- Urban Mobility
- Urban Innovation
- Plug-In EVs
- Battery Electric Vehicles
The Race to Build Batteries Accelerates
A healthy market requires a balance between supply and demand. If there is not enough supply prices climb, and demand withers. Too much supply and suppliers can’t charge enough to be sustainable. Automakers and battery manufacturers face this challenge as they attempt to navigate the stormy waters toward vehicle electrification. However, there is opportunity to accelerate.
Manufactures Make Big Moves
SK innovation is one of the lesser known manufacturers of lithium ion (Li-ion) cells, but the South Korean company is moving rapidly through the field. I met with the company's CEO and president Kim Jun during the 2020 Consumer Electronics Show in Las Vegas, Nevada. He explained that his company is third behind Contemporary Amperex Technology (known as CATL) and LG Chem in committed production contracts for automotive Li-ion cells at 500 GWh.
One of the advantages that has enabled Tesla to race ahead in battery EV (BEV) sales is a ready supply of batteries. The company committed to building a huge factory near Reno, Nevada and convinced Panasonic to invest in cell production capacity by signing up to buy more than $17 billion worth.
Other manufacturers including Hyundai Motor Group (HMG) and Audi have been constrained in how many BEVs they could produce, in part because of limited cell supplies. Kia Motors has limited shipments of the Niro EV to the US; it is at the number required to meet California regulatory requirements. The company is shipping most of the rest of the vehicles to Europe where it can command higher prices.
SK innovation and LG Chem have been HMG’s primary suppliers of fuel cells since the company began selling electrified models in 2010. Both have added production capacity at a rapid rate. At the end of 2017, SK innovation had 1.7 GWh of production capacity, a volume that grew to 20 GWh in 2019. By the end of 2023, SK innovation is committed to 85 GWh of production capacity by the end of 2023, which may increase depending on purchase contracts from automakers.
SK innovation has factories in South Korea, China, and Hungary. Its first American plant is under construction in Georgia and a second plant for the same location was just announced. Volkswagen has plans to source cells for its upcoming BEV production in Tennessee, US from the manufacturer. HMG and Ford Motor Company are additional likely customers. Most of the other major cell manufacturers are also adding capacity, although perhaps not as quickly.
However, all of this investment in supply might be squandered if consumer demand isn’t high. Tesla has been the most successful purveyor of BEVs, but its 2019 growth was almost entirely due to consuming the backlog of demand in new markets. Sales in most existing markets, including the US, dropped substantially with 4Q registrations in California down by 46.5% compared to 2018.
Innovative Business Models Will Drive Future Growth
Navigant Research, a Guidehouse company’s report, Market Data: EV Market Forecasts, anticipates that plug-in vehicles will likely account for about 18% of the global vehicle population by 2030. Achieving this volume will be a huge challenge for the industry and requires some creative new business models. One idea put forward by SK innovation is batteries as a service where the company essentially leases battery cells to manufacturers and takes them back at the vehicle’s life. This would reduce the upfront cost of a BEV but require recurring payments. SK innovation would eventually take back the cells and recycle or repurpose them for additional revenue. Fresh approaches from everyone in the value chain will be necessary to make the shift to electric a success.