The battle for the battery
According to the Swiss bank UBS, the expected battery cost will drop under the ‘magic’ barrier of $100 per kWh by 2022. This will trigger a faster switch to electric vehicles than previously expected. Undoubtedly it will also cause a relentless fight for the production of the heart of an electric car, the battery.
Matthias Schmidt, an independent German car analyst, predicted that out of the 11 million cars sold in Europe in 2020 – a shallow figure due to corona – already one million will be electric.
UBS thinks that the market share of electric cars globally will reach 17% by 2025 and that already in 2030, EVs will represent 40% of global sales all over the world.
The reliance on battery manufacturers located in China and South-East Asia, combined with the rising demand, has spurred Europe finally into action. Plans to subsidize multiple giga-factories are rolled out all over Europe. Are they coming too late?
According to UBS, the demand for batteries will be tenfold in 2025. The battery is the most important and most expensive part of an EV. For the moment, it represents 25 to 40% of the total value, and most of the added value lies in the battery cells.
The production of these cells is mainly in Asian companies, mostly South-Korea, China, and Japan. Big car industry suppliers like Bosch or Continental chose to let the production of batteries to others. According to UBS, the position of Asian battery companies is growing stronger every day.
“It is very dangerous being dependent on Asian suppliers,” says Professor Stefan Bratzel (Center of Automotive Management) in the Dutch newspaper Het Financieele Dagblad.”The battery cells are the center of creating added value. For German companies, the innovative aspect here will be vital for their survival.”
Europe tries to catch up
The first thing that is happening is that those Asian companies are building battery production plants in Europe, like CATL and Farasis, in Germany. But ultimately, this product should be in European hands, most analysts say.
That’s why Tesla is trying to keep battery production in its own hands, despite collaborations with, for example, Panasonic. Europe has to do the same thing.
Northvolt, planning battery plants in the north of Sweden and Germany (Salzgitter), is one of the answers to this Asian dominance, but analysts doubt if it will survive in the gigantic battle that is still to come in this area.
“I think Northvolt will have a challenging time and need firm support from their JV partners and/or the government to compete,” says UBS analyst Tim Bush. “Their biggest issue will be scale, ” comments Bush. “LG Chem is expected to reach 260 Gwh of capacity in 2023 from 100 GWh today. They have already scaled greenfield fabs in Poland and Shanghai adding to their US and South Korea capacity.”
And the Asian companies are also very aggressive on the market where the price is concerned. That’s why analyst Daniel Schwarz is also skeptical about Europe catching up. “Battery cells will become a fairly cheap commodity in a relatively short period of time. I understand car manufacturers when they want to focus more on the development and sales of their brand(s).”
A period of huge investments and risks
Car expert Joachim Deinlein (from consultancy bureau Oliver Wyman) thinks that European car manufacturers can’t rely on their image and name alone. They have to control their own battery technology and their software.
“That doesn’t mean you have to do all things by yourself,” comments Deinlein. Strong partnerships can be very successful. Here, the car manufacturers can hit two targets with one shot: increasing their knowhow and preserving jobs that will be lost in the production of ICE engines.”
Nevertheless, the car manufacturers face huge investments and the risks involved, especially in (pandemic) times like these. But according to UBS, it’s the only way to survive. “Those who don’t have the intention to win with the electric car have already lost the battle.”
In these electric cars, the battery will remain one of the more costly and valuable parts. Everyone will have to deal with the expected shortage of battery cells shortly. It will only be when the market has stabilized, and technology has evolved that we will see who has survived and who rules the car business then.