I always enjoy reading John Petersen’s blog posts and articles. He and I often look at the same data and yet come to very different conclusions. In his latest blog post, he claims that diesel and plug-in electric vehicles (PEVs) are undermining the hybrid EV market, that all non-lithium-ion battery technologies are doomed to failure thanks to the U.S. Department of Energy’s Li-ion worship – and that Li-ion manufacturers are also doomed to failure, anyway. (Petersen’s views may not be entirely objective: the disclaimers at the end of his posts on Seeking Alpha claim that Mr. Petersen is a former “director of [lead carbon battery-maker] Axion Power International and holds a substantial long position in its common stock”).
On the face of it, Petersen’s data appear to support his statement that clean diesels and PEVs have cannibalized the hybrid market. But cannibalization is a complicated issue, and just looking at the sales numbers is a superficial method of getting to that conclusion. There are few examples of similar vehicles offered by the same manufacturer to try to make this a valid comparison. (VW now offers gas, hybrid, and diesel versions of the Touareg, so it will be a good vehicle to watch over the next year.)
Comparing apples to oranges, one could look at the Toyota Prius, with half the volume in the hybrid market, and the VW Jetta TDI, with almost 60% of the clean diesel volume in the U.S. The Prius looks like it will be down about 4% for the year, while the Jetta TDI (which got redesigned for 2011) is up about 18%. Yet, the gas version of the Jetta is up about 39% this year. So, on the face of it, the data seems to say that the TDI version is being outpaced by its gas-powered sibling, rather than cannibalizing from hybrids. The PEV side of the board is clearer, as Mr. Petersen’s claim that PEVs are stealing share from hybrids may be valid. We hear anecdotally about hybrid trade-ins for PEVs, and the plug-in Prius, coming in early 2012, will also likely draw interest from current Prius owners.
The second claim is that in essence 95% of the $1.2 billion in federal ARRA grants for battery manufacturing was wasted tax payer dollars (I’m paraphrasing here). If John Petersen were in charge, the federal government would be investing more broadly in a wider array of battery technology, including lead acid. This despite the fact that even as far back as late 1990’s, GM was finding the limits of lead acid in their EV1. Can lead acid or nickel metal hydride be improved? Sure, but that doesn’t mean that we as taxpayers should be dedicating equal funding to companies whose technology seems unlikely to ever match the performance of Li-ion. If his argument is for technology that’s based on current market acceptance, then why spend money on batteries at all? Following that argument, the $20 billion in oil subsidies and tax abatements would grow, since that’s where the DOE will get guaranteed business success.
Petersen points to the spotty supply chain for lithium ion transportation and stationary batteries, claiming that this either “reckless apathy or simply a childlike faith that the taxpayers, like doting first-time grandparents, are breathlessly waiting for any opportunity to provide whatever the golden child needs or wants.” The accompanying chart he uses to back up this claim comes from a Roland Berger study on the Li-Ion battery value chain. As I went through that study, though, I came to very different conclusions than Mr. Petersen.
It seems unlikely to me that as the demand for Li-ion increases, the supply chain will remain stagnant. Most of the Li-ion battery manufacturers that I’ve spoken with point to the cathode as the critical cost driver in the batteries, so we can expect that this will be the focus of process and supply improvements in the coming years. Recent news shows that manufacturers are recognizing the supply chain as an opportunity as well.
Interestingly, Mr. Petersen, Roland Berger, and I all agree that cell production is in excess capacity for the current opportunity in PEV vehicles. Pike Research is anticipating global demand of 27.7 million kWh for Li-ion in transportation in 2017, based on 2.9 million global hybrid and PEV sales. By comparison, the global market in 2011 is 2.53 million kWh, and A123 has stated capacity of 0.6 million kWh. If this all went to transportation, then A123 should have 24% market share of the global market. Suffice to say they do not, and layoffs have been the result. However, that also equates to roughly 2% of the market in 2017 (or about 10% of the North American market), which will be too small if their success in the stationary market continues.
I even agree with Mr. Petersen that the prices of PEV are too high for mass adoption, and Pike Research forecasts the start-stop market will be the dominant sector in years to come (growing from 3 million in 2011 to 37.3 million annual vehicle sales in 2020). However, while he jumps to the assumption that this means the PEV market is a failure out of the gate, I would argue that it points to increased specialization in the automotive market.
The Leaf’s early success is a proof-of-concept that limited range city vehicle can make a go of it in the U.S. The Volt is proving that the plug-in hybrid model also makes sense. Let’s not forget that the Prius didn’t sell more than 25,000 in a year until its first redesign in 2004 – five years after launch. The Ford Escape hybrid has never broken the 25,000 sales/year mark. But I’d venture to say that neither of these are considered failed programs by their battery suppliers or by the DOE.