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Lithium-ion Batteries Are Too Valuable To Waste On Plug-in Vehicles

John Petersen

In November 2006, a slick issue-oriented documentary asked the provocative question "Who Killed the Electric Car" and argued that General Motors' EV1 project was terminated because of collusion between the auto and oil industries. The truth is nobody killed the electric car. It died in infancy from congenital birth defects and the same flaws that killed the EV1 will probably kill Tesla Motors, Fisker Automotive, Nissan's (NSANY) Leaf and GM's Volt. This is not a question of cost, performance, abuse tolerance or cycle-life. It's a fundamental flaw in the economics of using batteries to replace a fuel tank; a flaw that will cost investors billions before the current round of electric car hype fades and the rotting corpse of an idea only Hollywood could love is buried with a silver stake through its undead heart.

The electric car died for two simple reasons. First, the batteries are too valuable to waste. Second, it takes a couple hundred pounds of batteries to store the useful energy found in a gallon of gas that weighs 6.4 pounds. In the end you get an obscenely expensive vehicle that virtually guarantees substandard performance if you stray outside your reliable recharge radius.

Batteries of all types are marvels of chemistry and automated manufacturing, but they're made from natural resources that are orders of magnitude more scarce than oil. To put things in perspective, the world produces about 4,500 million tons of oil annually, which is second only to 6,800 million tons of coal. The closest metal is steel at 1,400 million tons. When you start looking at the less plentiful metals that are used to make batteries, annual production rates plummet to 39.7 million tons of aluminum, 15.7 million tons of copper, 3.8 million tons of lead, 1.6 million tons of nickel, 0.124 million tons of rare earth elements and 0.027 million tons of lithium. When you consider that global demand for all of these metals has been climbing for years and the situation can only get worse as several billion people transition from subsistence farming to industrialized society, the time-honored American tradition of planning for unlimited resource availability is more than a little short-sighted.

Simply put, the world produces plenty of oil that can be burned in engines but it only produces tiny amounts of metals that can be used to make batteries. Spending billions of dollars on new mining infrastructure can significantly increase global supplies of most battery metals, but the gains won't be rapid and they won't amount to a rounding error in comparison to global oil production. While Toyota (TM) just spent over $100 million to protect its lithium supply chain by buying an interest in a new mine; everyone else in the industry seems to be relying on the natural resource fairy. Since it violates the fundamental laws of economics to use scarce and expensive natural resources as substitutes for plentiful and cheap natural resources, business plans based on the illusion that you can use batteries to replace gasoline must fail.

Electric vehicle advocates led by the recently organized Electrification Coalition have done a masterful job of positioning the grid-enabled vehicle, or GEV, as a miracle cure for a variety of ills including mounting oil prices, climate change, terrorism and war. While their comparisons with internal combustion engines have tremendous emotional appeal, the claimed benefits disappear in a cloud of blue smoke when you consider the macro-economic picture. A couple weeks ago I wrote an article titled "Plug-in Vehicles, Unconscionable Waste and Pollution Masquerading as Conservation." While I can't criticize a business for putting the best possible spin on a planned product, somebody needs to stand up and shout balderdash when spin crosses the line and morphs into a lie so colossal that investors and taxpayers are likely to lose billions.

There are two basic ways to use batteries in transportation.
  • The first uses a relatively small battery to minimize gasoline waste by eliminating idling and capturing some portion of energy that would otherwise be lost in braking for use in the next acceleration cycle. The generic term for vehicles in this class is hybrid electric vehicle, or HEV, and the best example is the efficient and reliable Prius from Toyota (TM).
  • The second uses a plug, a power cord and a much larger battery to replace some portion of the fuel tank with electrical energy storage. The generic term for vehicles in this class is grid-enabled vehicle, or GEV, and examples include the Tesla Roadster, the Fisker Karma, the Nissan Leaf and the GM Volt.
While HEVs and GEVs occupy different positions on a common technological continuum, the differences are as stark as night and day, which coincidentally occupy different positions on a common time continuum. HEVs are masters of fuel efficiency that have proven themselves over the course of a decade in over a million vehicles worldwide. GEVs use fuel substitution techniques that have no meaningful track record in the real world, promise more than they can hope to deliver, and are a shameful waste of limited and expensive natural resources. The sooner the public comes to understand the differences between black and white, the sooner we can get to work finding relevant scale solutions to our energy and air quality problems.

Lithium-ion batteries were developed for use in portable electronics and have become mainstays in cellular phones, MP3 players, laptop computers and a host of consumer, medical and industrial products. Last year, the lithium-ion battery industry sold $7 billion of products into these markets. Most consumer applications use somewhere between one and ten cells and the cost of the battery is an insignificant sliver of the purchase price. A Tesla Roadster, on the other hand, uses 6,800 cells and the battery pack represents somewhere between 1/3 and 1/2 of the purchase price. I don't worry about battery cost when I need five watt-hours for my cell phone or 40 watt-hours for my laptop. When you start talking about 20,000 watt-hours for a vehicle, however, it's an entirely different ballgame.

If we wanted to create a hierarchy of possible lithium-ion battery applications going from the highest value per watt-hour to the lowest value per watt-hour, the list would look something like this:

Device
Battery
Type
Capacity
Cellphones and MP3 players
5 watt-hours
Portable Medical Devices
10 to 50 watt-hours
Laptop Computers
10 to 50 watt-hours
Electric bicycles and scooters
500 to 1,000 watt-hours
Hybrid electric vehicles
1,000 to 1,500 watt-hours
Plug-in hybrid vehicles
10,000 to 16,000 watt-hours
Pure electric vehicles
24,000 to 50,000 watt-hours
Grid-connected utility applications
500,000+ watt-hours

In a normal free market, production capacity is allocated first to high value applications and then to successively lower value applications. In cases where supply is constrained by resource availability, manufacturing capacity or a host of other reasons, high value applications that only need a little battery capacity will always be able to outbid lower value applications that need a lot of battery capacity. The end result is that GEVs and grid-connected utility applications will always end up at the bottom of the food chain with the weakest bargaining position and the only batteries available to them will be the surplus that nobody else needs or wants. Once again, lithium-ion batteries are simply too valuable to waste on plug-in vehicles. The economics may work for the eco-religious crowd who will pay any price for the right status symbol, but it's insanity to believe that electric vehicles have any future in the real world of paychecks, monthly budgets and cost-conscious consumers.

Historically I've been fairly sanguine about the survival prospects for lithium-ion battery developers including A123 Systems (AONE) and Ener1 (HEV) because I've been convinced that they'd be able to sell all the batteries they could produce for use in HEVs and new small-scale energy storage applications that are certain to emerge as better batteries become available. Over the last couple months, however, I've seen an ominous trend where Ener1 used almost all of its available working capital to rescue Th!nk Global from bankruptcy and A123 invested $23 million in Fisker Automotive so that Fisker could satisfy the 20% matching funds requirement for a $529 million DOE loan. In my experience, the first round of rescue financing for a key customer is rarely the last. While I think it fair to ask why development stage battery manufacturers are using critical capital resources to support other businesses that the capital markets seem reluctant to finance, I'll refrain from further comment except to remind everyone of the famous Rodney Dangerfield quip, "As a baby I was so ugly that my parents had to tie a pork chop around my neck so the dog would play with me."

In closing for today, I'll share a quote from Ardour Capital's 2009 Year-in-review, 2010 Look-Ahead:

"As for energy storage players, while lithium ion is receiving stimulus, we look for lead acid to still be the preferred technology for large scale applications for the foreseeable future. We believe that the $2.4b stimulus is an important step toward launching a US lithium-ion battery industry which has been largely non-existent. In addition, the 2009 IPO of lithium-ion battery maker A123 Systems has stirred significant interest in larger scale lithium ion applications. However, we look for the cheap and reliable lead-acid battery to be the mainstay of industrial battery applications. To those ends, we expect lead acid sales to see recovery in 2010 thanks to improving economic conditions and stronger trends in the automotive markets, primarily for replacement batteries."

In my next article I'll revisit earlier discussions of the start-stop, micro-hybrid and full hybrid technologies that are certain to become mainstays of the global automotive industry over the next decade.

Disclosure: Author is a former director of Axion Power International (AXPW.OB), a developer of advanced lead-carbon batteries, and holds a large long position in its stock. He also holds small long positions in lead-acid battery producers Exide Technologies (XIDE) and C&D Technologies (CHP), and zinc-bromine flow battery developer ZBB Energy (ZBB).




was posted on AltEnergyStocks.com.


       

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Comments

John,
There are so many errors and polemical blunders in this article I don't know where to start.

One at random: while it's true that more oil is mined than iron, oil, like Lithium, is not reused; it's a one-way trip to the dump. But iron forms an ocean of scrap supplies, which means, you don't need all new iron each year. But you do need all new oil (except for the small fraction that's made into recyclable plastics).

The real point to your article is that LITHIUM is too expensive to use for cars!

LEAD or NICKEL are not too expensive, because both lead and nickel recycle!

The fleet of NiMH EVs (and hybrids, for that matter) form a PROVEN RESOURCE of existing, already-mined Nickel. After 100K or 200K miles, after the NiMH battery wears out, they can be melted down and refreshed into new batteries.

While you make sage points in other articles, I'm afraid you let your argument steam valve loose on this one. Please rethink.

One other issue, that gas is more energy-dense...well, you can see the flaw in that one, if you look: sure it takes 1300 lbs. of lead-acid or 800 lbs. of NiMH batteries to carry the energy equivalent of a gallons of gasoline; but the batteries last a long time, they are not FUEL, while the gas car has to be refueled all the time. The FUEL for the battery cars can come from a rooftop solar system. It only takes 250 kWh to go 1000 miles per month -- a fraction of the average energy usage. Oil is MUCH less efficient, and when you burn it, it's gone forever (until you figure out a way to refine CO2 to make HxCx).

I have a lead-acid as well as NiMH EVs; they work great, and do fine for driving to work and back.

All of the production numbers I used were new metals from mining, rather than all metals from primary and secondary production. I agree that recycling keeps a bad situation from being worse in the case of many industrial metals, but the real thrust was comparing the magnitude of the differences between billions of tons and tens of thousands of tons.

Besides, I've learned from experience that recycling arguments, while quite valid in my opinion, fall on deaf ears because everybody assumes "if we build it somebody will recycle it." You know enough about batteries to understand the recycling problem. Most of my readers don't.

I think you've missed my point slightly because I've come to believe that all advanced batteries, regardless of chemistry, are too expensive to use in plug-ins. It's not so much a question of whether an owner can make his cost-benefit equation work, because men like you have shown that they can. The issue is suboptimal use of limited supplies in a resource constrained world. If we go to a NiMH battery pack for example and figure the gas savings from using those batteries in one EV or using them in multiple mild and full hybrids, the EV comes out on the weak end of the equation. I doesn't really get close to parity until you get down into the lead-acid range.

Ultimately the economic tension is a choice between a cheap tank for an expensive fuel (gasoline) or a very expensive tank (batteries) for a relatively cheap fuel. You also need to factor in the likelihood that electricity prices will continue their moderate price behavior into the foreseeable future despite the massive capital investments that are forecast for renewables and a smart grid. My sense is that the future of electricity prices will look nothing like the past as people begin demanding a reasonable return on billions (trillions?) in grid infrastructure spending.

Well, John, I know your intention is good, and you're a backer of better lead-acid batteries. But the big issue, for me, is getting off of petroleum.

Oil burning uses at best 35 kWh of energy to go 60 miles; an average EV can go 140 miles on the same energy -- WITHOUT OIL.

Electric prices will rise, moderated by the installation of cheap solar power (yes, it's cheap, right now); but the certainty is that we are wasting oil and coal. Sure, we have hundreds of years of supply of coal-to-oil production, so were not likely to run out for millenia; but running out of oil isn't the problem.

The problem is NOT that we going to run out of oil!!

The problem IS that we're NOT goint to run out of it before we smother in the debris and pollution of the oil economy.

I agree wholeheartedly that an economy without oil imports would be wonderful. The question is how we get from where we are to where we would all like to be. One of my favored first steps would be to move as much transportation as possible to natural gas, which would be a 1 for 1 substitution for imported oil and far cleaner. From there, we can look at batteries as taking another bite out of the apple.

In the unconscionable waste article I took all of the expected battery capacity for 2015 and worked out what would happen to gasoline consumption and CO2 emissions if we used those batteries for full hybrids at one extreme and for plug ins at the other extreme. To keep it simple I assumed an either/or scenario. The net impact was that the full hybrids saved 4x the gasoline that the EVs did. If they were plugged into a national average grid, the full hybrids cut C02 emissions by 10x the number from EVs. Even if we assume a pristine grid, the full hybrids work out 4x better.

Ultimately this is one of those weird situations where a 1 for 1 comparison of individual vehicles yields a different answer than a macro-economic analysis of the potential beneficial impact of an industry.

If you really want to go for the brass ring, a full hybrid with a natural gas fuel system is the hands down winner.

Please don't take my word for this point. Go through my unconscionable waste article with a spreadsheet, change any assumptions you don't like and see if you come to a different conclusion. I'd be happy to be wrong on this issue, but don't think I am.

http://www.altenergystocks.com/archives/2010/01/plugin_vehicles_unconscionable_waste_and_pollution_masquerading_as_conservation_1.html

In any event, I love discussing these issues with a worthy adversary like you and am grateful that you take the time.

John and commentators -- I've enjoyed learning from the information you all provided.

While not expressly agreeing or disagreeing with you, as an accountant, I would like to add a few thoughts. In the comparision of gas and electric vehicles (EV), we should consider the total cost of owning the vehicles, not just the cost of gas and electricity. Total cost includes the FREQUENCY and cost of having to replace the vehicle with a new one, as well as repairs and maintenance.

The actual costs of my van since I purchased it for over $30,000 eight years ago include: a new transmission $6,200+, catalytic converter almost $1,000, several brake jobs of over $200 each, many oil changes, smog checks, etc., etc. With high mileage, it's about time to buy another new vehicle.

In addition to making financial comparisions, I like to enjoy life. Although the costs of owning an EV appear favorable, I have enough stress in my life. I don't need "Range Anxiety" that comes with pure EV.

So, if I had an EV, the first thing I would do is to convert it to a hybrid -- a modular serial hybrid. That is, I would purchase a mini micro turbine genset that I could snap on and off the roof of the EV.

A couple of other things I want is the EV to be made out of the light weight stainless (no corrosion, no paint) steel that Fisher Coachworks just came out with, and relatively light weight long lasting bi-polar and/or foam lead acid batteries, that I could snap on and off under the EV (an EV van).

Considering what companies are now getting ready to market, these things should be available before long.

Wouldn't this be the best way to go? What are your thoughts??

The accountant in me (undergraduate degree and CPA certificate) has a real hard time with the payback on anything beyond an HEV, and even that's a major stretch if you don't expect oil prices to continue increasing at historical rates or hit another inflection point and start a steeper incline. At current prices it's about 10 years for cash on cash payback for anything with a plug and by the time you put in any kind of reasonable discount factor, the crossover point never arrives.

The battery guy in me worries a lot about useful life expectations which seem overly optimistic based on my experience in the field and my knowledge that most people are not good at reading instruction manuals, much less following them to the letter without ever trying to fudge a bit here and there.

Over the near term I clearly think that a Prius class HEV is the way to go. Ten years from now is likely to be a completely different world. I'm a habitual early adopter and have been wrong every time I picked the coolest choice over the cheapest choice. That experience has made me a firm believer in Vinod Khosla'a laws of economic gravity which basically says the cheapest technology that gets the job done will always take the biggest market share.

And yet, others claim PHEVs & BEVs will quickly gain substantial market presence. See:

http://press.ihs.com/article_display.cfm?article_id=4187

Yet they offer inadequate support for their conclusion.

I requested a copy of their abstract and think it makes a lot of assumptions based on pretty thin evidence respecting residual battery value and V2G revenues. Let's just say it hasn't convinced me to go out and buy lithium-ion battery company stocks.

More on the IHS forecast in another post. However, if IHS projections seem optimistic, consider this from the folks at Booz Allen Hamilton a year ago:

http://www.sais-jhu.edu/bin/g/w/Heffner.pdf

It almost seems that they did not use the information in their slides as they developed their forecast. Specifically, one slide illustrates USA hybrid sales for 11 years. During that time sales of hybrids grew to approximately 2.5% of all USA light vehicles. Significantly, most of the growth in market share occurred during the 3 year run-up in fuel price. Since then growth of hybrid market share has substantially diminished, almost to the point of flattening.

In a subsequent slide, they use an "Innovation Adoption Curve". In it the first 2.5% of the adopters are "innovators", followed by 13.5% "early adopters" in approximately a similar time-frame.

If we accept that PHEVs will realistically be commercially available in 2011 then, using their "adoption curve" by 2022 there will be a 2.5% adoption. And, in the best case the adoption by 2030 will be less than 15%, not the 20% they forecast. Given the number of vehicles sold, a 5% forecast miss can be extremely important. Yet they provide no basis for this "extra" growth in sales.

But, this is far too simplistic. As their chart of USA market share indicates, the sales growth rate of hybrids has dropped. This could be due to the precipitous drop in fuel costs or to the economic malaise or to other reasons. The point is that forecasting based on the general trends in a theoretical model is worse then useless. It can be very misleading. To be useful, any forecast should at a minimum be based upon "bottom up" modeling with sensitivity analysis. It is not unreasonable to wonder why PHEVs, with their much higher acquisition cost, will have rapid and substantial adoption if: oil prices remain moderate; oil prices rise but at a "moderate" rate; the economy remains tepid; ICE technology experiences a substantial improvement in the next decade (as an increasing number of people are beginning to think possible); or...

Further, this presentation is not clear regarding the geographic markets they are covering. If the markets in the developed countries are sensitive to the cost-benefit of hybrids (as demonstrated in the slow down in USA market share growth in conjunction with the reduction in fuel prices), one would expect the markets in the developing countries will be much more sensitive. In such markets, it seems more likely that people will purchase a Tata Nano with a very small engine rather than a PHEV.

In contrast to forecasts such as these, your writing generally provides description of the underlying assumptions, data and algorithmic methods. This makes for a much more informed and valuable analysis and discussion, to your credit.

In contrast to the work of this consultant, your approach forces one to consider the reality of a forecast. Specifically, if 2.5% of world (or just USA) light vehicles will be PHEV by 2020, what does that mean for production capacity requirements of batteries, electric motors, etc.? Based on present assumption for PHEV battery pack size, forecasts for battery production and automotive sales, one would have to say 2.5% PHEVs by 2020 is unlikely.

And, this does not even begin to address the more important question: "Is broad adoption of PHEV technology (or BEV) the optimal choice at this time?".

With so much poorly done forecasting widely and aggressively promoted, it is no wonder there is confusion. And, it reinforces the import of your work.

I'll have more on the differences between press releases and production decisions within the next couple days. Stay tuned.

To those who say that John didn't list the maintenance fees and frequency i have one thing to say. Honda. That is all. Btw John fantastic article. Found it very insightful.

This article is nothing but ignorance. Oil is mined, then burned up never to be used again. (The Earth needs this oil, we shouldn't be mining it as much as we are in the first place). Batteries can be recycled, re-used, re-mined from waste dumps. It's elementary that electric is the way to go no matter how you look at it. We should ban the use of oil, walk, ride a bike, hitchhike with a guy driving an electric car. You don't need that 200k house, and 50k automobile, and your kids don't need the latest ipod just because they want to be cool, stop spending and they will stop producing and they will eventually stop advertising. Live like your great grandparents, work, get a hobby, spend time with your family, that time is more valuable than anything you could ever buy. The electric car died in the past, because the battery technology was just not there yet, we have that technology, and it's only getting better. The electric car, train, boat, plane, motorcycle is here to stay and the use popularity, and explosion of electric conversions (like oil changes used to be) ..in every city will only cause people as a "Whole" to be more financially stable as a society, not a few rich billionaires and big oil companies that has caused this unstable monstrosity.

I wish you the best of luck with your investing, you'll need it.

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