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The Lithium-ion Battery Glut Will Be Massive

John Petersen

I hate being wrong, but Mother always taught us, "if you have to eat crow don't nibble."

In February 2010 I wrote an article titled "Why I Don't Expect A Lithium-Ion Battery Glut" that's shaping up as one of the worst predictions in the history of my blog. This week Lux Research published a report titled "Using Partnerships to Stay Afloat in the Electric Vehicle Storm" that has me convinced that the capacity glut in lithium-ion batteries will be massive for at least a decade.

I humbly and sincerely apologize to any readers who bought shares in lithium-ion battery developers based on my starry-eyed optimism for the EV battery market.

The basic premise of my February 2010 article was that while plug-in electric vehicles would almost certainly die a slow and agonizing death from the congenital birth defects that have doomed every generation of EVs to the scrap heap of history, booming sales of electric two-wheeled vehicles, or E2Ws, and Prius-class hybrid electric vehicles, or HEVs, would be enough to absorb the slack. With eighteen months of history to look back on, it's just not working out the way I thought it would.

As I expected, plug-in vehicles are drawing breathless reviews from the press and EVangelicals, and indifference or outright scorn from the car buying public. Automakers are toying with plug-in vehicle concepts that may go into production over the next few years if the plans aren't scrapped due to customer apathy, but they're all rushing to make new fuel efficiency technologies like stop-start idle elimination standard equipment. With the exception of Advanced Battery Technologies (ABAT) which makes both ebikes and the batteries that power them, E2W manufacturers are letting their customers decide and the overwhelming majority of E2W buyers are voting with their wallets and deciding that cheap and reliable lead acid batteries are better suited to their needs despite a little extra weight.

Can you believe it? Cheap is beating cool. Who could have predicted such an outcome in the depths of the worst financial crisis since the 1930s?

In all seriousness, Lux forecasts a catastrophic supply and demand imbalance in the lithium-ion battery sector over the next decade. On the supply side it predicts that global manufacturing capacity will ramp to about 21,000 MWh by next year (875,000 Leaf-class BEVs) and climb to almost 30,000 MWh (1.25 million Leaf-class BEVs) by 2015. On the demand side, Lux's optimistic case based on $200 oil predicts annual battery sales of about 6,000 MWh in 2015 (250,000 Leaf-class BEVs) ramping to 22,500 MWh (937,500 Leaf-class BEVs) by 2020. Under their more conservative $140 oil price scenario, demand won't hit 6,000 MWh until 2020. The low oil price scenario is aggressively ugly. Is it any wonder that France has recently withdrawn €100 million of subsidized loans for a planned Renault battery plant?

The Lux forecast is bad news for diversified first tier manufacturers like LG Chem, GS Yuasa, SB LiMotive, AESC, and Sanyo; terrible news for financially sound second tier manufacturers like Toshiba, Hitachi, and JCI-Saft; and an "existential threat" for emerging third tier battery developers like A123 Systems (AONE), Ener1 (HEV), Valence Technologies (VLNC) and Dow Kokam that were counting on transportation markets that are unlikely to develop.

Now you know why so many lithium-ion battery developers are suddenly talking trash about using their batteries for grid-scale storage. In the near future, that myth will be buried along-side its brother the electric car because the world's utilities can't possibly soak up 20,000 to 25,000 MWh per year of excess lithium-ion battery manufacturing capacity.

Last February, the Department of Energy released a comprehensive study on the economic potential of grid-based storage titled "Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide." It was commissioned by the Energy Storage Systems Program and written by Jim Eyer and Garth Corey. Based on the conclusions of that study, which I discussed in "Grid-Based Energy Storage; A $200 Billion Opportunity," I cobbled together a table that identifies the principal grid-based energy storage applications, quantifies the potential national demand and quantifies the 10-year economic value for a kilowatt-hour of grid-based storage dedicated to an application. The table is mine, but the baseline numbers are Sandia's.

7.14.11 Grid Demand.png

The color coding in the table represents my attempt to segregate system value per kWh into cool technologies like flywheels, supercapacitors and lithium ion batteries, which are highlighted in blue, and cheap technologies like flow batteries, lead-acid batteries, compressed air and pumped hydro, which are highlighted in yellow. If you total up the potential demand for all of the blue highlighted applications and throw in the orange for good measure, you get to a likely US demand of 11,500 MWh spread over a period of several years. It won't make a dent in 20,000 to 25,000 MWh per year of excess lithium-ion battery manufacturing capacity.

Like bloggers, outfits like Lux want every dark cloud to have a silver lining and their new report is no exception. In addition to forecasting doom, gloom and bust for the lithium-ion battery space, it focuses on the expected development of a $300 million annual market for supercapacitors in the transportation markets. In that market, Lux identified Maxwell Technologies (MXWL) as the dominant competitor and took pains to observe that "For the numerous supercapacitor technology developers to gain market share in transportation, they will need to validate products with a clear edge over Maxwell's incumbent technology, and not rely on growing demand to create ripe opportunities for new entrants."

While I'm a fan of Maxwell's products and business potential, I'd be remiss if I didn't point out that its stock trades at 4.3 times book value and 3.3 times trailing twelve-month sales of $131 million. Even if you assume that Maxwell will walk away with the lion's share of the $300 million transportation supercapacitor market that Lux is forecasting for 2016, its upside potential will be limited as it negotiates the transition out of the valley of death and begins trading on the basis of sales, growth and profitability.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.



was posted on AltEnergyStocks.com.


       

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Comments

As you know, I was one of those people opting for PbA when I bought an e-bike last month.

The main purpose of the bike is for trips to the grocery store, which involves a lot of steep hills.

Besides the economics, I wasn't sure how much I'd like an ebike, so it makes sense to start with something on the cheap end. If other buyers are like me (Always a rash assumption), we may see the adoption of Li-ion increase as people buy their second bike to replace the entry model, if they find that they are using the bike a lot. I could definitely see myself doing that... especially if a battery glut brings down prices.

Last time I checked companies that have to slash prices to keep their factories operating are not usually immensely profitable.

You threw in the towel to easily. The LUX assessment is quite limited and definitely not one on which to base the full story. You have to distinguish between capacity and production. You also have to look at the other large markets for Lithium Ion Batteries. New markets are inherently inefficient....

When you take away automotive, which Lux clearly did, and take away the grid, which is beyond question, there isn't much left in the way of potential markets that can absorb enough batteries to keep the plants open. There also aren't enough available raw materials to support production of 20,000 to 30,000 MWh of lithium-ion batteries per year, but that's a different analysis.

A blog is supposed to break issues into digestible morsels which is exactly what I've done in this article. If you want the full scope and sweep of the issues you'll need to read my entire archive.

You're right, John, the Li-Ion glut will not be good for the battery companies... but it could be good for society if it lowers the price of EVs. After all, your main critiques of EVs have been that they are uneconomic at current prices, and they are a poor use of the limited supply of Li-ion batteries. If Li-ion batteries were to become cheap and plentiful, EVs would make a lot of sense. Although, I'll admit that resource constraints may work to prevent Li-ion batteries from becoming cheap and plentiful, raising input prices, and forcing less efficient producers out of business, thereby reducing supply.

With something on the order of 80% of battery cost tied up in raw materials I don't see how a manufacturing capacity glut can have much impact on prices.

No business can buy for a dime, sell for a nickel and make it up on volume. That leads me to believe that there will be blood but there won't be much benefit.

So, it sounds like the real issue is supply of lithium. But as new supplies are found, the production capacity will let the Li-ion revolution will roll on. The only way lead acid solutions can work are if there is a limit to the availability of lithium. And the hunt for more lithium has only just begun.

Also, I read that the cost of non-automotive Li-ion batteries is already at $350 kw/h. So why the big difference for automotive batteries? Why shouldn't everyone just follow the Tesla model?

Lithium is only a couple percent by weight of a lithium-ion battery and one of the least expensive materials. The world has plenty of known lithium reserves for almost any level of production. Anybody who tells you it's scarce and "we gotta find more" is lying.

The problem is the industry is planning to build factories to produce about 6x expected demand. The lithium revolution only exists in the minds of lithium-ion battery manufacturers.

The plug-in Prius will be introduced next year and have a 13 mile electric only range. It will require about 4 kWh more batteries than a standard Prius. It will cost $3,000 to $5,000 more than a standard Prius. The claims of $350 per kWh may be true at the manufacturer level, but by the time it gets to the consumer you'll be grabbing your socks and praying that it's only $1,000.

So what does this glut mean for axpw's carbon-lead acid battery?

Why go with lead when you can get lighter, longer lived li-ion batteries for almost the same price.

The glut of lithium-ion battery manufacturing capacity shouldn't impact Axion one way or the other. For gee-whiz applications like cars with plugs where energy, size and weight are critical and cost is no object lithium-ion is the only choice. For conservation applications like stop-start where power and cost are critical and size and weight are secondary, lithium will never be a serious contender.

Lithium has no cycle life advantage over the PbC and the prevailing myths about falling lithium battery prices are being debunked every day by things like Toyota's plans to add a plug and about 4 kWh of batteries to a Prius and bump the price by $3,000 to $5,000.

Tom, I'm looking at ABAT this morning. It's showing up on the Vectorvest sorts for rising VST following nice increases over past few days.

How about an update on ABAT, XIDE, AXPW, etc...?

Question - how's that e-bike working for you? Would you recommend a specific model for someone who, like you, wants to experience an entry-level model?

Robert,
Sorry I missed this one... I don't usually follow the comments on John's articles.

I usually leave the updates on battery stocks to John.

In terms of the ebike, I like my Curry iZip, but it also tempts me to upgrade. Because there is only one speed with pedals, they are only really useful if you are going 12 mph or slower... to go 15 mph, you have to use the motor, and at higher speeds it cuts out.

I'm seriously thinking about upgrading to a model that has gears and a top speed for the electric motor of 20mph.

The iZip's Twist and Go control is also not ideal; if I do upgrade it will probably be to a bike where the electric motor enhances the pedal power.

All that said, I don't regret buying my used iZip on Ebay. I expect that if I upgrade I should be able to recoup most of the cost by selling it on to someone else. And despite all the caveats above, I still think it's fine for bringing a load of groceries home in hilly terrain.

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