The laws of supply and demand may be about to deal a nasty blow to electric vehicle (EV) battery makers over the coming decade, as high government expectations and low EV sales combine to carve a number of unlucky manufacturers out of the market.
"There's definitely a shakeout on the way," noted Dave Hurst, senior analyst for Pike Research, in a Design News interview. "There are just too many players vying for too few pieces of the pie."
Experts believe the shakeout could begin as early as in the next two years. Worldwide capacity of lithium-ion electric vehicle batteries is expected to reach 30GWh in the middle of this decade, while demand for the batteries ranges from 2GWh to 20GWh, according to figures from Lux Research, Inc., an independent research firm that has studied the electric vehicle market.
LG Chem, which makes the Chevy Volt battery shown here, is said to be well positioned for survival. (Photo courtesy of GM)
"There are a variety of potential scenarios," said Michael Holman, a research director at Lux. "But in all of the scenarios, the demand is much less than the capacity."
In Lux's forecasts, sales of hybrid vehicles will range between 1.5 million and 3 million a year in the coming decade, while annual sales of plug-in hybrids could vary between a "few hundred thousand" and 3 million. Pure electric vehicle sales are expected to be far lower than those of conventional hybrids and plug-ins, however.
"Even in an optimistic scenario, we don't see pure electric vehicles reaching more than a few hundred thousand a year," Holman said.
Those figures translate to an almost-inevitable death blow for some manufacturers. Hurst and Holman both cited A123 Systems and Enerdel as potential early candidates for shakeout. They pointed to LG Chem (which provides the batteries for the Chevy Volt) and SB LiMotive as companies that are well-positioned for survival. Some of the survivors may also have to cut back their production, they said.
"You'll see some of the planned expansion get taken off the table and you'll see some of the factories close down," Holman said. "But it will take a couple of years before anybody is ready to admit defeat."
Ivan: You're right. The costs will undoubtedly decline as production volume rises, and that will certainly boost sales. Most analysts say, however, that the costs won't drop below $400/kWh, and may remain as high as $650/kWh, even as economies of scale kick in. (With the exception of Tesla, which employs 18650 batteries, today's costs are approximately $800-$1,000/kWh.) Assuming an optimistic cost of $400/kWh, a 40-kWh battery will still cost $16,000.
What about the costs of producing the batteries? One way to increase demand is to drive down teh costs. I am not sure what the cost breakout is but R&D must be significant. I would also expect eh electronics to manage the battery charging and discharging to be significant as well but probably very sensitive to demand. after all once the basic controls are designed and implemented with approppriate processors they are readily amenable to cost reductions liek the rest of the digital cotnrol systems have been. The matieral cost, Lithium and some alloys I am told are not so expensive either.
As we mentioned before increasing the demand by other than EV uses might also be possible. I can see homeowners adding batteries when they can store lower cost energy for use during higher cost times that depend on their local utility cycles.
Coupling batteries with wind and solar systems would also increase demand but drives the costs of the systems up significantly.
An industry shakeout is coming for sure regardless.
You're right, Rob. High expectations play a big role in this. But the analysts we talked to allowed for a wide range of possible scenarios -- a demand of 2 GWh on the low end and 20 GWh on the high end. Even at 20 GWh, however, the demand is still about 10 GWh short of the supply. As a result, companies will still be winnowed out, even under those relatively good conditions.
In reading between the lines, Chuck, it sounds like there were high expectations for the EV market that didn't come to realization. Otherwise, why would the market pump up to the point that a shakeout is coming? Have EVs been less popular than expected? If so, why? Is it the costs? Performance issues?
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