As a result, Johnson Controls has required each of its materials suppliers to build processing factories in the U.S. Each factory or supplier has a “variable degree of vertical integration” in the U.S. versus what they are doing overseas, he said. “We would really like to encourage a great mix of vertical integration in the U.S.”
One way to encourage that is to stimulate a strong R&D push “to get the new emerging suppliers as well as the established suppliers to be conducting their R&D onshore here,” Mr. Watson said.
Mr. Reed of Magna noted that Japanese suppliers are vertically integrated within their customer base as well. In consumer electronics, “they really got into batteries as a means to help sell what they have,” he said. “That means companies that are not a part of that keiretsu don’t get the same access to new R&D coming out of their labs as do those who are part of the keiretsu. So to be able to establish an R&D base in the U.S. at the material supply level will allow battery makers in the U.S. to do more collaboration with suppliers and compete more effectively.”
Mr. Reed said the biggest thing that can be done is to expand the U.S. market for electric vehicles. Generally, cells and battery packs for North American will be sourced in North America. Those sold in Europe will be sourced in Europe, and those sold in Asia will be sourced in Asia. “If you look at the history of the supply chain and the number of factories, I think it is unlikely any one country is going to dominate and export to the rest of the world over the long term,” he said. “I also think it is unlikely the U.S. is going to become the battery supplier to the world. So I think the faster we can grow the market, whether for automobiles or commercial vehicles, the faster we will drive the supply base that is necessary.”
Restoring U.S. lithium production would help, Dr. Gaines said. The U.S. produced lithium until cheaper South American sources became available, she said. “At least we will have raw material here,” she said. “Obviously, the battery manufacturers need the lithium compounds to make batteries.”
Dr. Gaines said it also seems feasible for some U.S. chemical companies to make lithium carbonate and metal oxides. “It seems unnecessary to send lithium carbonate made in the U.S. and shipped to Asia to be made into cathode materials that then are shipped back here to make batteries,” Dr. Gaines said.
Mr. Greenberger asked how much of an issue standardization is for the industry. “How much cost can we squeeze out of the process by standardization?” he asked. “And if it’s not going to happen by committee, how is it going to happen?”
It is good to many different developers of materials, cell designs, pack technology, and vehicles, Mr. Reed responded. “I think diversity is going to allow the winners to be developed and emerge,” he said. The first step is to standardize the way materials and cells are judged, Mr. Reed said. That way, potential suppliers “have a clear understanding of what the expectation is.” If expectations are fairly consistent across customers, then the costs of qualification and development “can be kept to a reasonable.”