It seems like the U.S. tech industry, which has made leaps in smartphone technology, cloud computing and artificial intelligence, now wants to conquer something new: batteries.
Specifically, batteries for electric vehicles. Amid all the hullabaloo around generative AI, the fall of crypto, and the head-scratching discourse around Web3, somehow, electric vehicle batteries are seeing steady — and favorable — funding in the past few years, per Crunchbase data.
Despite a 43% decrease in funding between 2021 and 2022, electric vehicle battery manufacturing still saw more funding in 2022 than it did in 2020. Last year was the sector’s second-best funding year since 2014.
What’s even more interesting is how much of this funding is flowing to the U.S., despite the fact that China dominates the global battery manufacturing sector.
In 2020, only around 20% of all funding to the sector went toward U.S.-based companies. But in 2021, 64% of all funding to the sector was funneled into U.S.-based companies, per Crunchbase data. In 2022, that number rose to 70%.
VCs chase EV subsidies
So, what’s driving battery funding?
It’s the federal government. Seriously. Following the Inflation Reduction Act, which promises subsidies for EV companies, funding has been pouring into the U.S. from local and international investors to ramp up green energy production.
The Inflation Reduction Act is part of a slew of laws to make it easier for electric vehicle manufacturers to produce parts in the U.S. as it attempts to make its manufacturing sector more competitive at a global level.
Last week, the U.S. Department of Energy conditionally approved a $9.2 billion loan to Ford for the construction of electric vehicle battery factories. It’s the largest automaker loan doled out by the DOE since the 2008 financial crisis.
Ford isn’t the only company to bask in the federal government’s new obsession for electric vehicles — General Motors, LG Energy Solution and Rhyolite Ridge are among the U.S.-grown battery companies that received loans. Even Redwood Materials, which was founded by Tesla co-founder JB Straubel, received a $2 billion loan.
The U.S., despite being home to Tesla and some of the biggest electric vehicle companies in the world, trails behind China in terms of battery manufacturing. Because the U.S. is ramping up its own green energy efforts, the country is working to tighten its supply chains amid geopolitical concerns. That makes sense; the war between Russia and Ukraine saw natural gas prices skyrocket. The U.S., which dreams of running on batteries and semiconductors, currently relies heavily on other countries to source the raw materials to make those products.
What’s most interesting here is the relationship between the bureaucratic federal government and the nimble, fast-moving startup world. It just goes to show how influential the public sector is on our private markets.
Illustration: Dom Guzman
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