The Electric Car Battery Glut ???

The doomsayers have found a new angle. If no-one believed those highly biased reports from Boston consulting and the National Research Council 'predicting' battery costs would remain effectively unchanged for the next decade resulting in sales of EVs stalling, now Joann Muller over at Forbes is reporting the other extreme. Based on research by an analyst at Deutsche Bank named Rod Lache, they predict the large number of new entrants into the EV battery manufacturing business will cause a glut and electric-car battery makers will go bust from overcapacity!!

So it's now over-supply and not under-supply that kills the EV market as was predicted last month? Either angle seems to always result in EV sales tanking, of course. All these reports have in common that they predict weak demand for EVs. This directly contradicts 'real world' reports on sales of the few battery powered cars currently in dealership lots that show the Toyota Prius has been the top selling car in Japan since it's launch almost a year ago and still has a 6 month waiting list. There's no over-supply glut for the Prius as Toyota have announced plans to double production capacity to 1 million vehicles annually by next year.

According to these 'analyst' reports, despite the 'glut' of battery manufacturing capacity, the cost of Chevy Volt batteries defy the laws of economics never dropping below $14,000 and continue to require "huge government subsidies".

I'm sure glad these 'analysts' and 'consultants' aren't actually in a position to make important decisions based on this hoky information. Economics 101 says that if a market is over-supplied (as they now predict) then prices drop. As prices drop this stimulates demand and the market can expand rapidly.

Aren't high battery cost (e.g. $14,000 Volt battery) always the reason given for EV sales predictions going no-where? Wonder why Forbes don't draw the most obvious conclusion that as more battery manufacturing capacity comes on line, EV battery prices will drop making EVs increasingly affordable and as a result require less government subsidies? Are they not very good at their jobs or do they have a hidden agenda perhaps?

Among the goodies handed out by the Feds in 2009 was $2 billion of stimulus money to promote the manufacture of batteries for electric cars and plug-in hybrid vehicles. The sweeping gesture was supposed to restart the economy and save the planet. President Obama wants to see 1 million plug-in hybrids on American roads by 2015.

Now everybody wants to be in the battery business--a rush that threatens to create a glut of batteries for electric cars by the middle of the decade. Buoyed by matching grants and other government loan programs, six companies have announced plans to build or expand battery factories in the U.S., at a combined cost of $3.7 billion. There's another $3 billion of battery-factory building going on elsewhere on the globe, and for the same reason (government handouts).

By 2015 the new factories will have the global capacity to produce 36 million kilowatt-hours of battery capacity, enough to supply 15 million hybrid vehicles, or 1.5 million fully electric cars, says Deutsche Bank.

Will there be buyers for that many electrified vehicles in 2015? Not likely, unless gas prices soar and battery prices plunge. "These are companies going after an artificially created market," says Matthew M. Nordan, vice president of Venrock, the Cambridge, Massachusetts venture capital firm. Nordan says he has seen this movie before. "We're looking at a replay of the solar market in 2009," he says, when overcapacity led to sharply lower prices.

Unshockingly, battery makers disagree. Considering how many plug-in hybrids or EVs are coming--at least 120 models for sale by 2012 and perhaps 200 offerings a decade from now--"we're not even close to the capacity numbers we'll need," says Charles Gassenheimer, chief executive of Ener1. His firm, with a market capitalization of $745 million and the only advanced-battery factory operating in the U.S., will help power cars for Volvo, Think and others.

Investors are listening to Gassenheimer, not Nordan. After a September public offering, battery manufacturer a123 Systems enjoys a market value of $2 billion, nice currency for a company with a tangible book value of $537 million and revenue over the last 12 months of $90 million. Its first U.S. battery plant is under construction in Michigan; it also plans a joint venture with Saic Motor in China to develop batteries.

If Deutsche Bank analyst Rod Lache is on target, the battery makers are getting ahead of themselves. He predicts worldwide sales of only 5.6 million electrified vehicles in 2015--a figure that includes both non-plug-in and plug-in hybrids along with fully electric vehicles (see graph). After 2015 he sees battery demand accelerating, especially as pure electrics take hold. By 2017, he says, there may be a shortage of lithium-ion cells.

But that's only if consumers embrace cars that are more battery-intensive than the Toyota Prius hybrids are now. Both plug-ins (like coming versions of the Prius and the Chevrolet Volt) and all-electrics (like Nissan's Leaf) need more battery capacity than a current hybrid. The Leaf will have a 24kwh battery, 18.5 times the size of what's in Toyota's existing Prius.

Big batteries are expensive. The one going into a plug-in hybrid like the Volt costs $14,000, estimates the National Research Council. So it's unlikely that plug-ins and all-electrics will take off without huge government subsidies. (The U.S. offers tax credits of up to $7,500, not enough to close the gap.) The nrc--a unit of the nonprofit National Academy of Science and the National Academy of Engineering, whose plug-in hybrids study was funded by the U.S. Department of Energy, evidently expects the subsidies will continue. It's forecasting 13 million plug-in hybrids by 2030.

Gas prices are a factor, too, says Lux Research, an emerging technologies consultancy. While sales of Prius-style hybrids are likely to climb to about 3 million by 2020, Lux says, plug-in hybrids and all-electrics won't reach that level unless oil's price rises to perhaps $200 a barrel.

Where will all the excess batteries go? Maybe redeployment to other markets, like heavy-duty trucks or grid storage. If a glut causes battery prices to collapse, notes Lux, it will create a great opportunity for Asian makers of electric bikes and scooters. Or even a subsidized dump site; that should create a few new jobs.

STALLED?
Stimulus dollars have sparked battery production for EVs and plug-in hybrids. But will there be more batteries than cars?

Forbes