When we’re talking about batteries, for vehicles or energy grid storage, we’re really talking about “battery packs”. In lead-acid world this is typically six cells in the same hard plastic box (think your car battery). For Li-Ion (or NiMH, as used in the Prius) the basic building block is the battery cell that you have in your cellphone or camera. These cells are strung together depending on what you’re powering; 12 or so for a laptop battery pack, 75 for an electric bicycle, 1,000 for a hybrid electric vehicle (HEV) and somewhere around 5,000 for an Electric car. It’s useful to know this as it helps us put into context two things that matter when considering batteries; volume/weight and price.
Volume/Weight
I’ll touch on volume/weight first, since it’s the smaller of the two issues; while lead-acid batteries have been prevalent in our vehicles for a long-time, their volume and weight were the reason they never made it to our handheld devices. In essence, they couldn’t provide the power that was needed in a small and light enough form to be useful in hand held devices. The best estimates suggest that for a full hybrid car, a Li-Ion battery pack would weigh around 75-100lbs and take up about 1 cubic foot less than the necessary Lead-Acid battery pack. While this is a clear advantage, it shouldn’t be a determining factor when deciding which technology to use as a car weighs around 3,000lbs and the boot space (as we Brits call it) is 10-12 cubic feet.
Price
Unlike in existing applications (from cars to cellphones), the price of the battery actually has a material impact on the price of a hybrid car. The proposed fully Electric Vehicles, such as the Nissan Leaf and Chevy Volt are both priced at well over $30K (before any government rebates), in part because their battery packs cost somewhere between $12.5-$18K. More generally, there is a lot of argument over the costs of production given that none of batteries are produced on mass scale. As such, I’ve gone with Sandia National Laboratories who in a July-2008 report for the Department of Energy estimated the current cost of battery packs at $500/KWh for Advanced Lead Acid Batteries and $1,333/KWh for Li-Ion batteries. This would imply the following cost structure:
However, things are not so simple and a major point of contention is that the Li-Ion manufacturers claim that they can reduce the price per KwH “substantially” or “once the batteries are in mass production.”
Unsurprisingly, it’s a fairly big argument over in battery-world and given it’s entirely about forecasts there isn’t yet a right answer. My thoughts are as follows:
- The don’t currently: No US listed public company has managed to get to even get to the mass production stage, and the $1,333 number is a reasonable estimate of their current price (e.g. using A123’s latest 10-K shows its cost of production (excluding all R&D, let alone any profit) was around $1,250/KWh).
- Raw materials: If you speak to the companies (or listen to the calls, read their presentations, etc) there is a clear belief that raw materials won’t be a problem for them on the cost side. Logically, this seems strange. Let’s make some really generous assumptions; over the next 5 years, Li-Ion use in hybrids (like the Prius and assuming no sales of any plug-in vehicles) captures a mere 15% of the US market (and nothing abroad!) and the US car sales stay at c10mn (i.e. no increase from 09-10 numbers). That would be 1.5mn battery packs that would be sold per year; the equivalent of 1.5bn cellphones/year (currently c1.25bn/year sold) or 125mn computers/year (currently 300mn/year sold). Given Lithium mines don’t start overnight, and the growing demand for Lithium in other battery-operated products (like Mrs OM’s shiny new iPad), I would think there would be some price impact from a new industry suddenly stepping in with big demand.
- Physics Envy: This is the most interesting but the least considered problem, largely because it’s behavioural (some might say obtuse) in nature. A core of the argument for Li-Ion’s ability to reduce future manufacturing costs as production increases is because we’ve seen it before. More specifically, our recent experience with technology and computers has shown us that it’s possible to increase production, innovate and reduce price…all at that same time. For example, our computers are far better than they were 1, 3, 5 and 10years ago yet they cost less. This has been Physics’ gift (more specifically Moore’s Law) to the world over the recent decades. Given that most analysts who cover Li-Ion battery companies come from the Technology world, it’s not surprising that there’s acceptance that progress in batteries can be similar to that seen in computing. There is one major flaw in this belief; batteries produce energy through chemical reactions, thus the ability to get more energy from them is likely to follow the laws of chemistry, not physics! These laws most assuredly operate differently, they won’t prevent existing technologies from being improved, or new one’s found, but they likely will prevent small tweaks to existing technologies from creating huge and continuous leaps forward.
- Safety & Lifespan: While these two issues are largely ignored in the discussion over Li-Ion batteries, they are the great unknown. Safety questions over Li-Ion batteries flared up again last year (after causing a fire on a plane) and as anyone who’s ever used an electronic device knows, lifespan is always an issue (think how your cellphone battery loses its ability to charge fully and then imagine that happening to your car battery). Simply put, we just don’t know if a Li-Ion battery pack can attain a 15-year life (and the 1000’s of cycles that entails) that is currently standard for a car battery or whether they will function effectively in various conditions (inclement weather, etc) as required.
As such, you can see some of the reasons for my skepticism that we will see Li-Ion battery packs in our mild/micro hybrids in the immediate future (though I’m sure we’ll see them in expensive ego-cars or gimmicks, which the car companies have more interest in talking about than mass producing).
Advanced Lead-Acid Batteries
The observant amongst you will notice that I didn’t compare the Li-Ion batteries with the traditional Valve-Regulated Lead Acid (VRLA) batteries, but instead with Advanced Lead-Acid (largely Carbon-enhanced Lead-Acid) batteries. While they’re not sexy or cool, like their Li-Ion counterparts, they are a technological jump from existing VRLA batteries that look like they can fulfill our vehicular needs (potentially all the way up the hybrid chain). There are a number of companies working on Advanced Lead Acid Batteries, including Firefly (spun-off from Caterpillar), C&D Technologies, Furukawa/CSIRO and Axion Power. I’m going to focus on the last 2, since I know them the best and their efforts appear the most promising.
Australia’s national science agency, CSIRO, developed the Ultrabattery and has licensed it out to their partner Furakawa (a Japanese Company, who sub-licensed it to East Penn. Manufacturing for the NAFTA area). Interestingly, Furukawa successfully tested prototypes of the Ultrabattery in a Honda Insight hybrid back in 2007/8, confirming the viability of the project. They also submitted the UItrabattery to Sandia, where it was tested alongside other batteries in a DOE Storage Systems Research Program. The key graph is this one:
Axion Power began making and testing a Carbon-Enhanced battery (called a PbC battery) back in 2003. One of their early aims was to try and create a technology that could easily be implemented in the existing Lead-Acid battery plants around the globe, with minimal capex required. It’s a project they’ve been working on, at their own lead-acid battery plant in New Castle. They also began testing, initially with a large battery pack (called a Power Cube) at a NYSERDA-funded program to store energy from a solar power system at CUNY College. However, in the last year or so things have progressed quickly and they have also moved to test their battery in vehicles, signed a worldwide supply agreement with Exide (the 2nd largest Lead-Acid battery maker for vehicles) and received a joint DOE-grant with Exide for the production of PbC car batteries.
Next time: While we have 2 interesting new technologies (Li-Ion and Advanced Lead-Acid), and an incumbent technology (VRLA), it all means nothing for an investor without looking at valuation. As such, in what’s probably the final part of this series, we’ll take a peek at how the companies are valued.
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