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Why I Don't Expect A Lithium-Ion Battery Glut

John Petersen

It's no secret that I think plug-in electric vehicles are unconscionable waste and pollution masquerading as conservation. To support my opinions, I've published an easy to follow Excel spreadsheet that shows why plug-ins are 5x to 6x less effective than HEVs when it comes to reducing national gasoline consumption and 9x to 12x less effective than HEVs when it comes to reducing national CO2 emissions. To date, the only challenges to my analysis have come from die-hard EV fanatics who seem to believe battery factories grow on trees and raw material supply chains sprout like flowers in an alpine meadow.

In early February, Joann Muller of Forbes warned of a coming Electric Car Battery Glut based on published estimates that global lithium-ion battery manufacturing capacity would reach 36 million kWh by 2016. Just this week, Roland Berger Strategy Consultants released a study that forecasts a lithium-ion battery supply bubble between 2015 and 2017 and predicts an industry-wide consolidation where "only six to eight global battery manufacturers will survive in the next five to seven years."

Despite my abiding disdain for plug-ins and my high regard for Forbes and Roland Berger, I don't buy the theory that excess manufacturing capacity will be a major problem for two simple reasons. First, I believe the Roland Berger forecast of global demand for 1.6 million HEVs in 2015 is far too low given the history of the HEV market and Toyota's (TM) plans to increase its production capacity to 1 million HEVs per year by 2011. Second, the Roland Berger analysis does not consider large format lithium-ion battery demand outside the automotive sector, which is where I expect the exponential growth to occur.

The first hybrid electric vehicles were introduced in 1999 and through 2007 the annual sales growth was spectacular. While the following graph of US HEV sales from hybridcars.com shows that unit volumes fell off a cliff in 2008 and 2009, the decline is easily attributed to two independent but identifiable factors; the economic collapse of 2008 and the growing hype over plug-in vehicles that caused many likely HEV buyers to delay new car purchase decisions.

HEV Growth.png
Now that the roll-out dates for the GM Volt and the Nissan Leaf are only months away, two years of plug-in hype is about to hit an economic brick wall when potential buyers begin making relatively simple total cost of ownership calculations like this one.


Conventional
Prius-class
Volt-class

ICE
HEV
PHEV
Sticker price
$18,000
$22,500
$40,000
Tax credits


-$7,500
220 Volt outlet
             
             
  $2,500
Amount financed
$18,000
$22,500
$35,000




Monthly payment
$307
$384
$597
   (60 months at 7%)



Monthly gasoline
$105
$63
$21
   ($3 per gallon)



Monthly electricity


$20
   ($0.10 per kWh)
         
                   
Monthly cost of ownership
$412
$447
$638

The big beneficiary of this exercise will be the Prius-class HEV, particularly if the buyer uses an assumed gasoline price in the $5 to $6 range. No matter how you fiddle with the numbers, PHEVs will come in a distant third for any buyer who thinks the green in his wallet is more important than the green in his cocktail party conversation. Jerry Flint of Forbes recently predicted that Nissan's Electric Car Will Flop. I'll go Jerry one better and predict that every car with a plug will face a similar fate.

While the idea of plug-in cars is just plain balderdash, there is another developing transportation trend that holds immense potential for lithium-ion battery manufacturers. That trend is e-bikes and e-scooters, which are rapidly becoming the vehicle of choice throughout Asia and the developing world. To put things in perspective, Pike Research is forecasting global sales of 80 million electric two-wheeled vehicles in 2016. When you consider that the average e-bike needs about 500 wh of batteries, it's pretty easy to see how an 80-million unit E2W market could make a huge dent in a 36 million kWh battery market. It's not a market that most companies and investors are focusing on, but it's a market that stands a very good chance of sopping up any excess supplies of large-format lithium-ion batteries.

Currently, the only thing standing in the way of lithium-ion dominance of the E2W market is price. While roughly 85% of e-bikes currently use lead-acid batteries because they're cheaper, the E2W market is ripe for the picking by lithium-ion batteries because size and weight truly are mission critical constraints for a 50-pound vehicle that runs on a combination of battery and muscle power. In its report on the coming battery glut, Roland Berger forecast that the price of automotive grade high energy lithium-ion battery cells would fall from the current level of $650 per kWh to $400 per kWh in 2015 and $275 per kWh in 2020. Consumer products grade cells should be cheaper. As lithium-ion battery supplies increase and reasonable economies of scale are realized, there's little question in my mind that they will become the battery of choice for the E2W market.

Currently, the only company I track that focuses on the E2W market is Advanced Battery Technologies, Inc. (ABAT). They've been making e-bike batteries for years and decided to vertically integrate last year when they bought Wuxi Angell Autocycle, a Chinese e-bike manufacturer. In my view, it was a much smarter purchase than Ener1's (HEV) stake in Th!nk Global or A123 Systems' (AONE) stake in Fisker Motors. I haven't changed my view that the lead-acid sector is more attractively priced than the lithium-ion sector, but if I had to invest in lithium-ion, ABAT would be at the top of my list because its profit history is exemplary and its business strategy just makes sense in a world where six billion people are trying to earn a small piece of the lifestyle 500 million of us have and take for granted.

Disclosure: None.



was posted on AltEnergyStocks.com.


       

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Comments

"Jerry Flint of Forbes recently predicted that Nissan's Electric Car Will Flop. I'll go Jerry one better and predict that every car with a plug will face a similar fate."

I have to heartily disagree. I noticed you provided no calculation for an pure EV like the Nissan Leaf. Why?

Forbes is making an assumption as to what the Nissan Leaf will cost.

What if the Nissan Leaf is not $40,000 initial price (because they have said time and again it is to be affordable to the average american, not just celebrities) but say a base price of $32,500?

Well now you have $32,500 - $7500 - $2500 = $22,500 for the Nissan Leaf.

In addition there is ZERO fuel cost.

With electricity at .10 per Kwh, and 100 mile range per full charge on a 24kWh battery, assuming the average lease is 12,000 miles a year, or 1000 miles a month, equates to 10 charges x $2.40 = $24 a month electric charge.

If you take a 30mpg ICE, that equates to a monthly fuel charge at $3 a gallon or $100 a month.

So you are saving $76 a month in fuel cost with an EV.

So to recap:

That's a $22,500 car saving a person $76 a month on fuel for the life of a vehicle.

If you hold this car for 5 years you save: $4,560 in fuel savings.

In addition, no oil changes. No spark plug changes. No transmission maintenance/fluid changes. No coolant. No belts.

Your maintenance saved in 5 years is phenomenal over an ICE.
Oil changes would be 20 over the lifetime of the vehicle. 20 x $40 = $800.

How much time do I save not going to a gas station? car garage? emission tests?
Is there value in my time/maintanence savings?

So we have a $22,500 - $4560 gas- $800 oil- $500 in general maintenance, and time = $16,640 for the Nissan Leaf.

If I start playing the numbers and say the average person drives 15,000 miles a year vs 12,000 or I own this car longer than 5 years or I have an electric rate less than .10 per kWh, or acknowledge the average car does NOT get close to 30mpg, it only looks better for the EV.

I live in central WA state and our electric rate is .03 per kWh because we use hydroelectric dams for electricity. It is dirt cheap.(shhh....tell no one..except that 20% of USA's electricity comes from this cheap source).

That means I only would spend $7.20 a month to run my car vs. $100 a month on a 30mpg ICE car (mileage which I don't have btw..I'm closer to 24 mpg average).

The only argument I see is range. And I submit there are many, many families of 2 adults with their 1-3 kids that have only two vehicles: one larger vehicle for their job/roadtrip vacations and one smaller vehicle for job/around the town vehicle.
I am one of those families.

The Nissan Leaf is a STEAL for savings and convenience and you don't have to be a greenie to appreciate it. But if you want to save mother earth good for you. I simply want to save lots and lots of money and my TIME.

7-8 million NEW cars are sold in the USA every year. I think it is very reasonable that 1 out of 10 of these new buyers are a family I describe and will go for an EV based on cost savings. That's 700,000 -800,000 EV's a year.

So the only thing we can disagree is the price of the Nissan Leaf. Will it be $28,000 base? or $40,000 base?

We will know the answer when they announce it in April 2010.

Meanwhile, what is my play in all of this?

AeroVironment. Stock symbol AVAV. Cash rich, no debt and has the contract to provide the Level II charging stations for Nissan in the home and at work. They also make level III charging so the car can be charged up to 80% capacity in 25 minutes.

Good Investing,

-David G.

I did the calculations for the Leaf in my spreadsheet and it was the worst performer of the group in terms of societal fuel consumption and CO2 emissions. Any discussion of the price, however, is pure speculation until Nissan speaks.

I have no idea what the Leaf will cost, but I do know that $40,000 to $45,000 is the price range for both the Volt and the MiEV. So I think an assumption that Nissan will undercut the competition by over 20% is constructing a fairy castle in the air. Time will tell which of us is right.

The valuation on ABAT is not half bad, and I totally agree with you that 2WEVs are going to be much, much bigger than electric cars.

I don't think all EVs will flop, but they will remain a luxury item for the foreseeable future. All your arguments against EVs are economic, and luxury cars are not bought because of the economics. With luxury items, higher prices often *increase* demand, because that adds to one's ability to show off ones wealth.

The Tesla Roadster is not a flop (they can sell them for a profit, even at low volumes.) That does not detract from your main point, however: EVs and PHEVs are not going to be a meaningful fraction of the vehicle fleet for quite some time.

I have no doubt that some plug-ins will be sold and their owners will love them. The big question is whether they'll be sold in big enough volumes to make money for investors and that's a path I'd be reluctant to tread. I've read Tesla's registration statement and it seems like the risks of their business greatly outweigh the potential rewards.

My big problem is that there's something wrong with a government policy that subsidizes the least efficient alternative while failing to support the more efficient alternatives.

As with a previous commenter and the Pike report, I agree that the market for 2wev is enormous and was not included in the Roland Berger study you cited. It is also reasonable to assume substantially increased use of lithium batteries in other consumer applications, particulalry if there is a substantial drop in battery costs.

It is therefore interesting that you would give the Roland Berger study so much attention. The 10 slides that are publicly available lead one to conclude that the study was shallow and far from comprehensive, barely worth the time taken to review it.

A few observations based on those slides include (in no particular order):
1. Few of the assumptions for this study were identified. For example, the price of oil in this time frame is not mentioned. Similarly, there is no mention of their target for ICE fuel economy by 2020. Both of these, and of course other factors, can have substantial impact on likely sales of xEVs.
2. Their current price for lithium batteries is much lower than the price you have repeatedly cited.
3. They made no mention of advanced lead acid chemistry. I can understand that they did not mention "speculative" chemistries, but this is "nearly" commercial.
4. They project cost reductions in batteries in large part due to volume manufacturing. While this is likely true for the "battery pack", it seems unlikely for the cells. On the other hand, they do not mention the likely cost reduction due to downsizing vehicle battery packs based on improved reliability assessments.
5. Given the high "roi" for the consumer, their forecast for sales of mild hybrids in 2020 seems quite low.
6. Although they are forecasting a glut of lithium batteries and a dramatic reduction in battery cost, they are also forecasting that by 2015 HEVs will be roughly 3% of worldwide new vehicle sales. In the US market hybrid sales have been close to that level already. For example, in January 2010, total US hybrid sales (including "a few" mild hybrids) was 17,157 vehicles out of 656,686 total vehicles sold, roughly 2.6%.
7. They did not appear to consider the possibility of alternative and disruptive storage chemistry or technology. While I accept that this is low likelihood within the next ten years, it should have at least received consideration and mention.

Finally, if I felt the Berger report was credible, it would not seem to bode well for the likes of AXPW. Again, they didn't even mention advanced lead acid.

The slides are a summary of the publicly available information. When I speak with the author I'll confirm my suspicion that the full report is far more detailed. The thing that you need to understand is that Roland Berger is one of the premier automotive consulting firms in the world and they are held in highest esteem by the OEMs, who are the only ones that have an opinion that matters.

Since the report dealt with cars that would use lithium chemistry, AXPW and advanced lead acid just got lumped into the "ICE (None + Micro)" category that represented over 90% of all markets in 2015 and over 73% of all markets in 2020.

It's also worth noting that their slide presentation at last fall's Frankfurt Auto Show had stop-start in ~50% of all European autos by 2015 and ~69% of all European autos by 2020. Since the US and Asia are likely to follow Europe's lead, it is shaping up as a fun decade for Axion.

In any event I'm far happier with the risk profile today than I was at the end of 2006 when I wrote the big check, but thanks for your concern ;-)

I am one of the few people in this world with extensive personal experience with the A123 battery:

http://biodiversivist.blogspot.com/2010/01/electric-bicycle-lessons-learned.html

They work as advertised. The difference between these and the lead acids I started out with is stunning.

Very few people buy the lowest price car they can find. Virtually everyone buys the highest priced car they can afford and it is for status reasons, which is why a spreadsheet that predicts popularity based on cost returns is not likely to get many predictions right, IMHO.

I suspect that lead-acid batteries will be largely obsoleted within a decade.

I agree with Mr. Petersen's optimism about electric powered two wheelers. And I applaud his awareness. But I suggest there is more to know about ebike battery makers. There are at least 6 companies in China / Taiwan focusing on Lithium for ebikes. And, Ebikes for USA and EU often use 18650 Li Mg, cells from Sanyo, Sony and Samsung. These may not be on his radar for USA listed stocks, but they are serious players in the LIght Electric Vehicle Industry. www.ebwr.com is the address of a annual report on ebike industry.

I watch all of the major players in the battery space, but I only write about pure-play manufacturers that report to the SEC and are easy for U.S. investors to research. It's not a slight to the foreign competitors, but I'm a U.S. lawyer and writing about companies that aren't subject to U.S. law involves some special risks for me that I'm unwilling to assume.

Hello. I disagree that the PHEV's will be a flop. I take a laymen approach to this and will explain in this manner.

If you were to think of a PHEV as a diesel hybrid train. The diesel generator on a train as your local power plant.

The statistics are 436 ton-miles per gallon.

That works out to approximately 436 MPG for each train car which is connected to the main diesel generator.

In my humble opinion there is no difference between the trains diesel generator and your local power plant as far as efficiency.

Lets say a PHEV weighs on average of 1 ton.

This vehicle would be getting approximately 436 MPG.

This is real world calculations not slide rule calculations.

I believe that a PHEV should be a secondary car capable of 40 miles enough to simply commute. Then charge at work if necessary.

Your secondary auto should/could be a HEV.

Danny Ray
Ampedbikes.com

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