EV batteries creating a new U.S. supply base

FRANKFORT, Ky. — Andy Beshear, the 44-year-old governor of Kentucky, has a vision for the supply base of the U.S. auto industry.

He wants his state, a former key coal mining area, to be a future production hub for electric vehicle batteries.

As the auto industry transitions to EVs, it will need a new parts manufacturing base that doesn't currently exist, reasons the governor. It's going to have to be built somewhere — and Kentucky can play a leading role in that new supply chain.

The state has gotten off to a significant head start. Last summer, Ford Motor Co. and its South Korean battery manufacturing partner SK Innovation — now known as SK On — announced one of the largest single investments in U.S. auto history, a $5.8 billion project to produce batteries in Glendale, Ky., 60 miles south of Ford's big truck assembly operations in Louisville. Then, here in April, the Japanese EV battery maker Envision AESC announced that it will spend $2 billion to build a battery manufacturing complex in Bowling Green, Ky., initially to supply the production of EVs at Mercedes-Benz U.S. International in Vance, Ala.

"When you put these two projects together, we believe they unquestionably will make Kentucky the electric vehicle battery production capital of the United States," the governor told Automotive News during a private visit to the state Capitol with executives of Envision AESC. "The capacity of the two will bring great advantages to both companies. I see a lot of collaboration."

Envision AESC Group CEO Shoichi Matsumoto said during the visit that the Bowling Green plant will supply additional U.S. automakers after it is up and running. But he declined to identify any projected customers. Before electronics giant Envision acquired majority ownership of it, AESC had been created specifically to supply Nissan Motor Co., which is still a part owner of Envision AESC.

"We have growth plans for both the U.S. and other regions around the world," he said.

But both state leaders and industry executives know that as the EV era takes shape, there will have to be much more to the equation. A battery supply chain consists of many parts in order to ship completed battery modules, and Beshear and state officials are already at work on that reality.

Sitting together at the Capitol in Frankfort, Beshear and Matsumoto discussed that larger plan.

"To construct this supply chain," Matsumoto said before making his company's public announcement, "it's very important to us that there are several major parts and material suppliers, at least five, that need to be near our company.

"We must have cathode and anode materials," he said to the governor. "Separators and electrolytes, laminates, and then copper foil and aluminum foil."

"But recycling is also very important," he continued. "We must also have recycling capabilities. We need to be able to recycle waste materials, like aluminum, to turn it into very valuable material."

Beshear was reassuring. "When you look at aluminum," he said, "we already have almost the entire life cycle of aluminum here in Kentucky. And we're already in discussions with companies that are those major suppliers."

But, Beshear added, looking to Matsumoto, "For a project this big, we need to make sure we attract the ones you want and that provide you with the very best product."

The challenge of creating an EV battery supply base is remarkably different from creating a supply base for a traditional internal combustion-engine vehicle. The reason is simple: Internal combustion engine vehicles have been produced all over the world for generations, and their parts and technologies are abundantly available from suppliers everywhere.

In the 1980s, when Toyota Motor Corp. built its first U.S. auto plant near Frankfort in Georgetown, Ky., Toyota had no problem picking and choosing its critical suppliers from the ranks of both its own traditional parts makers in Japan and the galaxy of North American component makers. The abundance of supplier competitors allowed Toyota, in some cases, to rely on dual sources for parts to make its bestselling Camry.

It's a different situation with EVs.

They are still relatively new, and in many cases totally new to some brands. The necessary batteries also are new to the industry and still evolving. Until now, much of their production and subcomponents have been based in China and South Korea, with very little demand for exporting.

What the U.S. industry now faces is creating a local EV battery supply infrastructure in relatively little time and across a wide geography of North America.

Beshear's automotive aspirations aside, manufacturers also are now gearing up to produce EV batteries in Ontario, Tennessee, Georgia and possibly Texas or Oklahoma. This is in addition to battery manufacturing already taking place in Nevada, Tennessee, Georgia and Michigan. And all of those batteries will require the production of all the parts and materials that Matsumoto listed — as well as others.

Kentucky officials believe the two large-scale battery projects there will create a synergy for attracting a shared supply base.

"We've gone through the worst of the worst with supply chains recently with the disruption caused by the pandemic, the microchip situation and the war in Ukraine," Beshear noted. "We think the outlook on supply chains is changing now — for example, with new attitudes about redundancy. We think manufacturing clusters are the future. For this ecosystem, that's going to be required. And that's what you'll see in Kentucky."

SK On is active beyond the Kentucky state line these days. In addition to the mammoth project it is undertaking in partnership with Ford there, the company is working with Ford on Blue Oval City in Stanton, Tenn. That $5.6 billion project will produce both electric trucks and the batteries to power them.

But this year, SK On also launched production at a U.S. battery plant in Commerce, Ga., according to company spokesman Joe Guy Collier. That battery site, built to supply Volkswagen and Ford, also is in the early stages of attracting a supply chain to support it.

The Korean manufacturer Enchem Ltd. is building two plants in Jackson County, Ga., at an investment of $61 million, to produce electrolytes and electrostatic double-layer capacitors for SK.

SK's partner EcoPro BM, a cathode materials manufacturer, also is investing to supply SK in Georgia.

But EcoPro has a larger global mission with SK now. The company told Korean media last September it signed an $8.6 billion agreement to supply SK with high-nickel cathode materials for batteries starting in 2024. The agreement likely will require EcoPro to build additional U.S. production capacity beyond its initial Georgia plant.

Beshear acknowledges there is another critical piece for developing a battery supply chain for Kentucky — workers. He says the state is on top of that, investing $70 million in career and vocational education in high schools last year and earmarking $170 million for the effort next year.

"We will be training industrial workers in high school before they graduate," the governor said. "We believe the jobs for these projects are very attractive jobs of the future, in electronics and in a very clean environment. There will be a lot more to come.

"We're going to make sure they have what they need."