Epsilon arrives with synthetic graphite to shore up EV battery supplies

China is the world's dominant source for graphite used in electric-vehicle battery anodes — and it will soon place restrictions on exports of the critical material, leaving companies scrambling.

Enter Epsilon Advanced Materials, an Indian battery materials supplier. Epsilon said last month it will spend $650 million to open a factory in North Carolina that will eventually produce 50,000 tons a year of graphite anodes using both natural graphite, the market for which is dominated by China, and synthetic graphite, made from petroleum coke.

The new 11.5-million-square-foot facility near Wilmington, N.C., will focus primarily on the synthetic version of the metal to cater to what the company expects to be soaring local demand, said Vikram Handa, managing director of Epsilon Carbon, the parent company of Epsilon Advanced Materials, in an interview.

"In the Western market, OEMs will require synthetics in their cells," Handa said. "You have bigger cars and you have commercial vehicles coming into this space. That requires higher capacity cells, which leads toward synthetic graphite."

Synthetic graphite is often purer and promises the possibility of faster charging and higher battery life with a lower overall carbon footprint than mined graphite. But because it is generally more expensive, companies often blend natural and synthetic graphite.

China dominates the world's supply of natural graphite, including virtually all the natural graphite used in EV batteries. Last month, China moved to curb exports of the material by requiring export permits for some graphite products as of Dec. 1, including spherical graphite used by automakers.

The market for synthetic graphite, meanwhile, is expected to grow more than 40 percent over the next five years to $4.2 billion in 2028, according to research firm Mordor Intelligence.

When the Epsilon plant opens in 2026, it will have capacity for 30,000 tons of graphite anode annually, expanding to 50,000 tons when it is fully ramped up. The company expects its anodes to supply 1.1 million EVs by 2030.

Epsilon also plans to build similar facilities in India and Finland, and could include future opportunities in the U.S., Handa said, noting that its production plans account for a "drop in the ocean for what the U.S. needs."

"We believe that limiting the amount of graphite exported from China — and likely the price increase for graphite that it will create — exacerbates the challenges [and] exemplifies the need to develop synthetic graphite for the U.S. locally," Epsilon Advanced Materials CEO Sunit Kapur told Reuters.

It is the first major investment by an Indian company in the growing U.S. market for EV battery components, Epsilon said.

The investment comes as automakers and battery cell manufacturers look to localize their supply chains to help customers qualify for federal tax incentives on EV purchases under the Inflation Reduction Act. The act encourages auto companies to build their vehicles in the U.S. using locally sourced content.

Epsilon's largest customers include Korean and Japanese battery cell companies, some of which have announced joint ventures with automakers to build EV batteries in the U.S.

"By 2025, customers want to be buying from a non-foreign entity of concern to get IRA credits, and they have an obligation to have a certain amount of local content to get IRA benefits," Handa said.

By producing synthetic graphite anodes in North Carolina, Handa said Epsilon's customers will get a boost in their efforts to hit local content targets.

Reuters contributed to this report.