BATTERY TROUBLE: In the short term, the worldwide capacity for making batteries far outruns the demand for electric cars and other devices
Image: Scooter the Photographer, courtesy Flickr
An economic chill will soon arrive in the world market that provides the batteries that power electric cars.
For U.S. manufacturers of these batteries, the most valuable and competitive part of the electric car, the question is whether they will survive this winter or perish in it.
Over the past three years, new production lines for lithium-ion batteries have sprung up in China, Korea, Japan and the United States. Some have been built solely with private capital, by companies that sense a healthy global market for energy security and carbon dioxide reduction. Other plants were built with a large share of government financing, as officials have identified electric cars as a major economic race.
The result: In the short term, the worldwide capacity for making batteries far outruns the demand for electric cars. Market analysts expect a multi-year cull, starting as early as 2012, of the factories that can't make the grade.
One of the looming questions hanging over the auto industry, the world's largest consumer market, is: Where will the survivors be?
"The question remains about whether we'll have enough demand in the market to support the number of potential manufacturers of batteries in the U.S. market," said Xavier Mosquet, senior partner at the Boston Consulting Group and head of its global automotive practice.
As a rule of thumb, Mosquet said, one battery plant can be sustained by supplying 1 percent of new vehicles sales in the United States. If electric vehicles made up 3 percent, for instance, that would support three to four plants.
A replay of Solyndra?
Currently, he said, there are roughly 10 battery suppliers in the United States, so if battery demand proves smaller than 10 percent of sales, some factories will cease production.
Today, electric vehicles are nowhere near 10 percent of the market. Indeed, hybrid cars, which have been commercial for 10 years and use much smaller batteries, make up 2 to 3 percent of annual sales.
The market conditions have uncomfortable resemblances to those that undid Solyndra Inc., the solar panel manufacturer that filed for bankruptcy in September after accepting a major Department of Energy loan. Outgunned by Chinese scale and undercut by a drop in silicon prices, Solyndra's product suddenly found it difficult to compete on the world market.
Similarly, U.S. battery manufacturers are competing with enormous Asian factories that are ruthlessly cutting battery costs.
There are important differences from Solyndra, too. In solar, the preferred technology is converging toward the one that China specializes in. In batteries, however, the technology race remains wide open, and U.S. firms are thought to hold some of the most innovative ones.
Nevertheless, as battery capacity contracts worldwide, a U.S. closure could prove inconvenient for the Obama administration, whose clean-tech strategy has come under sustained Republican attack.
Worldwide vulnerability
U.S. factories aren't the only vulnerable ones; other countries also have more battery production than they have customers. Globally, according to Bloomberg New Energy Finance, automakers have committed to making 839,000 plug-in cars by 2013. Yet battery makers already have enough capacity to supply twice that number of cars.
Moreover, engineers are finding new ways to slice battery costs. Together, the trends mean battery prices are poised to plummet -- and that to survive, American manufacturers will have to keep up with Asian conglomerates.
BNEF said the large Asian firms will be able to cope by reducing production, lowering prices, and waiting out the crash. In some cases, they can also rely on strong bonds with Asian auto companies, which started developing electric-drive vehicles before their U.S. counterparts.
The picture is dicier for U.S. lithium-ion manufacturers, whose ranks have grown since President Obama awarded $2.4 billion in grants in August 2009 (ClimateWire, Aug. 6, 2009).
Much of that funding helped build massive battery manufacturing plants. But the economics of these plants is a double-edged sword. On one edge, size is necessary to enjoy economies of scale and thereby compete with Asia on costs.
On the other edge, that size advantage only works if the factory is making lots of batteries and selling them. With that practice, a factory can make its assembly line and supply chains leaner and its batteries cheaper, said Glen Walker, a clean-tech analyst for BNEF.
"If you pause, and you're not making batteries, and your competitors are making batteries, then they're driving their costs down and you're not," he said.
With the U.S. market for electric cars just waking up, battery manufacturers are battling for the biggest contracts they can find, whether in trucks, the grid or the defense industry.
"It's going to be a period of haves and have-nots," Walker said. "The companies which have secured these production-scale contracts are pretty much going to to be OK; for those that don't have production-scale contracts, they're really scratching to get what's up for grabs."
Some American players
Last month, General Motors Co. announced it would source the batteries for its Chevrolet Spark, a mini-car that will sell in the United States, Europe and Asia in 2013, from A123 Systems Inc.
A123, based in Watertown, Mass., is thought to have one of the most competitive lithium-ion batteries in the world. In 2009, it received $249 million in grants from the Obama administration for a plant.
Nevertheless, GM had passed it over before: Earlier in 2009, GM had chosen to supply the Chevy Volt's initial run through LG Chem Ltd., a division of a Korean firm. LG Chem had also received a battery grant in 2009 (ClimateWire, Feb. 2).
Another U.S. battery manufacturer, Ener1 Inc., has faced serious struggles this year.
It received a $118 million grant in August 2009 to scale up lithium-ion production at its Indianapolis plant. But while its competitors secured production contracts, Ener1 was unable to land major vehicle deals beyond the THINK City, a small urban EV sold in Europe.
THINK Global AS, which makes the car, filed for bankruptcy in June. Ener1 must seek sustenance from other auto or grid contracts, or risk collapsing as investors flee.
Walker, of BNEF, expects the U.S. situation to get clearer in mid-2012. By then, he said, more EV models will be available, such as a plug-in version of the Toyota Prius and the all-electric Ford Focus.
The U.S. battery makers' fate will depend on the consumer response and the automakers' willingness to ramp up production of these vehicles, he said. Alternatively, the companies could survive on international business. All the U.S. battery firms do business abroad, whether in EVs or the grid.
The companies that survive the global battery crunch can look forward to serving a larger market -- and less competition for customers. Oliver Hazimeh, a principal at PwC's PRTM Management Consulting, said today's oversupply of batteries will be an undersupply tomorrow.
"While there is a short-term over-capacity, the currently installed global capacity of about 35-50 GWh is still well short of the 180-200 GWh capacity forecast to be needed in 2020," he said in an email.
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500
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13 Comments
Add CommentWhen it comes to batteries, the issue is not so much about the number of batteries and their price. The issue is energy density, ie. how much energy you can store in a battery.
Reply | Report Abuse | Link to thisWithout a quantum leap in energy density building a large number of low powered batteries for low $$ is meaningless. The utility of the product is still capped and it will not power (excuse the pun) a shift in our energy consumption patterns.
If you want to identify the issue that the world revolves around it is energy density. For better or worse, that's what makes oil so damn useful; massive energy density and easy to use.
Find something with a higher more useable energy density than oil and people will forget oil even exists.
Ahhh, the benefits of central planning. You get to have all this capacity to make things that the market is not demanding. Obviously the next step will be to create demand through coercion and taxpayer subsidies, thus continuing the cylce of stupidity.
Reply | Report Abuse | Link to thisThe Brits gave up on green power subsidies in the last day or so. The 99% didn't like the idea of massive electricity rate hikes to pay for a few billionaires to make even more money.
Reply | Report Abuse | Link to thisFunny how that worked out; the unpaid and naive eco-jihadists ended up being stalking horses for a few uber-capitalists.
It seems that the general consensus is the US should keep investing in 20th century technology and wait for our Asian counterparts to develop the technology necessary to help curb our gluttonous use of fossil fuels.
Reply | Report Abuse | Link to thisThe only battery manufacturers who will go under are the ones owned by the republicans. They apply for the grants, knowing that they do not have to repay grants - file for bankruptcy and then accuse the Obama administration of making a bad investment and running the debt up. And they will be right. Any time the Obama administration invests in a republican owned business, they will be making a bad investment, running the debt up and will loose their shirt. The republicans will do anything to try to make the Obama administration look as bad as the Bush administration looked...everyone knows that will be impossible to do but the republicans will keep trying to do it until they get the economy right where Bush tried to take it; to a third-world status.
Reply | Report Abuse | Link to thisAre these companies charging enough?
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Reply | Report Abuse | Link to thisA very good article that is very accurate for a change. Facts are 50% of them will fail soon. The best part is far lower battery costs because of the competition. I said over a yr ago this was going to happen because it takes a long time to produce any numbers of EV's.
It's not energy density but battery cost that is currently behind their problems. Luckily Lithium battery materials are both cheap, plentiful with retail costs for small cells at under $250/kwhr. This is the cell Tesla uses so cost effectively. Using this you can figure out base materials is under $125/kwhr and that too is dropping fast.
My EV's currently use lead batteries that have 1/3 the energy density of lithium and I laugh all the way to the bank with my fuel/battery cost of under $.02/mile. And I have no tuneup, oil changes, mufflers, etc costs either. In fact it's so simple nothoing takes longer than 30 minutes to repair or replace. Overhauling the e motor takes 15 minutes and about $100 in bearings, brushs every 100k miles or so.
Once such lightweight, composite, aero EV's are built and battery prices go below $200/kwhr, you'll see EV's thrive.
You can have all the energy density in the world, but if it costs a million $$$ per kWhr, then it's not practical. The Tesla Roadster has a similar range to a gasoline car at around 250 miles. They do this with $20,000 worth of laptop batteries and liquid cooling. It's a great setup, but very expensive, limiting the number of potential buyers. Once a 250-mile pack is around 1/2 this price or less, then the market for electric cars will be MUCH larger than 1 or 2 percent.
Reply | Report Abuse | Link to thisWhen this happens, you'll be able to have a $20 - 25k car with similar range as a gas car. Sure you have to charge it, but on the < 1% of the time most people go beyond 250 miles a day, they can rent an ICE car or whatever.
I'll admit that oil is tremendously energy dense. However, the process required to explore, drill, transport, refine and finally deliver the fuel is taking up more and more energy in itself while the ICE throws away 80% of the energy in the oil ON A GOOD DAY. In the end, if you are this wasteful, the energy density of your fuel starts to become less important.
I haven't owned a car in the past 40 years that only got 250 miles per tank full. What are you driving, a real tank? My five year old Altima goes 450 miles between fill-ups and takes five minutes to fill up. Until electric can match that, it will not even be a contender.
Reply | Report Abuse | Link to thisBattery exchanges might work, but will require a standard size and easy removal and replacement. The manufacturers who survive short term failure have to work with the auto manufacturers and set standards. Barring major breakthroughs, I think this is the only way electrics will ever increase their market share.
Good analysis of the key issue issue with regards to batteries use in transportation.
Reply | Report Abuse | Link to thisJamesDavies- your rather silly thinking of issues as republician vs democrat or evil vs. good is counterproductive to seeking solutions to issues.
Reply | Report Abuse | Link to thissault- but isn't a key issue that the Tesla's batteries are still inefficient, and therefore the car requires a lot of these batteries with low reliability? The poor battery efficiency- energy density and reliability- make electric cars a poor value today.
Reply | Report Abuse | Link to thisTesla's batteries are neither ineff or unreliable. They only need a lot because each one is small.
Reply | Report Abuse | Link to thisAnd many companies around the world from Toyota to Mercedes use Tesla to make their EV's so I think I'll take their judgement over yours.