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Lithium-ion Batteries and Nine Years of Price Stagnation

This May will mark the nine-year anniversary of "Costs of Lithium-Ion Batteries for Vehicles," a seminal study from the DOE and Argonne National Laboratory that sent America lurching down a path toward an HEV, PHEV and EV future based on Li-ion batteries. Since nine years is a respectable length of time in most industries, I thought it might be interesting to review the prevailing expectations in May of 2000, consider the cost reductions achieved over the last nine years and question whether the market frenzy over Li-ion battery companies is even close to rational. Regular readers know that I'm an unrepentant critic of both Li-ion batteries and the companies that make them. So if you're a true believer in Li-ion technology, I would implore you to stop reading now.

To keep it simple, I'll dispense with the foreplay and get straight to the vulgar financial issues. In its May 2000 report "Costs of Lithium-Ion Batteries for Vehicles," the DOE published its estimate of the prices Li-ion battery packs would need to achieve before HEVs, PHEVs and EVs could be cost-competitive. For complete details see Section 6 beginning on page 37.

Battery Type
Baseline
Optimistic
Industry Goal
High-Energy
(35 kWh Battery Pack)
$706 per kWh
($24,723)
$250 per kWh
($8,767)
>$150 per kWh
(USABC)
High-Power
(100 cells, 10 A-h each)
$2,486
$1,095
$300
(PHGV)

These figures were not a forecast of what the Li-ion battery companies were likely to achieve. They were a simple statement of the fundamental economic barriers to entry that had to be overcome before a market could develop.

After nine years of work and incalculable spending on Li-ion battery research and development, the following table shows exactly how far the Li-ion battery industry has come.

Manufacturer
Chemistry
Current Price
Target Price
Ener1 (HEV)
Li-polymer
$660 per kWh
N/A
Valence Technologies (VLNC)
Li-phosphate
$1,000 per kWh
$500 per kWh
Altair Nanotechnologies (ALTI)
Li-titanate
$1,000 per kWh
N/A
A123 Systems (power tool packs)
Li-phosphate
$1,228 per kWh
N/A
2008 DOE SEGIS-ES Estimates
(PV Solar battery packs)
Various
$1,333 per kWh
$780 per kWh
2009 NEDO Survey Results
(Average of Japanese Producers)
Various
$2,018 per kWh
$1,000 per kWh
(next year)

Price stagnation is the kindest term I can use for nine years of research that has failed to reduce costs.

In the 2008 Annual Progress Report for its Vehicle Technologies Program, the DOE reported that the cost of high-energy Li-ion batteries for PHEV and EV applications "is approximately a factor of three-five too high on a kWh basis." Likewise, with respect to high-power Li-ion batteries for HEV applications, the DOE reported that the cost "is approximately a factor of two too high on a kW basis." Is it any wonder that a recent report on the electric two-wheeled vehicle (E2W) market in China says that roughly 85% of new E2Ws are powered by heavy lead-acid batteries instead of their lighter Li-ion cousins? Could it have something to do with a 400% price differential and a population that knows the value of a dollar?

I have seen all the glowing reports about immense progress in the Li-ion battery sector. One of my personal favorites is on Slide 14 from a Summer 2008 presentation by David Anderson of the Rocky Mountain Institute that shows a highly favorable "industry consensus" regarding future Li-ion battery manufacturing costs (Click here for image PDF).



In what alternative universe is that kind of industry consensus reasonable? Over the last nine years Li-ion battery companies have had a hard time maintaining Y2K price levels much less reducing them. While their products are safer, I've seen nothing to indicate that the industry consensus is based on anything other than hope and the certain knowledge that unless prices collapse Li-ion batteries will never be cost effective in HEVs, PHEVs and EVs.

To put it bluntly, the progress the DOE hoped for in Costs of Lithium-Ion Batteries for Vehicles never materialized. We live in a resource constrained world where demand for water, food, energy and every conceivable commodity is increasing rather than decreasing. Since the DOE said in the introduction to Section 6 that materials costs account for 80% or more of finished product costs, it is patently unreasonable to believe that further cost reductions are possible, much less likely.

I am an incurable optimist and believe that cost-effective solutions to our energy storage problems will be found. But in the case of Li-ion batteries what started as cautious skepticism in a DOE report has gradually morphed into a baseless urban legend of immense proportion, a lie so colossal that nobody would expect a responsible industry sector to distort the facts so blatantly or allow the politicians and press to do the dirty work for them. I think it's time for the investing public to rely on their own experience instead of the deafening drumbeat of PR and hype that says, "your experience is meaningless – listen to our promises instead."

Stock market investors are currently placing big bets on Li-ion battery companies in the hope that massive Federal grants and loans will increase the intrinsic value of their investmentss to a level that roughly approximates current market values. While that plan may have short-term appeal for day traders and other speculators, the fact remains that you can tie a pork roast around an ugly baby's neck and the dog will play will play with it for a while, but bad economics are ugly to the bone.

If you want a long-term investment that will grow over time and derive immense benefit from the coming cleantech revolution, then the low-profile lead-acid battery manufacturers including Exide (XIDE) Enersys (ENS) are probably the best choices. If you want a low-cost speculation on advanced acid or lead-carbon technologies in the final development stages, then C&D Technologies (CHP) and Axion Power International (AXPW.OB) may be good choices. In life, the plain and reliable girl next door usually makes for a better wife than an airbrushed centerfold. In batteries, the plain and reliable lead-acid variety that we've used for decades have far more potential to serve our needs than the famously expensive and finicky batteries we use to power our cell phones and laptops.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a substantial long position in its stock. He also holds small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) and ZBB Energy (ZBB).

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.



was posted on AltEnergyStocks.com.


       

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Comments

Reread our report; the goals were set by DOE/USABC, not Argonne. We did not make any price forecasts. Our optimistic numbers were lower bounds on where we thought prices could go, and did not meet DOE goals. Note also that you need to be careful that you are comparing similar batteries. Today's batteries should be somewhere in between our high energy and high power cases.

Linda, I apologize for my lack of precision about the parties responsible for the goal setting and cost analysis functions. It's also important to note that today's batteries are better than the ones that existed in 2000, particularly in terms of cycle life and power. It does seem, however, that the performance gains over the last nine years fall well short of the performance targets in the original report. I think it would be wonderful if ANL, the DOE or some other authoritative source could create a follow-on report that shows where we were, what changed and where we are now.

And from the "You can't make this crazy stuff up" department my horoscope for today says:

Monday, Apr 6th, 2009 -- You take the long-term approach in nearly everything you do now. While others are working in the moment so they can get through the day, you are looking way down the road. Unfortunately, it can be discouraging when no one else sees what is so obvious to you. Your attempts to enlighten everyone will probably only annoy them and make you more frustrated in the process. Focus on what you know to be true; everyone else will eventually catch up with you, wondering how you knew it all along.

Curious that BYD are already producing large-format lithium-iron-phosphate cells for under $300 per kWh, and that Panasonic or LG-Chem 18650 format lithium-ion cells are at the same cost.

It doesn't make sense to compare only the products of a small handfull of low-volume and uncompetitive American companies.

clett, I write on U.S. stocks that people can invest in. While we can speculate about what Li-phosphate cells cost BYD or what Li-polymer cells cost LG Chem, we cannot know because neither company has released that data. There is certainly no reason to believe that either company is above selling below cost in order to build market share.

I believe there is good reason to believe that Asian manufacturers will drop the U.S. market like a hot potato as their home country demand increases. There is also ample proof that Asia wants to sell HEVs instead of battery packs for HEVs. So unless we want to find ourselves at the mercy of Asian industrial policy, we need to rely on our home country manufacturers.

You appear to have switched your arguments.
In your reply you say that you comment on US stocks that you can invest in.
The thrust of your argument in the main post was however that the technology made cost reductions more or less impossible whether by the Chinese or anyone else.
Since you further state that there is no reason to believe that either BYD or LG are selling below cost it therefore seems likely that cost reductions have indeed been achieved in Asia.
It therefore seems that your contention on the costs of lithium batteries is better directed to American suppliers rather than the technology itself.
The fault is perhaps in ourselves, not our stars.

David, I said "there is no reason to believe that either company is above selling below cost," which is significantly different from what you quoted back to me. Since miscommunication is always the author's fault, I suppose I should have been more direct with my choice of words.

The Asians have a long history of introducing products and selling them at prices that are far below actual production costs in order to build market share. Once market share is established, prices typically rise to more competitive levels. The problem is exacerbated in countries that have aggressive economic development policies and strong government influence over industry.

People who like to fan fires of protectionism call it dumping.

I was trying to be delicate in my choice of words to avoid offending anyone's sensibilities, but I think the suggestion that BYD or LG-Chem are able to produce Li-ion for something less than $600 to $700 per kWh is absolute hogwash and the phenomenon we are seeing is in fact dumping.

John, I had indeed failed to understand that you were arguing that the Chinese were in fact dumping.

This connects up your argument.

However, elsewhere you state:

'Since the DOE said in the introduction to Section 6 that materials costs account for 80% or more of finished product costs, it is patently unreasonable to believe that further cost reductions are possible, much less likely.'

Reading the actual body of the report, they clearly indicate where they hope that cost savings can be made, above all in the cathode, so on the basis of the report you quote I find it difficult to reach the conclusion you have, although of course it is not certain that the hoped for reductions will be achieved - the authors of your source seem hopeful though, and 'patently unreasonable' is surely too strong.

Personally I think that zinc batteries may be a better long-term alternative, as Toyota also seem to believe as it is one of their long-term projects.
Boron is also a very interesting alternative:

http://www.eagle.ca/~gcowan/boron_blast.html#TOC

It seems a bit early to write off lithium though.

David, if you go to table 6.1 in the Argonne report, you'll see that the cathode cost represented from 28% to 48% of cell cost and their optimistic future in table 6.4 had cathode costs falling to 18% to 36% of cell costs. So even if the new cathode materials like iron-phosphate can shave a couple of additional points, the last 9 years show that the future cost savings are likely to be moderate.

If you'll note, the first comment on this article came from Linda Gaines, an analyst at Argonne. In follow-up correspondence, a couple of her colleagues explained that a new report with current price data can be expected this summer.

I have not written off Li-ion by any means. But right now the technology occupies a position where the politicians and media are extolling its virtues without discussing its faults. That is dangerous ground for investors. So I'll be a bit of a contrarian and at least point out the potential problems for people like you that want to understand them.

I'm a firm believer that we will need every technology in our current bag of tricks and a bunch more that haven't been invented yet to break the stranglehold of petroleum. So I'm in favor of everything that offers a cost-effective solution.

John, I certainly found your exposition on the lack of cost reduction in lithium batteries for the last several years informative, at least for the US.

It seems fair to say that the position in China is unclear, and it is a bit too early to be sure that large reductions are impossible, but past history is not encouraging.

From an investment POV for the moment I like lead-acid supercapacitor combos as used by AFS:
http://alfin2100.blogspot.com/2008/01/ultracapacitor-battery-hybrid-electric.html

No breakthroughs needed there for plug-in hybrids, and you can use normal lead-acid production lines, at reasonable cost.

David, when you get off into lead-carbon technologies you are singing my song because that was our principal business focus at Axion.

The following links will take you to two fairly recent articles that I've written on the subject:

http://seekingalpha.com/article/115257-lead-carbon-a-game-changer-for-alternative-energy-storage

http://www.altenergystocks.com/archives/2009/03/leadcarbon_batteries_a_game_changer_for_alternative_energy_storage_part_ii.html

Jungle Motors is selling large format iron phosphates for 480 USD/kWh retail.

That is if you buy 1 kWh or so. Now imagine the volume discount of a 10000 kWh order.

I am painfully observing that most bloggers have serious axes to grind. Just goes to show you need to cross reference and double check everything you read in the blogosphere.

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