Last week Energy Secretary Steven Chu addressed the United Nations Climate Change Conference in Cancun. After watching the video presentation several times I can’t help but wonder whether the Secretary didn’t politely caution his audience that lithium-ion batteries are a dead-end electric drive technology. I could be misinterpreting Secretary Chu’s remarks, but if you own stock in a lithium-ion battery developer like A123 Systems (AONE), Ener1 (HEV), Valence Technologies (VLNC) or Altair Nanotechnologies (ALTID), or are considering any of these companies for your portfolio, the discussion that starts 25 minutes into the following video could be very important.
My impressions, observations and interpretations are summarized below.
Secretary Chu began his electric drive remarks with a politically correct but specious comparison of vehicle efficiencies that followed the EPA fuel efficiency party line I criticized in Alice in EVland, Part II. The numbers simply don’t work unless you ignore efficiency losses and emissions on the utility side of the electric meter. Ignoring the political posturing, the most curious and troubling aspect of the Secretary’s electric drive remarks was his description of what it would take for electric drive to be competitive with internal combustion:
“And what would it take to be competitive? It will take a battery, first that can last for 15 years of deep discharges. You need about five as a minimum, but really six- or seven-times higher storage capacity and you need to bring the price down by about a factor of three. And then all of a sudden you have a comparably performing car; let’s say a mid-sized car which has a comparable acceleration and a comparable range.”
Now, how soon will that be? Well, we don’t know, but the Department of Energy is supporting a number of very innovative approaches to batteries and its not like its 10 years off in the future, in my opinion. It might be five years off in the future. It’s soon. Meanwhile the batteries, the ones we have now, will drop by a factor of two within a couple of years and they’re gonna get better. But if you get to this point, then it just becomes something that’s automatic and I think the public will really go for that.”
While Secretary Chu was explaining these bottom-line technical and economic requirements, the following summary text was superimposed on a background slide that compared the relative energy densities of common fuels.
“A rechargeable battery that can last for 5,000 deep discharges, 6-7 x higher storage capacity (3.6 Mj/kg = 1,000 Wh) at 3x lower price will be competitive with internal combustion engines (400 – 500 mile range).”
The unspoken yet undeniable truth in Secretary Chu’s presentation is that it’s impossible to achieve energy densities of 1,000 Wh/kg with lithium-ion batteries. The following graph comes from the Electricity Storage Association and shows the relative energy densities of various battery chemistries on a logarithmic scale. While the graph uses kilowatt-hours per ton and per cubic meter for its scale, the magic of the metric system means that the watt-hours per kilogram and per liter end up at the same root numbers, just three orders of magnitude smaller.
Lithium-ion battery developers have made great strides over the last few years when it comes to cycle-life and safety. In every case, however, the gains have come at the cost of reduced energy density. Today’s lithium-ion batteries have energy densities of 95 to 190 wh/kg and it’s reasonable to believe energy densities will continue to improve at rates of 4% to 5% per year. However the only battery chemistries that have a chance of achieving energy densities in the 1,000 wh/kg range are rechargeable metal-air and other technologies that IBM and others are working feverishly to develop.
What most investors don’t understand is that emerging metal-air technologies have nothing in common with lithium-ion technology. The raw materials, fabrication methods, manufacturing facilities and fundamental chemistry are completely different. I can’t predict whether or when the new technologies will be available, but Secretary Chu seems confident that the timeframe is more than five years and less than ten. Since he’s forgotten more about battery technology than I’ll ever learn, I tend to take his predictions seriously.
EVangelicals who believe electric drive ranks right up there with motherhood, apple pie, truth and justice have heralded Secretary Chu’s presentation as wonderful news. From an investor’s perspective, I don’t see how it can be viewed as anything less than a shot across the bow of the lithium-ion battery industry – a clear statement that electric drive requires better price and performance than lithium-ion batteries can deliver and an unmistakable implication that the DOE is now focused on more promising technologies.
Were I stockholder in a lithium-ion battery developer, Secretary Chu’s presentation in Cancun would scare me senseless. He effectively said that developers of lithium-ion batteries can expect a couple years of intense cost pressure before their products become marginally non-competitive. If prices fall far enough and fast enough, those developers will enjoy a three- to eight-year window when they can build market share and perhaps earn a profit. By 2020, a new generation of even more advanced battery technologies will make the best lithium-ion batteries obsolete.
A recurring theme in this blog is that energy storage plays by a different set of rules. Information technology was great fun because creative types could write code one day and roll it into the global market the next. In the battery business, developers have to spend years refining their technologies, developing new production processes and building factories; which invariably means the next generation technology is nipping at their heels before they can hit the start button for a shiny new factory. Once a newer, better and cheaper technology starts grabbing headlines, obtaining expansion capital to build a second factory for yesterday’s technology can be very difficult.
I was a Prodigy user in the early-90s and remember what happened when America Online launched a better platform. I also remember what happened when Yahoo! supplanted AOL and when Google supplanted Yahoo! Nobody knows what it will take to knock Google off its pedestal, but I have every confidence that some creative entrepreneur will find a way because that’s the nature of the beast. Today’s apex predators always become tomorrow
During the fifth industrial revolution, investors made outsized returns by speculating in companies that would be market leaders when the future unfolded. In the sixth industrial revolution the outsized returns will come from investments in established market leaders that sell proven products into rapidly expanding markets while the future unfolds.
I like the lead-acid battery sector because a global manufacturing infrastructure already exists; top manufacturers like Johnson Controls (JCI), Exide (XIDE) and Enersys (ENS) generate billions in annual revenue and substantial profits by selling mundane products that serve the mundane needs of everyday people; and upstart innovators like Axion Power International (AXPW.OB) are developing important enhancements to proven technologies that can be integrated into existing factories without building new manufacturing infrastructure from the ground up.
There will always be a raging battle for the peak performance crown among battery technology superstars. Unless the overall rate of technological progress slows to a snail’s pace like it did in the case of corn ethanol, today’s best battery technologies will not have enough time to mature and build a global footprint before they’re eclipsed by tomorrow’s best battery technologies. Meanwhile the established industry leaders will continue manufacturing profitable products to meet rapidly growing global demand.
Call me a Luddite, but I don’t want to own a technology that will be obsolete before it becomes profitable.
Disclosure: Author is a former director of Axion Power International (AXPW.OB) and owns a substantial long position in its common stock.
VALENCE TECHNOLOGIES does not make a lithium-ion technology. They make a far superior lithium-phosphate technology. Valence is a great company that will dominate the space in the coming years. Please remove their name from the top as the statement is inaccurate.
The yellow and purple Audi A2 car took around seven hours to complete the 600-kilometre (372-mile) stretch, even had the heating on.
Driver Mirko Hannemann, the chief of DBM Energy, drove the distance at 90 km/h (55 miles per hour) on average, had the heat on and was able to whisk around a few more miles in the city. When the A2 electric finished, it still had 18% of the initial electric charge in the battery.
It has a lithium-metal-polymer battery. DBM Energy, the company that built the battery and electric motors into the Audi A2, said the battery would function for 500,000 kilometres.
A representative of the car said the Audi still featured all the usual creature comforts such as power steering, air-conditioning and even heated seats as well, so it was not like the car was especially made for long distance record attempts
The German engineers said their car was special because the battery was not installed inside the luggage area, but under the luggage area, meaning the full interior space of the car was still available
The battery, based on what DBM Energy calls the KOLIBRI AlphaPolymer Technology, comes with 97 percent efficiency and can be charged at virtually every socket. Plugged into a high-voltage direct-current source, the battery can be fully loaded within 6 minutes
The young inventor couldn’t give an exact price for his battery — he said that was dependent on scaling effects — but vowed it wouldn’t just be more powerful, but in the end also cheaper than conventional lithium ion batteries.
What’s more important, the technology which made the trip possible is available today.
German Economics Minister Rainer Bruederle, who subsidized the drive, said it showed electric cars are not utopian but really work.
Michael, Lithium iron phosphate is simply one of many lithium-ion chemistries. There isn’t a dime’s worth of difference between the LiFePO4 batteries from Valence, A123, BYD, Thundersky and a host of others. To make matters worse, Valence has been on financial life support for years and would have to raise $76 million in new capital to be worthless from a financial statement perspective.
상율 한, there is an immense difference between technical feasibility and economic feasibility. When somebody rolls out a product that meet’s Secretary Chu’s performance and price targets I’ll be impressed. Until the price is competitive, technical performance alone is meaningless.
John, If i may say, this article may be slightly misleading for anyone who’s not been following your posts for a while… is it fair to say you’ve somewhat conflated energy storage technologies for EVs with storage technologies for enhanced (to use a phrase) ICE cars? That is, you say that Li will never work for EVs but maybe Metal-air or some future technology will; but meanwhile you DO believe in lead-acid. But you don’t mean lead-acid for EVs. Lead-acid is even farther from the 1000 Wh/kg target, per that chart, and too mature a technology to envision significant weight related advances, correct? Your intention is not to imply that you like lead-acid to solve the issues Mr. Chu raised, i am sure, having followed your position on the EV – just that Mr. Chu has unintentionally confirmed your position that lithium ion technology will never play a role in transportation energy storage… my question, in the end, is to ask for an article on the ‘more promising technologies’ you suggest DOE is working on – and the companies we might follow which are involved? seems like notwithstanding your belief that EV advocates ignore the ‘utility side of the plug’, the ICE vehicle must die sooner or later, and the electric vehicle will replace it. what WILL power them? thanks.
The one big drawback of a blog is that I can only write about bits and pieces of an issue as they arise. Tying them al together would take a book.
It’s pretty clear to me that today’s best available lithium-ion batteries are never going to be good enough to power electric drive. The Secretary as much as said so in his presentation.
When it comes to the question of “what will work?” the only honest answer I can come up with is I don’t know but there are a lot of brilliant people working on the problem and necessity is the mother of invention. While I don’t know what the answer will be, I’m pretty convinced that the landscape will be clearer in 5 or 10 years.
I like lead acid as an investment because it will continue as the technology of choice until something better proves its merit. That leaves a lot of room for short-term upside with none of the uncertainties the newer technologies present.
It might be fun to speculate about what the future technology leaders will be, but until they’re companies you can invest in, the discussion doesn’t belong in an investment blog.