- Up to 40 percent of the added value lies in the battery
- Strong market consolidation until 2020
- Hundreds of GWh batteries for Second Life
The demand for drive batteries for cars is increasing worldwide. China currently covers more than a third of global demand for battery cells at 37 percent, Japan comes from a quarter (26 percent), the USA and South Korea together with 16 and 13 percent account for around a third of global demand. European providers, on the other hand, only play a subordinate role. The declared aim of the USA is to secure an even larger piece of the pie. Tesla’s gigafactory in cooperation with Panasonic will contribute significantly to this. But China is also expanding capacities at breakneck speed.
The comprehensive international study by Berylls Strategy Advisors shows that by 2020 two out of three battery cells will come from Chinese production and that US production will supply more than every fifth cell – at the expense of the other producers. Above all, Japan and South Korea are losing importance in percentage terms. As early as 2020, China and the USA will have branded the other nations as extras in this market.
In addition, the development of cell technology is progressing, forcing cell suppliers and OEMs to constantly adapt their products and production systems. Scarce resources of conventional lithium-ion batteries and the occurrence of raw materials in conflict-affected countries make this development necessary. In the future, new technologies such as lithium-air, lithium-polymer and solid state batteries will find their way into the automotive world to reduce dependence on raw materials such as cobalt.
However, it is extremely problematic for all battery pack producers that the production capacity is growing much faster than the demand from the automotive industry. Some battery pack producers have announced that they will significantly expand their production, and new players are showing great interest in entering the market. However, sales of electric cars are increasing too slowly, even in the best-case scenarios discussed today. A battery bubble develops. The Berylls study shows that this imbalance will not change in the coming years. On the contrary, the gap continues to widen before capacity and demand converge again. In the long term, the oversupply of global battery pack production capacities is 30 percent – based on the storage capacity produced, not on the number of battery cells. This means that a sharp fall in prices and market consolidation are unavoidable. Even isolated bottlenecks at suppliers of battery cells do not stand in the way of this development, which tends to increase cell demand.
Up to 40 percent of the added value lies in the battery
It can be assumed that the production, packaging and peripherals of the drive batteries can represent up to 40 percent of the added value of an electric car. It is becoming apparent that many large automobile manufacturers want to set up their own battery pack production in order to have a larger part of the value chain in-house. You are planning production options or are already producing modules and packs, often with closely linked partner companies.
Berylls therefore expects that the market share of battery packs manufactured directly by OEMs or their joint ventures will continue to increase. This is not only problematic for existing battery pack manufacturers, but above all for new players in the market who will not be subsidiaries or joint ventures of an OEM. In fact, the number of companies pushing into this oversaturated market is currently increasing. Competition is increasing, margins are decreasing.
Even today, only a small part of the business is available to independent third-party pack providers. Only around 20 percent of the total market remains for these independent suppliers of battery packs. The study illustrates this using China as an example. A battery pack market that is dominated by cell manufacturers and OEMs and in which only a small part of the overall market is open to battery manufacturers who are not directly contractually bound to an OEM. The majority of Chinese battery pack manufacturers are already subsidiaries of OEMs or are closely linked to their customers as joint ventures. This means that the sale of their products is largely secured.
Nevertheless, independent and specialized battery pack suppliers will be able to gain a place in the overall market. Finally, there are OEMs in the future, which have no economic advantage due to their size and associated production volumes by the in-house production of battery packs. In addition, specific vehicle models may require special battery packs that cannot be cost-effectively produced in-house. For the reasons mentioned, independent pack providers definitely have opportunities for their business model, but above all in rather small niches.
Strong market consolidation until 2020
Massive overcapacities are already leading to less than optimal utilization of the battery pack plants. However, the highest possible utilization is the most important key to economic success. It can be assumed that the manufacturing costs of a factory running at only 30 percent of its capacity increase by 50 percent compared to a production facility that operates at 80 to 90 percent capacity. It is therefore expected that in China alone, almost 50 percent of the players will disappear from the scene by 2020. But also scenarios in which Chinese producers thus displace massively European battery producers are not unrealistic – experts feel already reminded of the situation of international photovoltaic producers, which were pushed in the early 2010 years through massive pressure of Chinese manufacturers on the production costs of solar cells from the market.
However, new battery pack manufacturers will find it difficult to gain a foothold in the global market, not just because of the existing overcapacity. Rising raw material prices are also intensifying competition. Berylls therefore recommends that battery pack manufacturers look for alternatives to the car OEM business. For example, you should dedicate yourself to the so-called second life of car drive batteries or position yourself clearly in automotive niche markets and special applications.
Hundreds of GWh batteries for Second Life
Currently, however, the reuse of the batteries is hardly on the list of priorities for the manufacturers. There are currently only a few ideas to give the former drive batteries a second life as stationary energy storage, for example as an emergency power supply for hospitals or as a buffer storage for e-charging stations. So far, however, this has hardly been implemented on a large scale.
Battery pack suppliers such as Bosch, ElringKlinger, but in the future also BMW, Daimler or Volkswagen can position themselves in this branch of industry at an early stage and establish a profitable mainstay. This niche is particularly recommended for smaller battery pack manufacturers. Like the big suppliers, they will in future have the skills in-house to turn a used car battery into an all-round reliable stationary storage battery.
However, the success of these Second Life applications depends heavily on the industrialization of the complex recycling processes. You are the keys that a Second Life battery can be offered cheaper than the new cells built up counterpart.
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