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Consultancy Warns of Overcapacity in Global Li-ion Battery Market Between 2014-2017; Forecasts 6 to 8 out of Approx. 60 Li-ion Makers Will Survive

23 February 2010

Berger
Projected 2015 battery demand and supply in major regions ( in units “EV equivalents”, high penetration scenario). Source: Roland Berger. Click to enlarge.

The share of electrified powertrains will increase significantly in all major automotive markets, a development driven by dramatic battery cost decreases over the next 10 years. However, according to a new report from Roland Berger Strategy Consultants, planned investments in lithium-ion manufacturing will result in significant overcapacity between 2014 and 2017 relative to the demand generated by that growth, especially in the US and in Japan.

As a consequence, Roland Berger forecasts, only six to eight global battery manufacturers will survive the next five to seven years. These are the findings of a new market survey conducted by Roland Berger Strategy Consultants titled “Powertrain 2020: Li-ion batteries – The next bubble ahead?"

“Only six to eight global battery manufacturers will survive in the next five to seven years. The critical size will be approximately €600 million in revenues in 2015.”
—Wolfgang Bernhart, Partner with Roland Berger Strategy Consultants

In an aggressive scenario, plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV) in the key regions still will account for no more than 1.2 million vehicles by 2015. Li-ion battery demand for hybrids, plug-in hybrids, and electric vehicles will account for 0.82 million “EV equivalents” of battery capacity, while installed capacities in 2015 will be more than 2.6 million EV equivalents. The demand for Li-ion batteries will continue to rise until 2020, but 3 million EV equivalents won’t be reached until 2018 at the earliest, according to the report.

Planned investments will this result in significant overcapacity between 2014 and 2017, especially in the US and in Japan. Given the announced investments, capacity in 2015 will already reach 200% of the demand projected for 2016. In addition, not all investments have been announced; as-yet unknown investments by key players will lead to further overcapacity, and national subsidies will stimulate even more investments.

In addition, high levels of R&D and CAPEX will be required to drive down costs fast: €50-100 million for new cell chemistry, €350 million for a 100,000 unit plant.

Western governments therefore need to act now in order to avoid losing future technologies to Asia; at the same time, battery suppliers need a well-defined strategy to gain market share fast in order to survive, the consultancy cautions. And last but not least, investors should be aware of massive investment risks. Wolfgang Bernhart, Partner with Roland Berger Strategy Consultants, notes “Unfavorable factors are piling up. But managed correctly, electrified powertrains will still be a profitable market in the future.”

The conclusions and recommendations in the document were based on market knowledge of Roland Berger Strategy Consultants or drawn from information and data gathered through desk research and interviews.

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February 23, 2010 in Batteries, Market Background | Permalink | Comments (20) | TrackBack (0)

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It is a bit silly to claim that capacity will exceed demand for batteries when we still know very little publicly about battery prices and the consumers’ willingness to pay extra for zero emmission EVs.

In case anyone forgot demand is a function of price and market potential. The market potential for battery electric vehicles is to replace all vehicles with internal combustion engines. In other words, there is an enormous potential of over 1 billion vehicles globally. Technically batteries are now sufficiently capable to compete with the performance of ICE powered cars as Tesla’s roadster has demonstrated. The remaining uncertainty is about the possible production price per kWh for automotive grade batteries. At 150 USD per kWh and oil at 80 USD per barrel the demand limit is about 1 billion BEVs or a complete replacement of the global vehicle park. We are certainly not there yet and until Nissan and Mitsubishi announces the retail prices of their EVs in April very few (including the consulting firms) actually knows much about future demand and supply in that industry.

So the question is, how to speed adoption (thereby eliminating the glut *and* reducing oil consumption & CO_2)?

If the price of gas increases relative to the price of electricity, that will push demand for batteries since the cost of buying and operating an *EV will decline relative to an ICE. Additionally, if taxation schemes like feebates push up the price of low mpg vehicles and/or push down the price of high mpg vehicles, we may see a shift in demand.

Either is a distinct possibility, and difficult to guess five years out. I'd love to see the error bars on RBSC's model...

Considering the crushing history of EV's and the fact that I've seen highway capable EV's only in California, it's odd to be warned of "Overcapacity in Global Li-ion Battery Market Between 2014-2017".

How many MBA's does it take to discover Japan making more electric devices than it uses..

The EV battery business is generally a close financial and operational relationship between one battery producer and one or two cars manufacturers. It will never be a commodity open market, as small cells or batteries for phones or lap-top computers. So, to predict overcapacities in 2015 seems to me a little bit stupid theory.

This is just B-school 101-of course there can't be 60 viable battery producers at volume; a shakeout is inevitable. A collapse in the price of oil is likely at some point as EV's take off. This needs to be factored in as well.

Nordic is right. The great thing about 60 different competitors in the PHEV/BEV battery market is the reasonable likelihood that some of them will create batteries that strongly meet the market need. The fact that 40-50 of them will be acquired, folded, or converted into some business other than primary EV vehicles after the shakeout is totally normal for an emerging industry. I just hope the surviving entities (who collect the right patents) have maximizing the number of BEVs in the world as their biggest goal.

The Supply side of this analysis by a Munich based consultancy may or may not be valid. I have no insight there.

But the demand side analysis is totally wacky. There is no way that the demand for EV batteries in the EU will be 3-4 times the total demand in Japan/Korea & the US, by mid-decade.

The ferment for electrified vehicles, by established automakers, is entirely based in Asia and North America, and not in the EU, although inconsequential garage shops or enthusiasts maybe more active in Europe. But they are of little consequence in the short timeframe we are discussing.

The reality is that EU automakers have massive overcapacity in conventional autos. And what little innovations have been made there, has been directed at compression-ignition engines, allowed by their lax toxic emissions laws. EU's exorbitant fuel taxes are skewed to make them appealing; and the EU punishes substantial emissions of CO2, with little reward for really negligible emissions.

Schlumpeter's Creative-Destruct cannot occur until the old is destroyed, before the new and better, can rise to take its place. Socialist EU is unable to do so, finding all kinds of impediments to rationalizing obsolescent auto capacity. This drains EU automakers, and insures minimal profits, and provides little incentive to construct new electrified capacity. As well as providing little economic resources to do so, even if the will were there.


Battery market is not and will not be limited to PHEVs and BEVs.

Many claim that over 400 million e-bikes will be built by 2015. Many million other ICE machines will be converted to lithium (or post-lithium) batteries by 2015-2020. Batteries over production may not come around in the current decade or the next.

One thing is certain, the 60 to 80 initial battery manufacturers will come down to a one or two dozens by 2020-2030 or so.

Most people under-estimate the strenght of the current transistion to electrified machines.

This is why some are making the 18500 cylindrical cell as a hedge to be used in laptops and tools. I favor the prismatic format, but that commits totally to cars and investors may not like that approach.

If there is a situation of incipient overcapacity, the smart thing to do is for some government to apply policy to direct buying power so that high production is maintained at very competitive prices and its own national petroleum demand is slashed. This would place it in a much better situation going forward.

I wish I could say that the US government would star in this role, but I expect that this will either be some nation with a clue (perhaps even China itself) or China will act to consolidate its domestic industry and use this to back up the world price (perhaps by dumping at home, to its own advantage).

On the information given there is no way of evaluating this report.
We don't know:
The battery prices per kwh assumed.
The oil price assumed.

Demand will depend on these two factors.

Stan,
I have no idea why you think that there is little action on EV's and hybrids in Europe.
France is making a very large commitment, and Renault/Nissan is the world's most aggressive company on EV introduction.
Germany also has large plans.

I've tracked down some of the assumptions:
http://www.rolandberger.com/media/pdf/Roland_Berger_Li-Ion_batteries_20100222.pdf

On page 4 they indicate that they are based on a fall from $475kwh/cell to $300 in 2015 and $200 in 2020.
It is not clear how their definition of cell prices relates to the finished unit costs, and so it is difficult to tell how optimistic/pessimistic this is.

At a guess though it seems broadly in line with the NRC's recent report, which envisages battery costs remaining relatively high and so uptake low.

The notion that the number of players will contract seems well-founded though.

Both Harvey and SJC have found the cracks in this report. Variable form factor ESS is a huge and growing sector of world economy. If I was in the Li-Ion battery biz, I'd make damned sure I had a piece of the consumer electronics and specialty markets as well as competing for EV systems. If I got blown out on EV batteries (a likelihood) I would focus on the small form factor.

And while consumer electronic batteries are dominated by Asia - there is always room for innovative design. There are billions of gadgets powered by these type batteries - if your chemistry can deliver higher density than others - you should have a viable business.

As for EP's government buying power comment - most U.S. contracts for portable energy favor domestic battery makers. GM is assembling their own batteries and they will be "government" until June when their loans are paid off.

DaveMart,

Ghosn CEO of Regie Renault/Nissan has made a big bet on BEVs, but neither the production factories that are being built/converted, or the market thrust is directed at Europe. It is the only substantial thrust. The periodic concepts offered by BMW and Mercedes are demonstration stunts, mostly, involving as they do semi-obsolescent hybrid drives designed by GM for heavy trucks, not cars.

Even if they come to market the tiny hybrid production volumes of these boutique builders won't matter a whit compared to Toyota or GM or Ford volumes. No, Europe's thrust is to continue to introduce small diesels and be content to reduce CO2 emissions marginally, as it prepares to introduce toxic emissions regulations at the level that that the US had installed and was meeting by the early 1980s, some thirty years ago.

Stan, I don't know where you get this information. There is very strong momentum toward EVs in Europe, particularly in Germany, France, the UK, Spain and Portugal. What makes you think the Nissan Renault vehicles are not intended for European users? In fact they are, and I've already seen advertising on TV. What is more, you mention GM but fail to consider Opel, or how Toyota is working in both the UK and France to demonstrate plug-ins. There are also a number of commercial vehicle specialists such as Smith and Micro-Vett.

I guess these efforts are less noticed than say GM's Volt programme. Perhaps that has something to do with the tendency of American companies to announce everything in advance, then fail to deliver. European are more cautious. They are banking on a very critical fact that you forget: gasoline is about three times more expensive here than in the US.

I don't dispute that a lot, if not most efforts are directed toward advanced diesels and micro hybrids. But it's the same in Detroit or Japan.


Stan:

Please do not fail to look outside US borders. You may find more than you expected or are ready to see.

SJC:

The battery market is going to be large enough to support more formats. Electrified vehicles and machines will number a few billions by 2030 and will grow for decades to come.

Various packaging of more or less standardized cells is taking place but new technologies like the roll to roll printed batteries may forced the use of other formats.

More standardized battery modules will be used in the future. Smaller plug-in modules (2 to 5 Kwh) could be fitted in more places in future electrified vehicles designed to manage 1 to 8 modules or so. The added flexibility will give owners more options during initial purchase an as add-on latter.

We will be surprised at what the future has in store.

For all your comments about Europe, all I have to say is... Look at where the installed base of HEVs is. It is NOT in Europe. Period. End of Story.

I certainly agree Tommorrow is not necessarily like Today, but its all I have to look at, that has some concrete evidence.

Stan:

There is a lot more to outside USA borders than Europe. Asia, the continent with most of Earth's population is quickly becoming electrified and will most likely produce and use the majority of all electrified vehicles as early as 2020/2030.

Gone are the days when USA produced and used the world's majority of vehicles. From now onwards, the majority will be built and used elsewhere. The next one billion vehicles will be progressively more and more electrified and the majority may very be in Asia.

Mind you, the next one or two billion vehicles may not be 4-tonne luxury living rooms on wheels. Many will be smaller better suited e-cars. Nissan-Renault will produce 500,000+ year before 2015 and many others will follow. Over 400 million two wheel electrified vehicles (e-bikes) will be built in China alone by 2015.

The winds of change have arrived. Some countries will stall, others will start going down or have already started to do so and many others will surge ahead faster. A good look as the last 10 years statistics could be very relevant.

Harvey,

My point was that Venture Capitalists want the companies that they invest in to have an alternate customer base. If they are not able to get a significant market share for a yet to develop EV demand, then they want a Plan B. If that is in tools, then this company has to convince Black and Decker to go with them. If they are not making commodity 18500 cylindrical cells, then that is harder to do.

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