As hundreds of thousands of EVs come to market over the next few years, demand for critical battery materials like lithium, graphite, nickel and cobalt has never been higher. Automakers are scrambling to ensure their own supply of key raw materials and, in the process, reduce their reliance on China, the dominant force in the industry.
The result? The price of raw materials has skyrocketed, and it might not come back down to earth for some time.
Battery chemistry company Sila says it has a solution to relieve at least one of the current bottlenecks — replacing the graphite in a battery cell’s anode with silicon, which can be made anywhere. The startup finds itself in a perfect storm of product-market fit and is steadily advancing on its path to produce battery cells for automakers on U.S. soil.
“I didn’t think the U.S. was gonna pass legislation that is an order of magnitude bigger than anything Europe’s ever done for climate. But it’s very American to wait for a while and then come in big.” Sila CEO Gene Berdichevsky
In the year since we last interviewed Sila’s co-founder and CEO, Gene Berdichevsky, Sila announced that its silicon anode material will appear in the Mercedes electric G-Class in 2025. In addition, Sila purchased a facility in Washington that will produce automotive-scale quantities of Sila’s battery technology starting in 2024.
In that time, the Inflation Reduction Act became the law of the land. The IRA will provide tax incentives for EVs that are manufactured in the U.S. and that are built with critical materials manufactured in the U.S., which has become a massive tailwind for battery startups like Sila.
We sat down again with Berdichevsky to talk about how the IRA will affect the battery industry, when material supply constraints will ease, and why battery recycling will become the next big industry.
The following interview, part of an ongoing series with founders who are building transportation companies, has been edited for length and clarity.
TechCrunch: Your new factory will produce 10 gigawatt hours of capacity annually. When you announced the buy, you told me that scaling from 10 GWh to 150 GWh would require another $2 billion. Are you currently doing another round?
Gene Berdichevsky: That’s still true. We haven’t announced a fundraise for that yet, but when we’re ready we’ll need a combination of equity and debt. There’s no reason to raise $2 billion of equity once you have a proven factory and customers and all the rest. Part of that could be leveraging the Department of Energy loan guarantee, as well, which is the same program that funded Tesla, Ford, GM and others to build EVs over the last decade.
Have you started applying for any of the Inflation Reduction Act incentives?
You don’t really apply for those. They’re sort of just baked in. So the key incentives in our space are a tax credit for producing anode material that we’ll qualify for. There’s a tax credit for producing batteries in the U.S., so that’ll sort of help a lot of our customers justify big investments in factories here. Then there are also the tax credits on EVs that have requirements for domestically produced materials in their supply chain, and so we’ll benefit a lot from that because our customers will demand more North American products. And we’ll be the largest production facility in North America, so we’re well positioned as a provider of key components to make sure that the batteries qualify for the EV tax credits.
Can battery companies scale manufacturing right now to meet demand?
I think the answer is certainly not at the same costs. So I think the costs are going to be higher for a while. You see this in industries all the time. Doing the first 10% of market penetration is very different than the next 10%. So going from like 1% to 10% is insanely hard on a supply chain; going from 10% to 20% is relatively pretty easy on a supply chain, and we’re kind of in that first phase right now.
You can look at solar as a historical guide — the production of polysilicon for solar. It’s a material that is sand and energy, not unlike our technology, that was produced at around $15 or $20 a kilo; at scale, it could be produced at $10. Then it went to $150 for a few years and came back down to $10 for the next decade. I think we’re seeing that in lithium now, as well as nickel and all the other raw materials for batteries. But these things don’t last. They can last half a decade, maybe more in this case, but there’s plenty of lithium and nickel and ability to build battery factories to bring these costs down. It’s just a question of, can you meet demand for the next year? Definitely not. Can they meet demand for 2030? Absolutely.
More Transportation Founders
So you’re expecting the constraints to ease at the end of this decade?
Yes, I think we’re in for like a five-year roller coaster.
The IRA incentives include provisions for materials sourced from the U.S. or any U.S. free trade agreement countries, so obviously China is not one of them. However, China owns almost all of the critical material sourcing and production, and we need battery materials now. Do you think this will affect sales out of China in the short term?
I think it’s making a dramatic realignment when new investments are going in. Take Tesla, for example — they ripped out their production line for batteries in Berlin and shipped into Texas. That would 100% be a response to the IRA because the incentives for making a battery in Europe are just so much smaller than the incentives for making a battery in the U.S., and you can still ship it to Europe once you got the U.S. incentives. I think the IRA is going to drive huge incremental investment in the U.S. and in free trade partners.
But of course, there’s so much demand, so absolutely anything that can produce will produce and sell into the market, regardless of incentive right now. We’re not banning the use of Chinese graphite. But I have got to believe that if you’re setting up a new graphite mine, and you can choose between China and Australia, as an investor, you go to Australia, right? So that’s the new calculus.
Do you think it’s easier to get materials if you have an OEM in your corner?
For sure, because they’re the ultimate demand aggregator.
For us, it’s not a challenge because we’re not operating in the same constrained supply chains. We’re converting sand and energy and we’re replacing graphite, which is very constrained because something like 90% of it comes from China. I think it’s got to be the most concentrated geographically produced component in the battery, and we’re replacing that with something that can be produced on any continent.
That said, it does matter if you’re a battery maker and an OEM hands you a contract, because now you can very confidently go and buy lithium and nickel. In a lot of cases, the OEMs are buying those components for you to make sure you have access to them.
Are you expecting any consolidation in the battery manufacturing industry right now, given how constrained the supply chain is?
I don’t think we’re in a consolidation phase yet because we’re in an expansion phase for the industry, and there are new players popping up all the time. It’s not easy. Just because there’s demand doesn’t mean it’s easy to make batteries. There’s a scarcity of talent more so than capital. There is a scarcity of access to raw materials and that requires car makers to be behind you.
So, yes, materials are limited, but limited for whom? Carmakers can make gas cars in the meantime, and there are only so many EV-only players. If you’re a new entrant EV maker, you’re the one suffering the slings and arrows of supply constraints. You see these EV OEMs that came out of nowhere and some of them will go back to nowhere. Tesla, Rivian, Lucid — they’re all going to make it; they have plenty of staying power at this point and will get first dibs on supplies.
If you’re a battery maker and can make a battery, now you can sell it for more profit than you’ve ever been able to sell before. So that’s not going to consolidate right now. Consolidation usually happens when profits are low, and that’s not the case right now. There’s fierce competition between bigger, older players like CATL, LG, Panasonic and Samsung, and then there’s new entrants like Northvolt.
You started Sila in 2011. Did you foresee the conditions that you would work in today?
On the one hand, yes, 100%. On the other hand, I couldn’t predict the specifics, right? I didn’t think the U.S. was gonna pass legislation that is an order of magnitude bigger than anything Europe’s ever done for climate. But it’s very American to wait for a while and then come in big. So did I believe that was going to happen? No, but did I believe that 100% of cars were going to become electric? Yes, that’s been obvious.
From the day I joined Tesla in 2004, from when I wrote the original business plan for making EVs in the U.S., it was clear to me that this was something that could stretch to every piece of ground transportation in the world because it’s more efficient and therefore cheaper. And it turns out, they’re just better cars.
What are your thoughts on the battery recycling space?
I think it’s a hugely important piece of the ecosystem. In the long run, you think about energy and society and how it fits into society. Once every car on the road in the U.S. is electric, what you’re going to be doing is essentially recycling all of the metals in those battery packs to produce the new cars. And you will stop almost entirely digging up new metals out of the ground, even for EVs. So you can see a path to true sustainability, where you stopped digging shit out of the Earth, and you’re using energy from the sun and the wind to recycle all the critical components, remanufacture them and put those battery packs into new vehicles.
Recycling is important today because there’s a huge amount of scrap that comes out of these factories that they recycle, and it’s insanely important to sort of have a full closed loop in the decades to come. Today, cathode costs are quite high, partly because the cost of new nickel is really high. But if you are a carmaker, and you put nickel in cars but then it comes back to you, you’ve closed the loop on nickel and that is a tremendous way to lower the cost of EVs. It’s way better than digging nickel up out of the earth, pulling up these giant rocks and leaching just 2% of nickel out of these rocks.
It’s going to be a game changer, and capitalism will force the implementation of closed-loop recycling on all electric vehicles, not government regulation. We do this already for lead acid batteries, in part because they’re toxic, but the systems already exist and now the economics are going to drive it to be a very valuable business.
It’s going to take decades before we change the system. You need to get enough nickel first to make enough batteries so that every car on the road is electric, but once that happened, then every sort of remanufactured electric is going to be even cheaper and more sustainable.
When do you think we’ll get there?
In 15 years, we’re not going to have a fully closed loop, but I think you’ll have the first 100,000 EVs that come off the roads and some carmaker is gonna make a really big deal out of making battery packs with fully remanufactured metals. Probably closer to 30 years from now you’ll actually have that across all vehicles. Because even if we actually get to 100% of new cars sold being EVs in 2035, it’ll take another 15 years after that to get ICE vehicles out of circulation.