Transportation is the largest source of global warming emissions in the U.S., and passenger vehicles are responsible for most transportation-related global warming emissions. So, not surprisingly, electric vehicles (EVs) – along with greener electrical grids – have become a primary push to reduce emissions and mitigate climate change.
According to S&P Global Mobility, the annual market for lithium-ion batteries will reach 3.4 TWh by 2030. And automakers plan to spend $1.2 trillion through 2030 to acquire the resources and capabilities to produce electric vehicles. But unfortunately, a fragile supply chain marred by geopolitical tensions threatens to slow EV production and adoption rates.
In this article, we’ll look at how the EV supply chain will change over the coming years and where the best opportunities may lie.
The Supply Chain Turns Inward
Supply chain challenges during the COVID-19 pandemic and geopolitical tensions with China have pressured EV supply chains. In response, the Biden administration has been actively trying to develop a domestic supply chain. For instance, the administration recently awarded $2.8 billion to supercharge U.S. manufacturing of batteries.
In addition to subsidies, the Inflation Reduction Act limits the $7,500 EV tax credit to vehicles that meet two sets of standards related to their vehicle components. While specific guidance is forthcoming, there’s little doubt that some versions of these requirements will go into law over the coming year and have a significant supply chain impact.
These two standards include:
- 50% of the value of battery components must be produced or manufactured in North America, with the minimum percentage increasing annually after 2023.
- 40% of the value of critical minerals used for the vehicle must be extracted, processed, and/or recycled domestically or in a country the U.S. has a free trade agreement with, with the minimum percentage increasing annually.
If a vehicle only meets one of these two requirements, it qualifies for a $3,750 tax credit rather than the full $7,500 tax credit.
Investing in a Domestic Supply
Graphite One Inc. (TSX-V: GPH) (OTCQX: GPHOF) is well-positioned to capitalize on these supply chain dynamics. Over the past year, thye company has strengthened its management and technical team with a focus on building a 100% U.S.-based advanced graphite supply chain.
While the U.S. has a domestic lithium supply, the country is 100% import-dependent on natural graphite – the single largest component of lithium-ion batteries by weight. As a result, a domestic graphite supplier could help EV manufacturers meet the IRA’s standards to qualify for the $7,500 EV tax credit over the coming years.
Graphite One aims to accomplish these goals with a two-pronged approach:
- Graphite Creek Property – The company’s Graphite Creek Property on the Seward Peninsula is one of the largest graphite deposits in the world. According to a pre-feasibility study, the property has a pre-tax net present value of $1.9 billion (Post-tax – $1.4 billion) that could provide investors with a 26% pre-tax IRR (Post-tax – 22%) over an estimated 26-year project lifespan.
- Anode Manufacturing – The company intends to build an advanced graphite material and battery anode manufacturing plant in Washington State. In addition to manufacturing graphite components, the development would include a recycling facility to reclaim graphite and other battery materials.
In addition to addressing both IRA standards, the company’s plan creates two distinct pathways to generate shareholder value. First, the domestic anode manufacturing plant (with purchased materials) could soon enable automakers to address one of the IRA standards. And second, the facility will shift to consuming graphite Graphite One’s wholly-owned mine once the company completes the feasibility study and makes a decision to construct and commissions the mine.
In early February, the stock doubled from $1.00 to $2.00 after announcing a testing agreement with the Pacific Northwest National Laboratory (U.S. Department of Energy). Under that agreement, the national laboratory will test samples produced from the graphite at the company’s Graphite Creek property to verify conformity to electric vehicle battery specifications.
More recently, the company received two active material samples from its property and sent them to the national laboratory and EV manufacturers to test the characteristics of the samples for future business opportunities. These developments mark the first steps in its strategy to build a 100% U.S.-based graphite supply chain.
While the stock has been in a holding pattern as the company works toward additional catalysts to unlock the value of its graphite reserves and execute its plans to bring anode manufacturing in the United States to fruition.
Looking Ahead
Graphite One Inc. (TSX-V: GPH) (OTCQB: GPHOF) aims to become the first domestic graphite producer with a vertically-integrated mine-to-anode enterprise. As a result, it could become critical to EV supply chains by enabling automakers to qualify for the $7,500 EV tax credit and ensure a robust supply chain regardless of geopolitical tensions.
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Graphite One Inc. is a client of CFN Enterprises Inc. Graphite One Inc. agreed to pay CFN Enterprises Inc. $8,000 per month for 12 months plus expenses up to $20,000 per month, beginning on March 13, 2023, for a 12-month investor awareness program.
