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
|| Industry Goal
(35 kWh Battery Pack)
| $706 per kWh
| $250 per kWh
| >$150 per kWh
(100 cells, 10 A-h each)
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.
|| Current Price
|| Target Price
|| $660 per kWh
|Valence Technologies (VLNC)
|| $1,000 per kWh
|| $500 per kWh
|Altair Nanotechnologies (ALTI)
|| $1,000 per kWh
|A123 Systems (power tool packs)
|| $1,228 per kWh
| 2008 DOE SEGIS-ES Estimates
(PV Solar battery packs)
|| $1,333 per kWh
|| $780 per kWh
| 2009 NEDO Survey Results
(Average of Japanese Producers)
|| $2,018 per kWh
|| $1,000 per kWh
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 ab
out 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.