US Battery Startups Turn to Defense as EV Incentives Vanish

American battery startups faced an abrupt reversal in their fortune when recent legislation stripped away the federal incentives that had fueled their growth. But as the domestic EV landscape shifted, a new opportunity emerged: the Pentagon’s appetite for advanced battery technology to power everything from military drones and torpedoes to infantry communications systems and tactical fighter jets.

Policy Reversal and National Security

The battery industry’s initial pathway had depended heavily on the Inflation Reduction Act, which created a constellation of subsidies designed to accelerate domestic battery manufacturing and electric vehicle adoption. When the One Big Beautiful Bill eliminated these battery and EV incentives, the sector faced a sudden loss of future demand assumptions. The Trump administration, while openly skeptical of consumer electric vehicles, has nonetheless embraced a different rationale for battery investment: national security and reducing dependence on foreign suppliers.

The IRA’s Effect and the Cutbacks

The infrastructure and manufacturing facilities that had begun to emerge under the previous incentive regime suddenly lacked the economics that justified their expansion. Startups that had planned growth trajectories based on sustained subsidy programs had to recalibrate. The policy reversal highlighted the vulnerability of an industry built on government support.

Defense as the New Driver

Rather than abandoning battery development entirely, the federal government is now channeling support through national security frameworks. The Department of Energy announced Thursday a $500 million grant program targeting battery supply chain resilience. The stated objectives focus on reducing reliance on foreign sources, bolstering national security, and advancing American energy dominance. Much of this funding has flowed to emerging battery companies whose technologies address specific defense priorities.

DOE’s Battery Supply Chain Initiative

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The DOE’s announcement reflects a calculated shift in how battery manufacturing gets framed and funded. Rather than consumer-facing subsidies, the grants target upstream materials and processing capabilities that serve defense applications alongside potential civilian uses.

Three Major Recipients

Coreshell, a battery materials startup, received $50 million to expand manufacturing of its metallurgical silicon anode material, a key component in advanced battery chemistry. The company has also brought on ADS Ventures as an investor, a strategic venture capital firm whose parent company operates as a defense supplier and collaborates with autonomous systems manufacturers. This capital structure signals the growing intersection between battery innovation and defense procurement.

Lilac Solutions, which specializes in lithium extraction from brine sources, secured $100 million to construct a processing facility at Utah’s Great Salt Lake. The company projects producing 5,000 metric tons of lithium carbonate annually by 2028, a chemical precursor essential to battery manufacturing at scale.

Nth Cycle received $100 million to build a facility dedicated to refining black mass—the mixed material recovered from recycled lithium-ion batteries. The company’s process isolates lithium and nickel compounds that can be reused in new battery production. Megan O’Connor, the company’s co-founder and CEO, told reporters that demand drivers from the defense sector are unmistakable, though automotive applications remain part of the growth calculus.

Manufacturing Targets

The grants reflect concrete production goals rather than research-stage support. Lilac’s facility targets a specific tonnage of finished lithium carbonate within a defined timeframe, and Nth Cycle’s black mass refinement capacity directly addresses supply chain resilience by capturing value from recycled batteries. These investments represent moves toward operational manufacturing rather than pilot programs.

From Drones to Fighter Jets: Defense Applications

The Pentagon’s battery needs span a broader spectrum than consumer applications. Military drones require lightweight power systems with high energy density to extend operational range. Torpedoes and other undersea platforms demand specialized battery chemistries suited to extreme pressure and marine environments. Infantry radio systems and other portable communications equipment depend on reliable, long-duration batteries. Fighter jets and other tactical aircraft increasingly rely on battery systems for auxiliary power and, in some cases, emerging hybrid-electric propulsion architectures.

A Coreshell spokesperson confirmed that defense applications are now central to company discussions with investors and partners. The strategic rationale mirrors Cold War-era technology development: national security becomes the justification for domestic manufacturing capacity, which then creates spillover benefits for civilian industries.

Market Size and Competitive Dynamics

Defense Spending vs Automotive

The scale of military battery procurement remains difficult to quantify, but the Defense Logistics Agency was purchasing $200 million in batteries annually as recently as 2021. By contrast, Mordor Intelligence projects that the automotive industry will spend nearly $18 billion on battery manufacturing in the United States during the current year alone. The disparity is stark, yet defense spending has the advantage of being decoupled from consumer market cycles and policy swings.

Automakers continue rolling out new electric vehicle models and expect years of cumulative growth, albeit with timing expectations pushed further into the future than previously anticipated under the IRA framework. The automotive sector still represents the larger addressable market, but its timing remains uncertain amid policy volatility.

The Timing Question

Battery executives face a paradox: the long-term trajectory remains electric, whether in civilian or military applications, but near-term demand hinges on factors outside their control—whether policy continues to shift, whether automakers continue their EV commitments despite reduced incentives, and whether defense budgets sustain their current direction. Defense spending offers immediate, committed procurement, while automotive demand requires patience.

Strategic Implications for American Manufacturing

The DOE grants may represent an implicit acknowledgment that efforts to curtail EV incentives created unintended consequences for defense manufacturing capabilities. Military readiness requires reliable, domestically sourced battery technology. The factories that would have supplied the civilian EV market—had the Inflation Reduction Act’s provisions remained stable—could have simultaneously served defense needs. The new approach decouples these markets and channels support through security rationales instead.

Whether this funding proves sufficient to sustain the battery manufacturing base the nation requires remains uncertain. Defense applications validate the technology and justify the manufacturing capacity, but they cannot absorb the same volume of output as a thriving consumer EV market. Battery startups and investors are now hedging their bets across both sectors, acknowledging that the future remains electric but that the path to profitability has become more complicated and less predictable than it appeared under previous policy regimes.