Redwood’s balance sheet got a boost with the DOE’s $2B loan to fund the construction of multiple facilities producing battery materials in the US.

The money will be drawn in tranches over the next 3-5 years as Redwood builds battery recycling and manufacturing campuses in Nevada and South Carolina for anode and cathode materials.

Redwood is the recipient of the second largest battery manufacturing loan from the DOE, behind the $2.5B loan that Ultium Cells received last year.

An important added benefit to the DOE loan is that it should unlock additional equity investment in the company. The road to a US-based battery supply chain will require many billions of dollars, which will need to come from both public and private sources.

The Biden administration is clearly committed to the EV transition and US-based battery manufacturing. However, there have been only a few companies that have secured mega funding from the DOE through the Loan Programs Office (LPO).

In 2022, the LPO closed on two loans:

• A $2.5B loan to Ultium Cells (founded by General Motors) to help finance the construction of lithium-ion battery cell manufacturing facilities in Ohio, Tennessee, and Michigan.
• A $102m loan to Syrah’s Vidalia Facility where the company produces graphite anodes for lithium-ion batteries.

Expect other Redwood competitors to gain access to DOE loans within the coming years, given that the LPO has $412B in lending capacity remaining from its Advanced Technology Vehicles Manufacturing program.

Last year, when Redwood announced a new campus in Charleston, SC, it caught my attention because the announcement came about a year earlier than I was expecting. The company is currently building a large recycling and cathode production campus in Sparks, NV, set to complete its first phase by the end of 2023. I had previously thought that Sparks would supply the company’s customer backlog from now until 2025. However, Redwood’s recent announcement that Charleston construction will begin at the end of Q1 2023 with production starting by the end of 2023 leads me to believe that customer commitments (e.g., Panasonic) are favorable.

The Charleston site is 608 acres, or 3.5x bigger than the 175 acre Sparks facility. Sparks will max out production at 100 GWh annually and Charleston will eventually be larger on an order of magnitude. In theory, over the coming decades, Charleston will supply the battery belt, which runs from Michigan to South Carolina, and Sparks will offer supply West of the Mississippi.

Redwood combines “recycling, refining and remanufacturing to produce and return battery materials to US battery cell manufacturers.” The company’s goal is to convert the current global battery logistics mess of geologic mining, anode copper foil, and cathode production into a vertically-integrated process within the US.

Redwood just completed an aggressive year of construction in Nevada, ushering in what is likely to be a decade of investments to scale domestic battery cell production in the United States. The $2B DOE loan represents a significant step toward that goal.

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