by John Petersen
Last month the DOE released its 2008 Annual Progress Report for the Energy Storage Research and Development Vehicle Technologies Program. This report is a frank and relatively upbeat assessment of the current status of Li-ion battery research and development that also provides a stark wake-up call for investors in energy storage stocks. The reality check has been done and the DOE’s verdict is clear: Lithium-ion batteries are not ready for prime time.
In its description of ongoing research efforts to develop high-power batteries for HEVs, the DOE said:
“High-power energy storage devices are among the critical technologies essential for the development and commercialization of HEVs. This effort is focused on overcoming the technical barriers associated with commercialization of high-power batteries, namely:
- Cost – The current cost of Li-based batteries is approximately a factor of two too high on a kW basis. The main cost drivers being addressed are the high cost of raw materials and materials processing, the cost of cell and module packaging, and manufacturing costs.
- Performance – The barriers related to battery performance include a loss in discharge power at low temperatures and power fade over time and/or when cycled.
- Abuse Tolerance – Many high-power batteries are not intrinsically tolerant to abusive conditions such as short circuits (including internal short circuits), overcharge, over-discharge, crush, or exposure to fire and/or other high-temperature environment.
- Life – The calendar life target for hybrid systems (with conventional engines) is 15 years. Battery life goals were set to meet those targets. A cycle life goal of 300,000 cycles has been attained in laboratory tests. The 15-year calendar life is yet to be demonstrated. Although several mature electrochemistries have exhibited a 10-15 year life through accelerated aging, more accurate life prediction methods need to be developed.”
I’m a simple-minded creature and I believe that little things like costs and benefits matter, particularly in the midst of the worst recession since the 1930s. When the Annual Progress Report from the DOE group responsible for supporting Li-ion battery research and guiding national policy concludes that:
- Li-ion batteries will not be a cost-effective solution for HEVs unless and until somebody finds a way to slash manufacturing costs by 50%; and
- Li-ion batteries will not be a cost-effective solution for PHEVs unless and until somebody finds a way to slash manufacturing costs by 67% to 80%;
I believe them.
When the same Annual Progress Report says that the principal cost drivers are the high cost of raw materials and materials processing, the cost of cell and module packaging, and manufacturing costs, I have to wonder whether the DOE’s target price reductions of 50% to 80% are even remotely possible. My limited understanding of the laws of economics tells me that the price of raw materials invariably increases when demand for those materials increases. Since approximately 70% of finished Li-ion battery costs are attributable to raw materials I have to at least ask where the cost savings will come from. I have never heard a reasonably specific answer to that question.
I fully support Federally funded research to develop cost-effective Li-ion batteries for large scale energy storage, but I’ve spent enough time representing R&D stage companies to know that technical dreams and visions are frequently not attainable in the cruel world of cost accountants and the most spectacular failures occur during the transition from the laboratory bench to the factory floor. Li-ion batteries are a great concept for electric transportation but they are not currently viable products for HEV and PHEV applications and they have some very high hurdles to clear before they become viable products.
Until all of the technical barriers identified in the DOE’s Annual Progress Report are overcome, proposals to spend Federal money building factories to manufacture devices based on existing Li-ion battery technologies are nothing more than Catch 22 arguments that the applicants can manufacture a product for a dime, sell it for a nickel and make up the difference on volume.
I’ve written volumes criticizing the nosebleed market capitalizations of U.S. based Li-ion battery developers including Altair Nanotechnologies (ALTI), Ener1 (HEV) and Valence Technologies (VLNC). I’ve also written volumes on why I believe advanced lead-acid battery producers like Exide Technologies (XIDE), Enersys (ENS), C&D Technologies (CHP) and Axion Power International (AXPW.OB) are undervalued. A complete archive of my articles is available at Seeking Alpha.
My recurring theme since day one has been that Li-ion batteries have insurmountable cost, performance, abuse tolerance and cycle life problems that must be overcome before they become viable products. It’s nice to see a hot off the press DOE report that confirms the reasonableness and validity of the questions I’ve been asking for months.
America’s energy problems are too urgent to overlook and its economy is too stressed to invest billions in technologies that may never become cost effective. Our only rational choice is to go to work today with the tools we have and be ready to embrace newer and better tools when they prove to be cost effective.
Disclosure: Author is a former director of and holds a large long position in Axion Power International (AXPW.OB), a leading U.S. developer of lead-carbon batteries, and also holds small long positions in Exide (XIDE) and Enersys (ENS).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents North American, European and Asian clients, principally in the energy and alternative energy sectors. His international practice is limited to corporate securities and small company finance, where he focuses on guiding small growth-oriented companies through the corporate finance process, beginning with seed stage private placements, continuing through growth stage private financing and concluding with a reverse merger or public offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of Arizona State University. He was admitted to the Texas Bar Association in 1980 and licensed to practice as a CPA in 1981. From January 2004 through January 2008, he was securities counsel for and a director of Axion Power International, Inc. a small public company involved in advanced lead-acid battery research and development.