Ray Saka and Ken Dao of IHI Terrasun speak with Energy-Storage.news about the impact of reciprocal tariffs on the US BESS supply chain and how that supply chain could be impacted soon.
The battery storage industry is seeing the beginning of the effects of Donald Trump’s ‘reciprocal’ tariffs. A 90-day pause was announced on 9 April, but the trade war with China continues to escalate.
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China responded to the originally announced tariffs with an 84% tariff on US imports, to which Trump responded by placing a 125% tariff on Chinese imported products.
China also halted rare earth mineral exports, which are widely used in the US, and which the US is also not prepared to replace.
Most recently, there has been incoherent messaging about exemptions for smartphones, computers and other electronics. US Customs and Border Protection said these items would be exempted from tariffs; however, the Trump administration seemed to suggest that they would be subjected to tariffs, possibly at a different time or in a different way.
In addition to tariffs, the Trump administration is focusing more on increasing fossil fuel production and has communicated a desire to eliminate Biden-era policies like the Inflation Reduction Act (IRA).
Doing away with the IRA and its investment tax credits (ITCs) would place a greater financial strain on energy storage developers.
As Jared Spence of IHI Terrasun explained in Vol.40 of PV Tech Power, Solar Media’s quarterly journal covering the solar and storage industries, energy storage developers have always had risks. Still, the risks from October 2024 to now are quite different.
Previously, developers had more time to plan for increased reliance on US supply chains. The IRA’s domestic content bonus steadily increased the percentage of the manufactured products and materials used in a project to qualify for ITCs from 40% to 55% for projects starting construction after 2026.
Potentially losing ITCs and paying a much greater cost to procure cells puts a greater strain on developers.
Supply Chain in light of Tariffs
Ray Saka, vice president of business strategy and services at IHI Terrasun, says that the general approach by energy storage market leaders is to get away from ‘high-risk’ tariff areas to manufacture products.
Similar sentiments were recently echoed by Senior Director of Strategic Sourcing at Anza Renewables, Ravi Manghani, who said in an interview with ESN Premium:
“Domestic sourcing remains the lowest-risk option at this time. With BESS manufacturing still heavily reliant on Chinese materials, finding non-Chinese materials will be critical to avoid the high reciprocal tariff in addition to the Section 301 tariffs already in effect and set to increase.”
“For 2026+ deliveries, several suppliers will have Southeast Asian manufacturing capabilities, which while facing reciprocal tariffs ranging from 24% to 46%, may still be a better option than China-based suppliers.”
These tariffs remain unpredictable, as seen through the previously mentioned disorganised ways in which they are announced or reneged.
It makes sense for developers to manufacture domestically if possible or at least in an area less likely to see such high tariffs. However, this is difficult for all the materials that make up a BESS project.
Saka says: “Sub-supplier impact for battery cells (cathode, separator, anode, and casings), battery modules (casing, busbars, sensors, BMS boards), chillers (pumps, pipes, etc.) and steel enclosures will all be impacted in various ways.”
“For example, 95%+ of global anode supply comes from China. This will strain US-made domestically manufactured battery cells, with impact to both EV and BESS markets.”
Saka adds that price increases from tariffs or sub-supplier price increases could impact procurement decisions for BESS projects in 2025.
These price increases also come during a time of load growth increase, where reliable energy will be desperately needed.
In a recent blog for ESN, Tod Higinbotham, COO of ZincFive explains: “Data centres are experiencing a surge in energy demand—expected to increase by about 400 terawatt-hours at a CAGR of 23% between 2024-2030.”
Saka also highlights the increasing load growth, stating:
“With the 5-year load growth in the US increasing at now greater than 4%, stable electricity supply is critical to US grid infrastructure and BESS plays a significant role in this grid transformation.”
“While there are definitive challenges in the short-term coping with the tariff dynamics, in the long run, I am hopeful that strategic decisions are made to ensure a stable power supply.”
Supply and demand
Ken Dao, director of supply chain at IHI Terrasun shares concerns for cell manufacturing capabilities when compared to the need for cell manufacturing.
“For the BESS industry, the cell manufacturing capability and capacity are still far below the domestic demand. More importantly, the majority of raw materials, like lithium-ion (Li-ion) are mined and refined outside of the US.”
This could especially be a challenge for system integrators as a popular strategy in the industry has been to be ‘technology-agnostic’.
Not adhering to only one technology does have long-term benefits, especially without unpredictable tariffs; now, it could become quite expensive to obtain Li-ion cells, and it would be difficult to establish trusted supply chains domestically, even if that is a purported goal.
“Domestic manufacturing pace could be dampened: coupling the higher domestic manufacturing cost and higher raw materials cost could make the entire domestic manufacturing plan uneconomical,” Dao says.
While there are many companies actively making deals on projects for which equipment has been supplied, this will not last forever. At some point, even the best prepared company importing BESS materials, will face higher costs.
Dao says, “BESS projects would be delayed or could not pencil out due to tariff cost increases.”
He further adds: “Due to the imbalance of demand/supply in domestic production for the BESS industry, imports are inevitable.”
“With the tariffs such as reciprocal and others, the capital investment has been increased significantly. Hence, the economics for many projects could not be financeable. With that, the BESS industry and renewables projects may be slowed or delayed.”
