Sep 2, 2022 - Economy

"Battery passports" could help electric cars qualify for tax credits

Illustration of a passport with a battery on the front.

Illustration: Allie Carl/Axios

If automakers want their electric cars to qualify for newly revised federal tax credits, they must be able to certify the provenance of their batteries — potentially through the use of a "battery passport."

Why it matters: Strict supply chain requirements attached to the Inflation Reduction Act's restructured electric vehicle (EV) tax credits were meant to catalyze domestic manufacturing and bolster U.S. energy independence.

  • A rising percentage of critical minerals must be mined or processed in the U.S. or a trading partner, for example, for a vehicle to qualify. None of the materials can come from "foreign entities of concern," like China or Russia.
  • Tax credits can lower EVs' effective price, thus boosting adoption.

Yes, but: Tracing battery minerals from the mine, through multi-stage processing and, eventually, recycling is a huge challenge that many experts worry could end up slowing EV adoption.

  • "When you're talking about elements on the periodic table at the beginning of your supply chain, it's got to be very difficult to track that all the way to your product," Sam Fiorani, vice president at AutoForecast Solutions, tells Axios.

What's happening: One company, Circulor, already uses blockchain technology to help carmakers like Volvo and Tesla trace their supply chains to avoid child labor and track carbon emissions.

  • The U.K.-based company is now working with a German consortium to develop standards for a so-called battery passport that would track critical minerals and give batteries a UPC-like "digital identity."

How it works: Tracing battery minerals is similar to tracing the ingredients in a cake, Circulor CEO Douglas Johnson-Poensgen explained in an interview.

  • Nickel sulfate mined in Australia, for example, would be weighed and placed in a bag that's given a digital identity. "We know this in the supermarket as the barcode on a can," he said.
  • The nickel would then be shipped for processing alongside other materials like cobalt and manganese, in labeled batches, similar to large-scale food processing.
  • The nickel is eventually turned into a black powder, and then a slurry, which is coated onto copper foil to make key components for battery cells. Those cells are then packed into modules for a car's battery pack, which is linked to its vehicle identification number.
  • At the end of its life, the battery will be removed from the vehicle and used for energy storage, or recycled into the ingredients for the next generation of battery cells, preserving its digital history.

What they're saying: "I can create a chain of custody from source to consumption, where all the materials came from, even though those materials are processed and changed many times," Johnson-Poensgen said.

Reality check: For now, at least, most EV battery supply chains go through China.

  • China processes around 73% of the world’s cobalt for batteries and 59% of the lithium, according to Benchmark Minerals.
  • More than 90% of the world's battery cathodes and anodes also are produced in China.

The bottom line: Until the U.S. builds its own domestic battery supply chain — a work in progress that's beginning to accelerate — tracing will only prove that most of today's EVs won't qualify for a tax credit under the IRA.

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