The next couple of years are going to be very challenging in the automotive Li-ion battery market. That comes as no surprise to battery manufacturers or to members of the Li-ion supply chain. When I gave a presentation on this topic at the Lakeshore Advantage Michigan Smart Coast series in Holland, Michigan, recently, one of the questions asked was, “Where should battery manufacturers be looking to sell batteries?” This is a pretty common question, and my only slightly tongue-in-cheek response was “Everywhere.”
The presentation was a more detailed expansion of a webinar my colleague John Gartner and I did recently, discussing whether the U.S. market will reach one million PEVs by 2015. The area that is garnering focus and showing promise is in grid energy storage. This makes sense since the batteries used need to be large, and grid storage will utilize a lot of battery capacity (just what a growing battery plant looks for). What’s more, there has been funding available for these projects. At the same time, these projects are likely to ramp up slowly over the next couple of years (sound familiar?). As we look toward smaller packs in large volume, those serving distributed storage and commercial buildings are likely to see growth in Li-ion as a result of the regulatory and physical limits on lead acid (venting requirements, space needed, and short life-span) and the desire to move away from diesel or natural gas generators. Unfortunately, these lithium battery markets are also several years away from robust growth.
So, what is a battery manufacturer to do? A123 and Xtreme Power have been pursuing the market for grid stabilization with large batteries with some success. This market remains wide open competitively for other players, like Johnson Controls, LG Chem, and Dow Kokam, although much of the competition in this market comes from other forms of storage.
Some industry figures have mentioned the possibility that time-of-use or peak-shifting storage could be a viable business model for Li-ion in the early years as well. For this application, manufacturers would do well to look at their own back yard. The manufacturing bases in the Midwest and California may benefit from using off-peak generated energy, depending on specific utilities’ cost structures. The concern is that this is market will quickly become highly competitive as battery makers look for volume here early.
The fact is, even if Li-ion battery manufacturers can successfully diversify, costs will remain a challenge for the next couple years. Fundamentally, this brings me back to another question that came up during the presentation: how much of the current cost of Li-ion is due to manufacturing inefficiencies vs. the cost of the actual materials in a battery? The answer is roughly a third is manufacturing. We anticipate that Li-ion battery costs will fall by about a third over the next few years, stabilizing by 2016.
Unfortunately, it’s looking more and more like several manufacturers may find that the costs fall as a result of competitive pressures, rather than manufacturing efficiency gains in the next few years. Large, well financed, and diversified companies like Johnson Controls and LG Chem will likely survive, and even drive, that type of competitive pricing. But for smaller, specialized, battery manufacturers like A123 and Electrovaya, the next two to three years may seem very long indeed.
Tags: Advanced Batteries, Clean Transportation, Conferences & Events, Electric Vehicles, Energy Storage, Smart Transportation Practice
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