US Department of Energy pours $500 million into battery startups as defense demand rises

The US Department of Energy has announced a $500 million grant package to bolster the domestic battery supply chain, a move designed to reduce reliance on foreign sources and advance American energy dominance. The funding arrives at a critical juncture for the sector, following the elimination of battery and electric vehicle incentives under the One Big Beautiful Bill, which had previously undercut future demand projections.

The initiative places a significant emphasis on national security, with the Trump administration leveraging the sector’s strategic importance despite a broader political stance that has often been critical of electric vehicles. The grants are intended to support manufacturing and processing facilities, ensuring that the United States maintains a robust domestic capacity for the lightweight and capable batteries required by both civilian and military applications.

A substantial portion of the funding has been directed toward startups, recognising their role in advancing new technologies. Coreshell, a battery materials startup, received a $50 million award to expand manufacturing for its metallurgical silicon anode material. The company recently brought on ADS Ventures as an investor, a strategic move given that ADS Ventures’ parent company is a defence supplier working with autonomous systems providers.

Lilac Solutions secured $100 million to construct a processing facility on Utah’s Great Salt Lake. The project aims to produce 5,000 metric tons of lithium carbonate annually by 2028, a key precursor used in battery production. Meanwhile, Nth Cycle received $100 million to build a facility that will refine black mass from recycled lithium-ion batteries, producing lithium and nickel compounds for new battery manufacturing.

Defence applications are emerging as a clear demand driver for the industry. Megan O’Connor, co-founder and CEO of Nth Cycle, noted that while the automotive space remains important, the company is seeing distinct demand from the defence sector. This trend is consistent with historical data, as the US Defense Logistics Agency was purchasing approximately $200 million worth of batteries annually as recently as 2021.

However, the automotive industry continues to represent the larger market. According to Mordor Intelligence, the sector is expected to spend nearly $18 billion on battery manufacturing in the US this year. While automakers are still rolling out new models, they are anticipating growth further out than previously expected, suggesting that the timing of the full transition to electric vehicles remains unsettled.

These new grants may serve as an acknowledgement that previous efforts to reduce battery production incentives went too far, particularly as domestic factories established following the Inflation Reduction Act face new pressures. For investors and institutions, the funding signals a dual-track strategy: supporting the long-term automotive transition while securing immediate national security needs through a revitalised domestic supply chain.