Friendshoring the Battery Supply Chain: Are the New Regulations Feasible?

Lithium iron phosphate batteries are important for storing intermittent renewable electricity and powering electric vehicles. This report assesses the extent to which the battery supply chain can be “friendshored,” now that clean energy tax credits are subject to stringent limits on involvement of “prohibited foreign entities.” This is not simply a matter of where materials are sourced: the regulated battery inputs also include manufacturing equipment, intellectual property, and technology licensing. The requirements are most problematic for the “midstream” segment of the supply chain—the processing of extracted critical minerals. “Upstream” (mineral extraction) and “downstream” (manufacture of battery components) inputs are less likely to be constrained. To be compliant, manufacturers must find new sources, scale up investment, and reduce dependence on technologies developed by prohibited foreign entities. Scenario analysis indicates that the supply chain is unlikely to be sufficiently friendshored before costly restrictions are triggered. Compliance timelines should reflect industrial realities in the sector.