U.S. Battery Startups Find a Lifeline in Defense as EV Incentives Dry Up

U.S. battery startups hit a rough patch when the One Big Beautiful Bill eliminated battery and EV incentives, undercutting a chunk of future demand. But recently, they've found a lifeline in the defense world, helping to power everything from drones and torpedoes to infantry radios and fighter jets. The Trump administration, despite its open disdain for EVs, acknowledges that batteries are an inescapable part of modern life. And like many things in Washington these days, it's leaning on national security as justification for its recent decisions.

A $500 Million Lifeline

The latest comes from the Department of Energy, which announced Thursday that it is awarding $500 million in grants to bolster the battery supply chain in the United States. The program aims to "reduce reliance on foreign sources, bolster national security, and advance American energy dominance." Much of the money went to startups, providing a critical lifeline for companies that had seen their commercial prospects dim following the elimination of EV incentives.

Defense applications of lithium-ion batteries are "absolutely playing out in discussions," a spokesperson for Coreshell, a battery materials startup, told TechCrunch. The company recently brought on ADS Ventures as an investor; the strategic VC's parent company, ADS, is a defense supplier, and it's working with another supplier of autonomous systems. Coreshell received a $50 million award from the DOE to expand manufacturing for its metallurgical silicon anode material.

Major Grants for Key Players

Other startups received significant grants, too. Lilac Solutions, which extracts lithium from brines, landed $100 million to build a processing facility on Utah's Great Salt Lake to produce 5,000 metric tons of lithium carbonate annually by 2028. Lithium carbonate is a key precursor used in battery production. The facility will help secure a domestic supply of lithium, reducing reliance on imports from countries like China and Argentina.

Nth Cycle told TechCrunch that it received $100 million to build a facility that will refine black mass from recycled lithium-ion batteries, producing lithium and nickel compounds that can be used to make new batteries. "We're seeing clear demand drivers from the defense sector," Megan O'Connor, co-founder and CEO of Nth Cycle, told TechCrunch. "But there's still that in the automotive space as well."

Defense Demand vs. Automotive Market

That dynamic is unlikely to change. Though EVs have been dealt a setback, automakers are still rolling out new models and expecting years of growth, albeit further out than expected. Defense will continue to be a significant player. Exact numbers are unsurprisingly hard to come by, but even in 2021, the U.S. Defense Logistics Agency was buying $200 million worth of batteries annually. But that's dwarfed by the automotive industry. This year, the automotive industry is expected to spend nearly $18 billion on battery manufacturing in the U.S. alone, according to Mordor Intelligence.

The disparity between defense and automotive spending highlights the importance of the EV market for battery manufacturers. While defense contracts provide a valuable revenue stream, they cannot fully replace the scale of the automotive industry. For many startups, the DOE grants and defense contracts are a bridge to a future where EV demand recovers.

The National Security Justification

The pivot to defense is not just a commercial decision; it is also a strategic one. The U.S. government has become increasingly concerned about its dependence on foreign sources for critical materials and technologies, particularly from China, which dominates the global battery supply chain. By supporting domestic battery production, the government aims to reduce this dependence and ensure that the U.S. military has access to the batteries it needs.

The national security justification has proven effective in gaining bipartisan support for battery initiatives, even in an administration that has been hostile to EVs. As battery companies undoubtedly know and the Trump administration appears to tacitly acknowledge, the future is electric, but the timing is anything but settled.

A Policy Paradox

The DOE grants represent a paradox in the administration's approach to batteries. On one hand, the One Big Beautiful Bill gutted battery production incentives, dealing a blow to the domestic EV industry. On the other hand, the administration is now awarding hundreds of millions of dollars to battery startups through a national security lens. This apparent contradiction reflects the reality that batteries are essential for both civilian and military applications, and that the U.S. cannot afford to fall behind in this critical technology.

In the meantime, soldiers and drones still need lightweight and capable batteries from U.S. sources. A few years ago, those batteries could have come from domestic factories that sprang up in the wake of the Inflation Reduction Act. But after the One Big Beautiful Bill gutted battery production incentives, the Pentagon may have had to start looking for alternatives. These new DOE grants might amount to an admission that efforts to kill the American EV industry went a bit too far.

For U.S. battery startups, the defense sector provides a much-needed lifeline, but it is not a permanent solution. To achieve long-term success, these companies will need to scale their operations and compete in the global market. The DOE grants and defense contracts can help them build the manufacturing capacity and supply chains they need to succeed, but they will ultimately need to find commercial customers.

The future of U.S. battery manufacturing remains uncertain. The EV market faces headwinds, but automakers are still investing in new models and technologies. Defense demand is growing, but it is unlikely to match the scale of the automotive industry. For now, battery startups are making the most of the opportunities available to them, while keeping an eye on the long-term prize: a robust, domestic battery industry that can power both the military and the civilian economy.