal of globalization policies that began in the 1990s. Investment ties between the U.S. and China are past their pinnacle. Tensions are not limited to the Pacific — simmering tensions across the Atlantic will define the battery race as both Europe and the U.S. will each seek to protect and promote their national industries.

Protectionist policies will make it increasingly difficult to access markets where political tensions are prominent. In particular, tensions between the U.S. and China will continue to complicate life for startup companies.

The stability of the supply chain of battery materials will be critical for scaling battery production especially for electrical vehicles (EVs). Securing contracts for raw materials is a top priority for all EV companies. Expect operational costs and capital requirements to rise in an economic environment that seeks to commoditize batteries.

Yet, continued technology innovation will shift the balance of power and undermine policies of autarky. Just as technology innovation in petroleum enabled oil production and distribution at very large scales, thus creating a massive oil economy, scaled production of batteries will serve to commoditize energy storage and placing batteries everywhere. It is not inconceivable to think of a future where everything is powered by a battery.

Can technology reduce dependence on the extraction of raw materials? The battery in a Chevy Bolt EV, for example, has a capacity of 65 kWh and contains approximately 50 kg of nickel, 7 kg of cobalt, and 40 kg of LCE (lithium carbonate equivalent). The vehicle has a nominal driving range of 259 miles (415 km), and the battery comes with a warranty of 8 years/100,000 miles.

Imagine the vehicle’s drivetrain becoming 10% more efficient. This translates to a savings of 5 kg of nickel, 0.7 kg of cobalt, and 4 kg of LCE per vehicle! This is the modern equivalent of the fuel vehicle efficiency standards established in the 1970s.

Equally important is extending the battery’s longevity and vehicle warranty, keeping the vehicles on the road longer. A mere 20% improvement in the battery’s warranty to 120,000 miles using advanced battery management system (BMS) software solutions, a market segment that Qnovo’s products address, will translate to a 20% reduction in raw materials utilization and 20% fewer mines.

This is significant, as the United States is projected to have a shortfall of materials needed to hit the EV penetration targets of 2030. Technology is also playing a significant role in the wide implementation of battery recycling, transforming the battery materials supply chain.

Just as the automobile defined the petroleum industry, electric vehicles will equally define the battery industry. Technology innovation in the battery sector will continue to progress if not accelerate, alongside rising protectionism (and some nationalism). It is the intersection of these two powerful forces that will make any chief executive in the transforming battery and energy sectors think deeply about shifting priorities and mitigation strategies.