Electric Vehicle Batteries: Keeping Value Generation in Sight

'Unseen but everywhere' is the reality of batteries.  Nearly every gadget and quite a few vehicles rely on some sort of battery for power.  If the electric vehicle battery was not already top-of-mind, the coronavirus pandemic shoved the ubiquitous lithium-ion battery right in front of us.  Isolation and seemingly endless Zoom calls apparently inspired a good number of consumers to make plans for an electric car.  The result has been an acceleration of electric vehicle adoption and a significant increase in demand for batteries to make all those cars go!

According to GlobalData, an industry analytics firm, annual production of electric vehicles is expected to grow from 3.4 million in 2020, to 12.7 million in 2024.  This means annual battery production needs to expand to 410 gigawatts hours by 2024.  Production was only 95.3 gigawatt hours in 2020, so it is going to be a reach.

Benchmark Mineral Intelligence, a metal industry watchdog, has calculated that the present-day lithium-ion battery production capacity is around 500 gigawatt hours.  China dominates lithium-ion battery production, commanding 73% of manufacturing capacity.  Other location is Asia house about 13% of the production and the U.S. and Europe struggle behind with 9% and 5%, respectively.     

There is a quite a lot of discussion underway about how to boost lithium-ion battery production so it keeps pace with consumer demand for the EVs that need them.  There is considerable discussion about gigafactories  -  a battery mega-site with production capacity measured in gigawatt hours.  The very word slips easily off the tongue.  Investors can get caught up in the list of gigafactory proposed sites and lose sight themselves of the long-term drivers of value in electric vehicle batteries.

The world’s largest producer of lithium-ion batteries is a Chinese company called Contemporary Amperex Technology Co. Ltd.   That is a mouthful so most people simply refer to it by its acronym – CATL.  It is likely to figure prominently in added battery manufacturing capacity.  CATL is also likely to be a key player in new battery technologies, which is where the real value generating growth in the battery market is to be found.  Indeed, a key player in the electric vehicle market, Tesla Motors (TSLA:  Nasdaq) is already trying to make friends with CATL.

Lithium-ion batteries have several desirable characteristics, most prominent of which is exceptional power and rapid charging speed.   However, conventional lithium-ion batteries are heavily reliant on expensive materials such as silver, zinc and cobalt.  These important minerals are not used in large quantities, but factors related to scarcity, sourcing and processing can lead to spiking costs.  No car manufacture wants to be caught in the whipsaw of an unforgiving supply chain.

Tesla, and others for that matter, are keen to find improved batteries such as the lithium iron battery.  No, that is not a typographical error.  We are taking about age-old IRON.    The lithium iron battery retails the standard design with anode and cathode components exchanging positive and negative charges.  The anode is still made with graphite.  However, the lithium iron battery relies on the very abundant and relatively inexpensive iron phosphate for the cathode component.  Iron also offers the advantages of low toxicity and chemical stability for the battery that together make the lithium iron battery safer.

The prospect of using cheap, readily available materials has to be appealing for every battery manufacturer vying for orders in our increasingly electrified world.  Unfortunately, there are some compromises in the lithium iron battery.  Even iron-age man was probably aware that iron has low electric conductivity, which means the lithium iron battery has lower energy density than those batteries made with exotic combinations of cobalt and nickel.  This also means slower charging times and risks if the battery is fully discharged during use.

Developers have been tinkering with the lithium iron battery cathode to jazz things up a bit.  One solution has been to reduce the iron particle size and coating the cathode with conductive materials such as carbon nanotubes.  Other method ‘dopes’ the cathode with zirconium, niobium and aluminum. 

It should be no surprise to investors that one of the reasons Tesla has been cozying up to China’s CATL is that the battery behemoth has some expertise in alternative battery chemistries, including lithium iron batteries.  Indeed, the vast majority of electric buses produced in China come off the line with lithium iron battery packs.  The rest of the world should probably be asking why and how this battery figures so prominently in China’s electric buses.

 

The next post looks closer at CATL and other companies bringing this new, potentially game-changing battery to the electric vehicle market.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.