The arms race for electric vehicle batteries is heating up

Global automakers have big plans for new EVs, and are investing billions of dollars to bring new electric models to market. However, there’s a big potential bottleneck: batteries. 

Above: Thousands of Tesla Model 3 cars being shipped from Shanghai to Europe (Twitter: Tesla China) 

Tesla saw early in the game that the availability of batteries would be a mission-critical constraint. In September 2013, Elon Musk conceded that the world’s entire current production of lithium-ion battery packs wouldn’t be anywhere near sufficient to supply Tesla’s third-generation, mass-market vehicle (Model 3). He told CNBC that a “truly gargantuan battery factory of mind-boggling size” (Gigafactory 1) would be needed.

The legacy automakers are belatedly preparing for mass production of electric vehicles, but as Bloomberg reports, they may soon be hard-pressed to secure enough batteries to get their EV production lines up to speed.

“There are not enough batteries to fulfill the automakers’ near-term promises,” Sam Jaffe, Managing Director of the energy-storage consulting firm Cairn ERA, told Bloomberg. “A lot of new battery factories are being built. But there is a battery-supply problem in the near term. All of the incumbent automakers are scrambling at this point.”

The market for automotive-grade battery cells is dominated by a handful of companies in China, Japan and South Korea—according to a recent report by UBS Securities, the top six suppliers controlled 87% of the global market last year.

This inconvenient truth is already disrupting automakers’ global supply chains. Honda plans to electrify all the cars it sells in the European market by 2022—but these cars won’t be built in Europe anymore. Earlier this year, Honda shuttered its only EU factory. Hondas bound for Europe will now be imported from Asia, where the company has an established supply chain for its electric powertrains and batteries.

“Unfortunately, we’ve had to make a tough decision, and similar decisions are being made across the industry,” Tom Gardner, Honda’s Senior VP for Europe, told Sky News. “Electrification has a number of challenges for the powertrain, the battery supply and all of those things, for us, are optimized in the Japan and Asia region.”

Above: Total battery shipments for 2019 in gigawatt hours (Source: Bloomberg)

Short-term shortages have been causing headaches for EV-builders. Bloomberg reports that, in February, bottlenecks with battery supplier LG Chem forced both Audi and Jaguar to pause production of their electric SUVs. In October, a legal dispute between LG Chem and fellow South Korean producer SK Innovation threatened a “catastrophic supply disruption” for Ford and VW.

The exclusive club of big battery players—which also includes China’s CATL and Japan’s Panasonic, is increasingly setting the tempo in the growing EV industry.

“Battery suppliers can be very picky with their OEMs,” Nathalie Capati, founder of a consulting firm called the Battery Lab, told Bloomberg. “There are only a few cell suppliers who can meet their quality and volume. The automakers are at the mercy of cell suppliers these days.”

Tesla’s long partnership with Panasonic has kept its all-important battery supply chain moving more or less smoothly. However, as production of Model 3 ramped up, the California carmaker began to feel constrained by the pace of the Japanese giant’s production. Bloomberg reports that Panasonic is adding a 14th battery-cell production line to the Nevada Gigafactory, an addition that’s expected to increase output by 10%. However, this won’t fill the gap.

“Today’s batteries can’t scale fast enough,” Elon Musk said at last month’s Battery Day presentation. “There’s a clear path to success, but a ton of work to do.” Tesla has begun sourcing batteries from CATL and LG Chem, and making plans to free itself of its dependence on outside suppliers altogether. Tesla is building its own cells on a pilot line in Fremont, and has announced plans to build cells at the upcoming Texas Terafactory.

It’s becoming increasingly clear that developing the US clean energy industry is a national security issue, and batteries are among the most strategic of commodities. The nonprofit Institute for Defense Analyses is one of many organizations that have been trying to bring this issue to the attention of our national leaders.

Above: China dominates the world's production and supply of 'rare earths' vital for battery electric vehicles (YouTube: Financial Times) 

As Mary Nichols, Chair of the California Air Resources Board, recently put it, “A new arms race has begun. It’s an electric race to get to cheaper and more powerful batteries, and it’s one that manufacturers around the world are competing in.”

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Written by: Charles Morris; Source: Bloomberg