S&P Global Commodity Insights reports that although U.S. policy favours the use of domestically sourced lithium, cobalt, and nickel in EVs eligible for tax credits, the country’s limited production capacity will likely maintain its dependence on international suppliers.
The United States increasingly emphasises the shift to electric vehicles (EVs), which positions countries with free trade agreements (FTAs) with the US for a boost in battery metal trade, as analysts and industry observers at S&P Global Commodity Insights noted.
With the goal to have 67% of new light-duty vehicles as EVs by 2032, up from 6.6% in 2022, the US is encouraging the use of domestically sourced battery metals like lithium, cobalt, and nickel in EVs qualifying for tax credits. However, the low domestic production is likely to continue the US’s reliance on foreign sources. The federal law also restricts the use of materials from Chinese companies or China. The Inflation Reduction Act (IRA) allows EV buyers to receive credits when their vehicles use materials from countries with US FTAs.
The US has extensive FTAs with 20 countries and a limited critical minerals FTA with Japan. The Biden administration is also pursuing FTA-like agreements with major players like Indonesia and Argentina. Cullen Hendrix from the Peterson Institute for International Economics anticipates a focus on FTA partners that are advanced or post-industrial democracies. This approach is in line with the political goal of diversifying mineral supply chains outside the US and China.
Automakers are forming strategic mineral offtake agreements with producers in FTA countries, leveraging IRA benefits. For example, Albemarle’s lithium operations in Chile, an FTA country and a major lithium producer, are becoming more attractive for automakers, including Ford. However, there are challenges in changing import sources for some materials, with cobalt being less established than lithium. In the first three quarters of 2023, 55.8% of US lithium imports came from FTA countries or those in critical mineral trade talks, while only 38.4% of cobalt imports were from FTA nations.
Canada and Australia, both FTA countries, are promising sources for battery metals. Canada, recognized domestically under the US Defense Production Act, alongside Australia, is expected to play a significant role in the near future.
The legislative framework sets a timeline to reduce Chinese content in supply chains by 2025. Hendrix suggests that the US legislation foresees a large-scale increase in mining capacity in countries like Australia and Canada, with the real impact likely around 2027 or 2028. As the US pushes forward with its EV transition, the battery metal sector is becoming a key area, reshaping global trade and strategic partnerships. The focus on FTA nations highlights the complex interplay of policy, geopolitical factors, and the vital role of these nations in the future of EV supply chains.
