Electric car sales are in take-off mode, but production worries

Depleted lithium-ion battery trays from JB Straubel’s Redwood Materials are ready for recycling.

Tesla co-founder JB Straubel, founder and CEO of battery recycling company Redwood Materials, has good news and bad news for those who think electric vehicle sales are ready to take off.

Demand is picking up, but the auto industry isn’t moving fast enough for production to keep up, Straubel said.

“It caught people off guard a little bit,” Straubel told CNBC in an interview with TechCheck. “It’s been a very strong shift. From a decline in internal combustion engine sales to an almost 100% increase in electric vehicle sales in different regions.”

Industry sales forecasts predicting that electric vehicles will account for 12.7 percent of all U.S. vehicle sales by 2025 may be too low, Straubel said. “If you look at how fast adoption is growing in parts of Europe and the rest of the world, I think it points to a path that may be higher than in the middle of the decade,” he said.

That demand is why Redwood Materials is spending $1 billion to build a new factory in McAllen, Nevada, he said. When completed later this year, the facility will produce anode copper foil, which Panasonic will use to make batteries that will eventually be used to make battery packs. Tesla Gigafactory in Nevada.

Redwood Materials estimates that the plant will eventually employ more than 500 people and will produce enough anode copper foil to supply 1 million electric vehicles a year. The company said its plant will be the first in the U.S. to supply anode copper foil, with the bulk of supply currently coming from Asia, mainly China and South Korea.

At the same time, lithium-ion battery production is seeking to keep pace with EV makers. Global lithium-ion battery manufacturing capacity was 713 gigawatt hours last year, according to automotive industry consultancy AlixPartners. By 2025, AlixPartners expects that number to more than triple to 2,273 GWh, and U.S. EV battery production to more than quadruple.

With so much capacity coming online, the conventional wisdom is that the cost of battery cells and packs will come down, which will help lower EV prices and boost profits.

ESource, a Boulder, Colorado-based consultancy that tracks battery prices, estimates the cost per kilowatt-hour of a car battery will drop from $147 in 2022 to $98 in 2025. While these forecasts are encouraging, falling prices are conditional on a growing battery supply chain and the ability to support stronger demand.

“With such high levels of battery demand expected over the next decade or so, the raw materials for these batteries are likely to be in short supply,” said Stephen Brown, a senior director at Fitch Ratings.

However, Straubel is not convinced that the EV battery industry will be ready to meet the growing demand.

“It is absolutely possible that we will see a resurgence of shortages of semiconductor types that could reduce and hinder EV growth,” he said.

Standing next to the frame of a factory Redwood hopes to soon be operational, Straubel admits his eponymous company is struggling to catch up with the transition from gasoline-powered to battery-powered vehicles.

“We’re working 24/7 building a facility like the one behind us to enable the supply chain and trying to get over the bottleneck before it happens,” he said.

CNBC’s Meghan Reeder contributed to this article