BNEF study concludes overcapacity will lower Li-ion battery prices but make life difficult for smaller manufacturers
The total worldwide manufacturing capacity of lithium-ion batteries for electric vehicles will greatly exceed supply unless demand by automakers increases significantly in the short-term, according to new research by Bloomberg New Energy Finance (BNEF). As a result of the overcapacity, battery prices are poised to fall.
Automakers have committed to producing up to 839,000 plug-in electric vehicles worldwide by 2013, up from just 124,000 to be delivered by the end of 2011. As a result, demand for lithium-ion batteries will reach 18 GWh by 2013 from the current level of 2.4 GWh—a sevenfold increase in just two years. In contrast, the supply capacity under construction by battery makers will reach 35 GWh by 2013, enough to supply almost double the number of planned electric vehicles.
As batteries have a limited shelf life, it is unlikely that battery manufacturers will produce more than market demand. Instead, they will reduce output to match contracted demand, according to Bloomberg.
At the moment, electric vehicle batteries cost between $800-1000/kWh and make up about 30-50% of the cost of a typical EV. But the short-term overcapacity and the competitiveness in the field will push battery prices lower, improving affordability of electric vehicles—but also making life increasingly difficult for smaller pure-play EV battery manufacturers, according to Ali Izadi-Najafabadi, an energy-smart technologies analyst at Bloomberg New Energy Finance.
In the short term the larger, mainly Asian, conglomerates can cope with limited demand and compete by lowering prices, but smaller pure-play battery makers will be left vying for an increasingly limited number of supply contracts. For the latter group, other applications such as grid-scale energy storage will be a critical source of demand—Ali Izadi-Najafabadi
Automakers with committed electric vehicle plans have secured sufficient supply for their programs through close collaboration with just five lithium-ion battery manufacturers via commercial-scale supply contracts or joint ventures. However, there are currently more than 20 battery makers with plants constructed or under construction, and it will take time for this excess capacity to be absorbed.
In the long term, lithium-ion battery prices will continue to decline as the industry reaches scale. Electric vehicle sales are expected to increase and battery costs will continue to decline along an experience curve to hit around $350/kWh by 2020.