U.S. battery industry cuts losses, shifts to new ventures amid EV bust - Dallasfed.org

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U.S. battery industry cuts losses, shifts to new ventures amid EV bust

Michael Plante, Kunal Patel, Isabelle Tseng and Adefemi Abimbola

March 03, 2026

The future of the U.S. battery industry looked extremely promising several years ago. Consumer interest in electric vehicles (EVs) was rising, and the Inflation Reduction Act, passed in 2022, provided incentives for the domestic production of lithium-ion batteries that would power those vehicles.

Automakers responded with bold pledges to increase sales of EVs, pledges that were mirrored by major investment in gigafactories (enormous factories for producing lithium-ion batteries). More than 20 gigafactories were announced in the U.S. from 2021 through 2022, representing more than $50 billion in potential investment and thousands of new jobs. More announcements followed in 2023 and 2024.

Over the past year, though, it has become clear these ambitions will not be realized, and automakers and battery companies are reassessing the future. Many companies have made painful cutbacks. At the same time, those battery manufacturers in the right position are shifting toward new opportunities, some that do not rely on the EV market for success.

Expectations for U.S. EV demand reset

Until recently, almost all announced gigafactories in the U.S. were intended to produce batteries for EVs, tying their economic fortunes to automakers' ability to sell a sufficiently large number of those vehicles.

U.S. sales of EVs rose rapidly from 2021 through 2023 and exceeded 1 million vehicles by 2023, making up 7.5 percent of total auto sales (Chart 1). Many new EVs carried lower price tags and traveled at greater range than their predecessors, increasing their attractiveness to consumers. Government subsidies helped support demand.

Downloadable chart --> Chart data

However, the pace of growth slowed substantially in 2024 and essentially plateaued in 2025. Despite efforts to introduce EVs of sufficient quality and low enough price to convince U.S. consumers to switch en masse from gasoline-powered cars, automakers couldn’t get more buyers to do so.

Recent federal policy changes have also affected sales. Consumer subsidies for purchasing EVs, originally scheduled to expire in 2032, were instead eliminated at the end of September 2025. Sales were unusually high preceding the expiration deadline and then dropped precipitously (Chart 2).

Downloadable chart --> Chart data

Current sales of EVs are insufficient to justify the investments made in gigafactories, and the outlook does not suggest significant improvement anytime soon. Many third-party forecasters have markedly cut their demand projections for EVs in the U.S. Automakers have also acknowledged these difficulties, both by reframing their EV sales goals and by making the difficult decision to write off billions of dollars of capital investments tied to EVs and batteries.

Companies have also sought to reduce EV prices by switching to a different type of lithium-ion battery. Historically, U.S. automakers have emphasized nickel-manganese-cobalt or nickel-cobalt-aluminum batteries, which store more energy per unit of mass than most other types of lithium-ion batteries. This translates to EVs that can travel greater distances between charges, answering a key concern for many U.S. consumers. But it also boosts vehicle prices because those batteries are relatively expensive.

One alternative, commonly used in Chinese EVs, is lithium-iron-phosphate. This alternative is often cheaper than nickel-manganese-cobalt or nickel-cobalt-aluminum batteries, and Ford, GM and Tesla, among others, are actively considering these batteries to reduce vehicle costs. One drawback, at least for the time being, is the investment required to bring to market a different kind of lithium-ion battery, one that the U.S. has significantly less experience producing and whose supply chain China dominates.

Batteries for the grid become a bright spot

While EV sales have failed to meet expectations, the use of lithium-ion batteries in battery energy storage systems has grown rapidly, with demand expected to remain strong in 2026 (Chart 3). The systems can play a critical role in integrating intermittent renewables (solar and wind) into the grid, smoothing fluctuations in wholesale electricity prices and aiding short-term grid stability.

Downloadable chart --> Chart data

The number of battery installations for power storage systems has risen rapidly for at least two reasons. First, prices of lithium-ion batteries have declined dramatically in recent years, improving their economics. Second, a significant amount of utility-scale solar has been installed as well. Batteries are often viewed as especially complementary to solar power, as batteries can charge up during the early part of the day and then discharge in...