Graphite, Tariffs, Plants, and the US
In December 2021, Elon Musk pled with the US government not to raise tariffs on graphite being imported from China. He, and others in the auto industry, claimed that the graphite, a critical material for EV batteries, was unattainable elsewhere.
The US government seems to have heard and acted on the scarcity of graphite—though in a different manner than those arguing for the originally proposed tariff exemptions. In April, the U.S. Department of Energy (DOE) approved a $107 million loan for Syrah Technologies’ Syrah Vidalia facility in Vidalia, Louisiana. This plant produces a finished natural graphite-based active anode material (AAM)—critical in the EV battery input supply chain. The DOE Loans Program Office says, “The Syrah Vidalia facility is expected to produce enough natural graphite-based AAM for approximately 2.5 million EVs by 2040, thus saving an estimated 970 million gallons of gasoline.”
The Biden administration, having campaigned on combatting climate change in 2020 and facing concerns over energy security amidst the Russian invasion of Ukraine, is emphasizing the transition from fossil fuel vehicles to EVs while shoring up the supply chain needed for their production. The loan to the Syrah Vidalia facility is just one outcome of this emphasis. The facility isn’t the only plant expanding its graphite processing business in the US. Graphex Technologies, a company with Hong Kong roots, expects to open its first US facility in Warren, Michigan by the second quarter of 2023. With expense during a global supply chain shortage and insecurity of garnering graphite for batteries for China, there could be a dramatic shakeup in sourcing EV battery materials in the coming years.
China and Graphite
In 2021, China produced approximately 70% of graphite for EV batteries in the US. Demand for this input has skyrocketed as demand for EVs has increased dramatically with EV purchase incentives, bans on fossil fuel vehicles, high gas prices, and general concern for the environment.
As demand for either synthetic or natural graphite in anode form rose, China lessened production to ensure blue skies above the Beijing Winter Olympics—exacerbating an already existent bottleneck in the supply chain. The Chinese zero-COVID policy then prompted more processing delays as factories shut down amidst an Omicron outbreak. The price for artificial graphite had already increased by approximately 25% in the second half of 2021, and these 2022 supply reductions are only intensifying the situation.
Graphite Tariffs
Former US president Donald Trump imposed several tariffs on China during his administration. These tariffs technically covered artificial graphite, but this material among others needed in the US auto industry were given temporary 25% exemptions set to expire this year.
Hundreds of auto industry representatives, when faced with the expiration of the artificial graphite tariff exemption, asked the US Trade Representative (USTR) to reinstate the exemption. The USTR has not released public comment yet.
Demand Creates Opportunities
Although the US has traditionally relied on imports for EV battery source graphite, that could be changing. Neither international supply chain issues nor consumer demand for EVs is likely to disappear overnight, and even without high tariffs on EV battery graphite, getting the material from China would continue to pose challenges in keeping up with demand. Suppliers and investors need to recognize the increased value of supply chain security, as evidenced by government actions. This could present opportunities to other EV input vendors in terms of garnering DOE support for production facilities in the US.