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| 3 minutes read

Re-volt: battery sovereignty in the electric aircraft space - Implications for manufacturers and investors

While AAM and electric aircraft have fascinating technology in many of its component parts. one of the most adored and valuable features is its battery. This is similar to how battery technology continues to be a key advantage in the competition between EV makers and how engines are one of the most valuable parts of an aircraft. Developing and gaining exclusive access to battery technology will be a key determinant to winning the beauty pageant that is the current state of investing in electric aircraft.

China has emerged from the pandemic as a leading exporter of cars, exporting 2.6 million cars in 2022 compared with just 600,000 in 2019. This trend is largely driven by China's strength in making EV batteries, having refined the technology behind it. Batteries are also now part of the energy security agenda since they are needed to store energy produced from renewable energy sources from solar and wind sources have varying amounts of outputs over time.

Regulators in the EU and US have therefore gone fast and furious in implementing new rules to reduce the reliance on Chinese battery manufacturing:

  • March 2023 - under the Inflation Reduction Act in the US, subsidies for EVs will only be available for certain classes of EVs having mostly a North American battery or batteries with a provenance of battery minerals which need to mostly come from free-trade partners of the US.
  • March 2023 - EU is seeking a green transformation under the Net Zero Industry Act which draft stipulates a target of having 85% of batteries deployed annually in the EU to be domestically manufactured by 2030.
  • March 2023 - EU is further seeking to establish, a reliable domestic supply chain for battery materials with the new Critical Raw Materials Act which is being drafted to set targets for production, refining and recycling key raw materials necessary for the energy transition (including battery manufacturing raw materials). One of the targets is to have no more than 65% of the EU's annual consumption of such raw at every stage of the manufacturing process.

Savvy investors in the eVTOL and electric aircraft space have always considered the origin of the batteries a key risk factor, since sanctions rules could bite restricting access to China or Taiwan made or sourced batteries, which would impede a manufacturer from timely delivering the aircraft. This intuition is correct. Taking the above regulatory trends, investors should go even further to consider not just where the battery is manufactured, but also:

  • the provenance of battery materials (see above how US regulators have tackled this point in the new Inflation Reduction Act)
  • the degree of reliance of the battery manufacturing technology on rare minerals that are deposited in problematic jurisdictions (see above on the EU regulatory response).  

Indeed, a number of car makers already have battery factories in the US, and other EV makers have announced plans to set up battery manufacturing capabilities in the US or EU. In March this year, Vertical Aerospace (an eVTOL manufacturer) announced the opening of Vertical Energy Centre in the UK which will design, test, manufacture and commercialise a custom made battery pack for its VX4 aircraft. These regulatory changes when in force, will be legally binding drivers behind the reshoring exercise in battery technology, but time will be needed to re-jig the supply chain integration and scale up manufacturing capability, so that even if a complete de-coupling cannot be achieved with finality, a significant independence from Chinese manufacturing capabilities may only come to fruition in 2030. Coincidentally, this dovetails well with the anticipated timeline for large scale roll-out of electric aircraft into commercial use, so investors and manufacturers should try to be in a position to catch the winds of the great battery re-shoring.

It is also important to note that from an aerospace engineering perspective, while eVTOL and electric aircraft prototypes have been tested using lithium-ion batteries, research is underway for alternative technologies, some including silicone to improve the energy density and therefore range of the aircraft. Charging speed and aircraft turn-around times is also an important (but likely secondary) challenge as user demand and confidence develops for the product. For investors, this means that due diligence of an electric aircraft type, should include an analysis of the battery manufacturing location, the progeny of battery materials, its energy density and speed of charging. For manufacturers, this means that supply-chain disruptions due to an increasingly volatile regulatory environment-should be anticipated, and there will be rewards for being a first mover in developing or obtaining reliable supplies of new technology batteries. In deciding whom to partner with to develop such batteries whether by way of a joint venture or by way of a purchase contract, manufacturers should perform the same due diligence which investors need to do.


battery, aam, evtol, ev, aviation, transportation