The United States has invested heavily in electric vehicle (EV) battery manufacturing, but the sector now faces overcapacity issues as EV sales slow and incentives face potential cuts. A new report by the Rhodium Group warns that excess supply could leave factories stranded, particularly in red states like those in the ‘Battery Belt.’ The report highlights how the U.S. has surged in battery investment, from about $1 billion per quarter in 2022 to $11 billion per quarter in 2024, drawing manufacturers to the South due to cheap land and nonunionized labor. However, the recent cancellation of $6 billion in battery manufacturing projects signals a shift, with EV sales slowing and concerns over the sustainability of the current investment model. Additionally, the report points out that China now has surplus battery manufacturing capacity, potentially posing a competitive threat if the U.S. cannot secure its incentives.
According to the new report, the United States has almost enough battery capacity announced or under development to meet demand all the way to 2030 if EV sales continue to slump. That might sound like a good thing, but if EV sales drop further, it means companies will be left with factories they won’t be able to use. At the same time, China has excess battery capacity. The country has enough manufacturing to meet the entire world’s demand for batteries—and may be looking to off-load them onto other markets. And if the incentives for using U.S.-made batteries disappear, the nation’s manufacturers would be left high and dry.