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The Great Battery Race

BYD displays an electric car.

The coming of cheap and effective lithium-based batteries will cause the greatest changes in the energy and automobile sector since Henry Ford built the model T, writes Gerard Reid, founding partner of Alexa Capital, financial analyst and co-founder of the Energy and Carbon blog. But European countries like Germany and France have no significant production, in contrast to China, which views batteries and their raw materials as key factors in the global competitive energy and transport race.

Batteries have been around for more than one hundred years but thanks to the smart phone they have become important enablers of our modern lives. As battery technology improves they will become critical components for powering our automobiles as well as become vital assets for our power system.

The Chinese government has a clear strategy and technology roadmap for all EVs to have a minimum range of 300km in 2020 and 500km in 2030

In fact, the coming of cheap and effective lithium based batteries will cause the greatest changes in the automobile and energy industies since Henry Ford first built the Model T. This is an opportunity for many new startups but it is also a threat to not only incumbent automobile manufacturers but to whole nations, many of whom are deeply dependent on value chains that may not exist in the future. Positioning in this great battery race is thus critical for all companies and countries involved in the value chains of energy and transport.

Tesla and BYD

The global automobile industry with over 50 global brands is dominated by 14 manufactures, household names such as GM, Toyota and Ford, not to mention a similar number of major parts suppliers such as Bosch and Delphi.  None of these companies, however, have any battery manufacturing experience and all have been slow to embrace the electrification of the automobile which is today led by a US company in Tesla and a Chinese company in BYD both of whom not only manufacture cars but also batteries.

At a national level, there are three countries: China, South Korea and Japan which dominate over 90% of global lithium ion battery production, which is the chosen technology for electric and hybrid automobile manufacturers.

In stark contrast, Germany the home of the world’s largest car manufacturer VW as well as BMW and Mercedes has no significant production. Instead these companies are buying their batteries from Samsung and LG Chem in South Korea and Panasonic in Japan. But it is not just Germany; France, the home of Peugeot and Renault and Italy the home of Fiat-Chrysler also have no battery production.

For the countries that produce key raw materials, such as Chile and Australia, there is a real opportunity  to become the next Saudi Arabia

China, on the other hand sees the electrification of the automobile and batteries as a clear way for the country to gain a competitive advantage in the global automobile industry.  As it stands its batteries are not as good as those coming out of Japan or South Korea but the government is clearly focussed on reducing this technology gap. The Chinese government has a clear strategy and technology roadmap for all EVs to have a minimum range of 300km in 2020 and 500km in 2030. But it is not just in battery production where China is focussed; they are also focussed on gaining access to key raw materials such as cobalt and lithium.

Meanwhile in Japan and South Korea the focus is on getting to scale quicker and on keeping a technological advantage over the Chinese particularly around so-called ternary batteries chemistries such as NCM (LG Chem) and NCA (Panasonic and Tesla), which are the best technologies currently available for automobiles. 

Transformation

But it is not just battery production which is interesting. Gaining access to key raw materials such as cobalt and lithium will become critical competitive advantages and for the countries that produce them, such as Chile and Australia, there is a real opportunity for them to become the next Saudi Arabia. For the oil producing countries, batteries and the electrification of the automobile all mean that global demand for oil will peak at some point over the next decade leaving oil exporters with some interesting investment decisions to be made in the years ahead.

There are very exciting possibilities coming our way, one of which is lithium-air batteries which have a theoretical specific energy of 10,000Wh/kg compared to today’s 250Wh/kg for a Tesla S battery! This is similar energy density to gasoline

The great battery race will also cause a transformation of our power system as we currently know it. Through new charging strategies and electric vehicle swarm aggregation, EVs will transform the operative management and structure of the power grid, as we have never seen before. Not only will the demand for electricity and stresses across the power grid increase but we will also likely see automobile manufacturers control the power flows in and out of those batteries through energy services agreements with the car owner. Then we have all those batteries which will need to come out of the cars. Some will be immediately recycled but others will be reused in less stressful applications in so called second life applications.

Finally, as batteries are so critical to so many businesses and countries we are probably going to see technical developments happen faster than we have ever seen before. And there are very exciting possibilities coming our way, one of which is lithium-air batteries which have a theoretical specific energy of 10,000Wh/kg compared to today’s 250Wh/kg for a Tesla S battery! And to put that into context this is similar energy density to gasoline, and if we achieve these goals not only will cars be battery powered but also ships and planes….Exciting times ahead!

Editor’s Note

Gerard Reid is founding partner of Alexa Capital in London. Her has over two decades’ experience in equity research and fund management in the energy area. He is also a monthly columnist for the German energy industry publication BIZZ energy today and has been lecturer at the university in Berlin for the last decade.

This article was first published on Energy and Carbon, a blog hosted by Gerard Reid and energy journalist and advisor Gerard Wynn. It is republished here with permission.

Gerard Reid's picture

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Discussions

Hops Gegangen's picture
Hops Gegangen on March 20, 2017

Once EVs become the norm, he major roads will have wireless charging built in. Then you won’t need a big battery.

So in 20 years, we may be talking about peak battery.

Roger Arnold's picture
Roger Arnold on March 20, 2017

I’m not sure than Germany or France would have much to gain if they chose to enter the battery manufacturing race. There’s no question that batteries are on their way to becoming big business, but it’s going to be a highly competitive commodity business with razor thin margins. It will be capital intensive; quality control and aggressive cost management will be the name of the game. A lot like the semiconductor business.

Jarmo Mikkonen's picture
Jarmo Mikkonen on March 21, 2017

I am a bit skeptical about the speed of this transformation. Ultimately, the greatest factor is price. Tesla made it in luxury and sports segment but is still a niche manufacturer, despite all the hype.

BMW tried to go EV but apparently economics are daunting. It looks like it will take at least 10-15 years before EVs are competitive with ICE cars. Remember, ICE cars are developing, too.

Hybrids are the way most manufacturers are going.

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