How Competition is Driving Innovation in the EV Battery Market

Electric vehicle (EVs) have emerged as a focal point of realizing eco-friendly policies across the world. Increasingly, automobile OEMs recognize that the future of their products lies outside the ecosystem of internal commercial engines (ICE). As a result, they are tweaking their business models to be future ready.

For EVs, the most crucial component is the battery. No wonder then that competition is getting fiercer among global automobile OEMs and battery manufacturers to get a hegemony over the EV battery market. However, this competition is also yielding technological breakthroughs.

In the automotive paradigm, lithium-ion battery technology stands at the center of innovation. There has been a significant amount of progress in the improvement of lithium-ion battery technology. Here, we provide a brief overview of some of these developments and what the future holds.

NCM 811 just around the corner

Battery cell manufacturers are spending heavily on R&D for improving the energy density of lithium-ion batteries. Although the speed of improvements has been slow, gradually, lithium-ion batteries have helped increase the driving range of EVs by utilizing high-energy source materials and improving the per-unit cell size. There have been considerable efforts to boost the nickel portion of total cathode materials. Most of the top battery players have announced their plans for commercialization/mass production of NCM811 by 2019-2020. NCM811, which contains 80% nickel, 10% cobalt and 10% manganese, has a much longer lifespan and allows EVs to go further on a single charge. In April, CATL mentioned it had begun mass production of the NCM811. Recently AESC, acquired by Envision Group from Nissan, also announced its plan to produce NCM811, which promises more than 300Wh/Kg and 600-650Wh/L in 2020.

Solid-state batteries coming next

Battery companies have been introducing a roadmap for solid-state battery technology as the next-generation technology and exhibited various innovative products as well. In theory, solid-state batteries have a lower risk of electrolyte being exposed or exploding due to physical shock. This is because solid-state batteries adopt a solid electrolyte made of polymer or ceramic materials instead of the liquid electrolyte used in current lithium-ion batteries. Thanks to their high performance at elevated temperatures and high capacity, solid electrolytes are a technology that could further boost energy density. Interestingly, automobile OEMs seem to be taking a more proactive approach towards the R&D of the solid-state batteries. So far, Toyota ranks first in the number of patent applications for solid-state batteries. Last year, Volkswagen announced it would invest US$100 million in solid-state battery maker QuantumScape to mass produce the product by 2025.

Exhibit 1: Battery energy density & EV range on the rise

Battery energy density & EV range on the rise

Falling battery prices

The falling prices of battery cells and packs are also fueling the penetration of EVs. EV battery cell and pack prices were estimated to be US$140-US$150 per kWh and US$170-US$180 per kWh respectively, at the end of 2018. Thanks to economies of scale that battery cell makers will experience with energy density improvements, the price per kWh will keep falling further. By 2025, we predict EV battery cell and pack prices would fall below US$80 per kWh and US$100 per kWh respectively. This implies the cost will decline around 10% per annum. Consequently, the battery pack, which currently accounts for 30-40% of EV manufacturing costs, will make EVs cheaper than equivalent internal combustion engine (ICE) vehicles after 2025. With more countries moving to phase out ICE vehicles and more automobile OEMs rolling out EV fleets, the price drops should trigger explosive growth in EV demand. Ultimately, this will form a virtuous cycle.

The massive leap in the market size

According to Counterpoint Research’s Smart Automotive Research, passenger EVs will exceed 11 million units (including battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs)), by 2025, and many steps in the new value chain are up for grabs. After 2025, EVs will be expected to cost the same or lower than conventional ICE vehicles, offering new opportunities for automobile OEMs and battery players. Not only is the EV market growing, but sales-weighted average battery capacity per EV is also on the rise. Accordingly, we expect the passenger EV(BEV/PHEV) battery pack market will expand to over 600 GWh by 2025 and generate nearly US$60 billion in revenue.

Ramping up production capacity

Leading battery manufacturers including CATL, Panasonic, LG Chem, Samsung SDI, and SK Innovation are fighting to win orders from global automobile OEMs. In doing so, they are also providing an excellent stimulus to each other. We do not see it as meaningful for battery vendors to line up order backlogs as long-term orders are generally flexible in terms of sales volume and price and depend on the market situation. Instead, it is essential to get a picture of ramp-up plans for the entire industry in order to track supply and demand movements going forward. Capacity expansions have accelerated sharply since the EV portion of global vehicle sales volume began to look significant. The cumulative capacity reached 129GWh at the end of 2018. We expect the cumulative battery production capacity for EVs to increase to nearly 775GWh by 2025, led mainly by the expansion of the top players.

No significant changes in the competitive landscape before 2025

Unlike other technology products, batteries are customized components. EV batteries, especially, need to be precisely optimized for each EV right from the product development stage to get optimum power and safety management. As the EV battery business requires a long history of competitiveness in such product development along with mass production experience, the industry has a high entry barrier. That is why we expect existing top players will continue to lead the market, and there will be no significant change in the competitive landscape for a while.

But, what about automobile OEMs who are willing to take battery cell technology and production into their own hands? At the initial stage, we believe that they will have to depend on long-term battery supply deals from multiple battery vendors. The long-term contracts will help to clear supply bottlenecks at a time of soaring demand and hold out the promise of cheaper batteries over time. Automakers will also have flexibility in supply for potential emergency scenarios and encourage competition among vendors to get better prices. In the meantime, they will attempt to internalize EV battery manufacturing based on the know-how and R&D accumulated through acquisitions or benchmarking a battery vendor in an exclusive partnership. When the time comes for the market focus to shift from the current lithium-ion batteries to solid-state batteries after 2025, the industry could look very different.

Exhibit 2: Global EV battery suppliers and auto OEMs

Global EV battery suppliers and auto OEMs