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Friday, March 25, 2011

Battery Manufacturing for Hybrid and Electric Vehicles: Policy Issues

Bill Canis
Specialist in Industrial Organization and Business

The United States is one of several countries encouraging production and sales of fully electric and plug-in hybrid electric vehicles to reduce oil consumption, air pollution, and greenhouse gas emissions. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) provided federal financial support to develop a domestic lithium-ion battery supply chain for electric vehicles. President Obama has called for 1 million fully electric vehicles to be on U.S. roads by 2015.

In making a national commitment to building electric vehicles and most of their components in the United States, the federal government has invested $2.4 billion in electric battery production facilities and nearly $80 million a year for electric battery research and development. To increase sales of such vehicles, the President has recommended that the current $7,500 tax credit for purchase of a plug-in hybrid be converted into a rebate, available immediately to car buyers upon purchase of a vehicle.

Developing appropriate batteries is the biggest challenge to increasing sales of electric and plugin hybrid vehicles. Batteries for these vehicles differ substantially from traditional lead-acid batteries used in internal combustion engine vehicles: they are larger, heavier, more expensive, and have safety considerations that mandate use of electronically controlled cooling systems. Various chemistries can be applied, with lithium-ion appearing the most feasible approach at the present time.

The lithium-ion battery supply chain, expanded by ARRA investments, includes companies that mine and refine lithium; produce components, chemicals, and electronics; and assemble these components into battery cells and then into battery packs. Auto manufacturers design their vehicles to work with specific batteries, and provide proprietary cooling and other technologies before placing batteries in vehicles. Most of these operations are highly automated and require great precision. It has been estimated that 70% of the value-added in making lithium-ion batteries is in making the cells, compared with only 15% in battery assembly and 10% in electrical and mechanical components.

Despite these supply chain investments, it may be difficult to achieve the goal of 1 million electric vehicles on U.S. roads by 2015. Costs remain high; although data are confidential, batteries alone are estimated to cost $8,000 to $18,000 per vehicle. Vehicle range limitations and charging issues may deter purchases. Lower gasoline prices and improvements in competing internal combustion engine technologies could slow acceptance of electric vehicles, whereas persistent high gasoline prices could favor it. Advanced battery manufacturing is still an infant industry whose technology and potential market remain highly uncertain. Its development in the United States is likely to depend heavily on foreign competition and how the federal government further addresses the challenges of building a battery supply chain and promoting advances in battery technologies.

Date of Report: March 22, 2011
Number of Pages: 31
Order Number: R41709
Price: $29.95

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