Lux Research Confirms that Cheap Will Beat Cool in Vehicle Electrification
On March 30th, Lux Research released an update on the vehicle electrification market titled "Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market" that predicts:
- E-bikes and micro-hybrids carry minimal storage, but compensate with high volume. E-bikes show strong unit sales, as they sustain a 157 GWh storage market totaling $24.3 billion in revenues in 2016. Micro-hybrids benefit from increasingly stringent emissions limits, supporting 41 GWh and $3.1 billion in storage sales.
- Hybrid electric vehicles (HEVs) like Toyota's Prius grow
steadily while PHEVs and EVs are at the mercy of external factors. Both
PHEVs and EV sales are sensitive to oil prices, but catalyze growth for
Li-ion batteries, along with HEVs powering a $2.3 billion market in our
base case scenario.
- Advanced lead-acid batteries will dominate the storage market now
and in the future, resulting in a 165 GWh and $16.1 billion market in
2016. Lithium-ion follows, showing strong growth from 4.1 GWh and
$2.7 billion in 2011 to 32.2 GWh and $11 billion in 2016.
The basic drivers of all vehicle electrification initiatives are the desire to break the economic stranglehold of increasingly expensive petroleum, reduce CO2 emissions and improve air quality in big cities. The major countervailing force is the economic reality that consumers will not sacrifice the flexibility and reliability of internal combustion engines for a more expensive alternative that doesn't offer a compelling value proposition. Governments and EVangelicals are pushing hard for flashy EV solutions with miserable economics, but Lux believes cheap will beat cool over the next five years.
Electric Two-wheeled Vehicles
In Lux's view, the runaway winner over the next five years will be e-bikes – the most energy efficient transportation in the world. It expects battery sales for e-bikes to double from $12 billion in 2011 to $24.3 billion in 2016. While roughly 85% of today's e-bikes use lead-acid batteries because they cost less, Lux expects lithium-ion batteries to garner an 18% market share in China by 2016, which implies a global market share of closer to 30%. As an avid cyclist who understands the impact of extra weight on a bicycle, I think Lux's market penetration forecast for lithium-ion is low. Lead-acid may retain its dominance in China, the world's biggest e-bike market, but I'm convinced that lithium-ion will be the battery of choice in North America and Europe where e-bikes are rapidly gaining ground.
Lux expects a limited market for e-bikes outside of China, but I think it's a market that could surprise people who haven't really considered the mobility needs and transportation budgets of young adults and cost-conscious commuters. E-bikes are not an all weather solution, but on a pleasant day a $1,000 e-bike is far more attractive than alternatives that cost thirty to fifty times more and can't come close in the fun per mile category.
I've been following Advanced Battery Technologies (ABAT) for a couple years and have been impressed by its cost control and business strategy. It began as a low cost manufacturer of commodity lithium-ion batteries and then expanded into e-bike manufacturing. It's growth rates and profit margins are impressive enough that I've often said ABAT is too cheap to be cool. ABAT's stock price recently tumbled by over 40% when Variant View Research, an acknowledged short seller, published three "hatchet-job" articles that were highly critical of its operations, financial reports and corporate governance. Since I don't want to jump into the middle of a dogfight, I'll simply note that ABAT is the only publicly held pure play in the e-bike space and seems to have a bright future as a vertically integrated manufacturer of e-bikes, the most popular electric vehicles in the world.
The second biggest market over the next five years will be micro-hybrids, conventional internal combustion vehicles that simply turn the engine off when the car is stopped and restart the engine when the driver takes his foot off the brake. In an earlier report titled "Micro-hybrids: On the Road to Hybrid Vehicle Dominance," Lux forecast that the micro-hybrid market would grow from three million units this year to 34 million units a year by mid-decade. The primary drivers of growth will be strict new European CO2 emissions rules and ambitious new CAFE standards that will be phased in over the next few years. According to Lux "micro-hybrids sit in an enviable position as a cost effective approach to improve fuel efficiency, since their start-stop and regenerative braking capabilities can be implemented in the OEMs' current stable of vehicles, without the more drastic redesigns needed to create a full EV, PHEV, or HEV." Overall, Lux believes the market for advanced batteries in micro-hybrid vehicles will grow from $495 million this year to $3.1 billion by 2016.
Competition in the micro-hybrid battery space is intense and diversified. Johnson Controls (JCI) and Exide Technologies (XIDE) are both offering a variety of advanced lead-acid batteries for micro-hybrids that range from enhanced flooded batteries to valve regulated absorbed glass mat batteries. With their global manufacturing footprints, established OEM relationships and proven manufacturing competence both companies should benefit from impressive growth in OEM battery sales over the next five years.
While advanced lead-acid batteries currently dominate the micro-hybrid battery market, there is a growing body of proof that advanced lead-acid batteries are ill suited to the demands of micro-hybrids. In a 2007 Journal of Power Sources article, a team of battery researchers from Ford described the problem as follows:
"Charge acceptance, particularly at low temperatures, is a battery requirement that determines the charge balance of the power supply system. The more the battery has to contribute to supplying electrical loads, the more essential it becomes that it can be recharged quickly. ... [A]dvanced HEV applications will require good charge acceptance in a dynamic discharge/charge micro-cycling operation. We call this feature dynamic charge acceptance (DCA). In the particular case of lead/acid batteries, DCA capability is extremely sensitive to the short-term previous charge/discharge exposure of the battery."
At last September's European Lead Battery Conference in Istanbul (the ELBC) Ford and BMW jointly proposed a new battery testing protocol for micro-hybrids. Under the protocol a 60-second engine off cycle will require 39,600 watt-seconds of energy. Of that total, 36,000 watt-seconds will be used to support accessory loads during engine off interval and the remaining 3,600 watt-seconds will be used to re-start the engine. Until the 39,600 watt-second discharge is recovered, the stop-start system will be disabled. Since a disabled stop-start system can't save fuel by turning off the engine at a stoplight, dynamic charge acceptance is rapidly emerging as one of the important battery performance requirements for micro-hybrids, if not the most important one.
The big drawback of using enhanced flooded batteries and AGM batteries in micro-hybrids is that their dynamic charge acceptance degrades over time. While a new battery needs about 30 seconds to recover from an engine-off event, it can take three minutes or more when a battery's been in service for a year. Since city driving typically offers one or two engine-off opportunities per mile, pushing the battery recovery time from 30 seconds to three minutes or more has a very negative impact on fuel economy.
The following graphs come from the BMW-Ford presentation at the ELBC and show how the dynamic charge acceptance of an AGM battery degrades over time. The graph on the left shows what happens if the generator is disabled for seven seconds after restart to maximize the engine power available for acceleration. The graph on the right shows what happens if the generator kicks in immediately. The downward curving blue lines show the amount of current the battery can accept as the number of stop-start cycles increases. The upward curving black scatters with red overlays show the time required for the battery to regain an acceptable state of charge. The simple summary is that both batteries performed poorly and lost most of their dynamic charge acceptance capacity in a matter of months.
While advanced lead-acid batteries are currently the best available choice for micro-hybrids, their market dominance is vulnerable because dynamic charge acceptance is so critical. As the market matures, I believe automakers will choose batteries for micro-hybrids on the basis of detailed cost benefit analysis that includes lifecycle fuel economy. When all costs are accounted for, I believe emerging energy storage technologies will gain the upper hand.
Three advanced battery developers have disclosed alternative approaches to the micro-hybrid market.
The first design win from Peugeot-Citroën went to a three-component system from Continental AG and Maxwell Technologies (MXWL) that combines an AGM battery and control electronics from Continental with a small supercapacitor module from Maxwell. In this system, the AGM battery carries the 36,000 watt-second accessory load and the supercapacitor picks up the 3,600 watt-second starter load. While this three-component approach will reduce battery strain by shifting the starter load to the supercapacitor, it can't eliminate the gradual loss of dynamic charge acceptance in the AGM battery that does the yeoman's share of the work.
A second design win from an undisclosed OEM has reportedly gone to A123 Systems (AONE), which has been testing a lithium-ion micro-hybrid battery solution for the last few years. Given the charge acceptance characteristics of A123's lithium-ion chemistry, I believe its stop-start solution will perform well and avoid the dynamic charge acceptance issues that plague advanced lead-acid batteries. The big questions will be cost and cold weather performance. Until A123 releases more details on its micro-hybrid solution, it will be hard to assess its competitive position.
The third contender for a share of the micro-hybrid market is Axion Power International (AXPW.OB), which is working with several automakers and has progressed far enough in its relationship with BMW that the two companies made a joint technical presentation at last year's ELBC. While it's not unusual for an automaker to enter into a development contract or supplier relationship with a micro-cap, I'm not aware of another case where an automaker shared the podium with a battery developer at an industry conference. A more surprising development was a brief conference call reference to a grant application under the DOE's Vehicle Technologies Program that Axion filed as a co-applicant with a major automaker. To the best of my knowledge, this is the first time an automaker has joined in a DOE grant application with a component developer. While the details remain sketchy, the DOE plans to make its award decisions by late June and fund in the third quarter.
Axion is not currently producing PbC batteries for commercial sale to customers. It has recently installed a second-generation automated production line for its patented carbon electrode assemblies and is engaged in manufacturing process, quality control and product performance validation activities with potential customers. Until that work is completed, a design win or production contract will remain out of reach.
EVs, PHEVs and HEVs
While Lux forecasts that EVs, PHEVs, and HEVs will command a solid chunk of storage revenue because of their high per vehicle battery costs, Lux doesn't "expect EVs or PHEVs to take the world by storm, and sees steady but not explosive growth from HEVs." Lux said that consumer acceptance of the GM Volt and Nissan Leaf is "anything but a certainty" and noted that early results indicate only 40% of the non-binding pre-orders for the Nissan Leaf are turning into purchases. It cited high battery costs as a major obstacle to making electric vehicles cost effective. Overall Lux believes that light and heavy PHEVs will depend on high oil prices and "EVs will disappoint in all scenarios." As a product class, Lux predicts that battery sales for EVs, PHEVs, and HEVs will grow from $710 million this year to $2.1 billion in 2016. Since there are so many competitors in the EV, PHEV and HEV markets, it's hard to pick likely winners and I'd rather watch from the sidelines.
The last class of vehicles considered by Lux was delivery trucks, city buses and railroad locomotives. It forecast that sales in the heavy vehicle segment would grow from $110 million in 2010 to $642 million in 2016. A number of energy storage technology developers are active in the heavy vehicle segment including:
- Maxwell, A123, Ener1 (HEV), Altair Nanotechnologies (ALTI) and Valence Technologies (VLNC), which are actively marketing energy storage systems for hybrid and electric buses and delivery trucks; and
- General Electric (GE) and Axion Power, which are developing battery systems for hybrid locomotives and retrofit solutions for the existing locomotive fleet.
Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.