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Summary:

The supply of batteries for electric cars could far surpass the demand for electric vehicles over the next few years, estimates Lux Research. It could be a “severe mismatch,” that could cause consolidation and the need for new markets for battery makers.

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The supply of batteries for electric vehicles could far surpass the demand for electric vehicles over the next few years, estimates Lux Research. Lux calls it a “severe mismatch,” and one that will cause consolidation, the need for increased partnerships between battery makers and auto manufacturers, and the need for new markets for battery makers to sell into.

Part of the reason for the oversupply of EV batteries is simple: The market for electric cars is looking like it’s going to be a lot smaller than predicted, at least in the short term. The crunched market is something battery maker Ener1, which had a deal with electric car maker Think, and Johnson Controls, which has a battery partnership with Saft, have discussed publicly. Johnson Controls is looking to end, or expand, its deal to work on EV batteries with Saft, because it wants to pursue the power grid battery market. And Ener1 cut its losses on its investment and partnership with Think, partly because the EV market was looking slower than expected. Think eventually went bankrupt.

At the same time that the EV market is looking tiny, battery makers have been expanding capacity substantially for making EV batteries and new battery makers have been moving into the EV market. But Lux says even if oil prices jump to $200 per barrel, which could cause the EV market to grow substantially by 2020, five of the leading battery makers — LG Chem, GS Yuasa, SB LiMotive, AESC, and Sanyo — would have enough capacity to manufacture far more than needed to cover that market. That means there will be dozens of battery makers with way too much supply, particularly if gas prices remain low.

In fact, Lux predicts there will be only a few winners in the EV battery market, and some of the ones already ahead include LG Chem, SB LiMotive, and Chinese makers China BAK, China Aviation Lithium Battery (CALB), and BYD. Lux also gives Envia Systems props for its innovative technology and GM backing — there will be room for small, innovative tech developers to do licensing deals and be acquired, says Lux.

On the other hand, Lux says A123 Systems and Ener1 face “an uphill climb” — marking both of them as “caution.” Lux also issued caution takes for International Battery, K2 Energy Solutions, Valence Technology, Leyden Energy, Electrovaya, and gave a “strong caution” to Altair Nanotechnologies (ouch).

There are a few ways for these battery makers to survive the coming market crunch and consolidation. One is to find new partnerships — because the market is so immature, the partnerships that are already in place are relatively tenuous. Another survival method will be to find battery markets outside of pure EVs, like hybrid vehicles, e-bikes, and the power grid.

But there will be a significant amount of losers in the market. As an anonymous president of a battery material company says in the Lux report:

“If someone wants us to build out capacity, what happens if no one use it? If we return to just phones and laptops, then my investors are looking for new management because we’re bankrupt.”

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  1. Free market economics. Battery oversupply leads to falling prices leads to cheaper EV car prices leads to larger market adoption of EVs leads to no more slack in battery supplies. Hopefully the prices will stay down then….

  2. Time to pivot and use those batteries as whole-house backup batteries. If everyone had a big battery at home that charges at night, peak demand among consumers could be significantly reduced.

  3. I thought I’d read two weeks ago about the break up of the JCI/Saft JV.

  4. Deutsche Bank published the exact same Battery Glut ‘prediction’ in Feb 2010. More BS to move the stock price of listed battery companies DOWN. It’s so transparent it’s pathetic!

    1. good comment!

  5. Katie Fehrenbacher Wednesday, July 13, 2011

    @Chris Shea, The Johnson Control/Saft JV is still intact, Johnson Control filed to dissolve it, but it hasn’t moved forward yet. I just double checked with Johnson Controls on that.

  6. Katie Fehrenbacher Wednesday, July 13, 2011

    @Paul, What part of the report do you think is wrong? Sounds reasonable enough to me.

  7. Jonathan Cole Saturday, July 16, 2011

    I find it very interesting that none of the battery makers have responded to the SunPax concept posted at Nasa Tech Briefs. http://contest.techbriefs.com/sustainable-technologies-2011/1612-accelerating-the-solar-transition
    The combination of integrated, no maintenance batteries with solar and other renewables is the only other real application for very long-life, no maintenance batteries beside EVs. Yet I see none of these upstart battery makers going after the market now occupied by Rolls/Surrette. I think that part of the explanation lies in the “vulture” capitalist finance model. Speculative investors looking to dump their holdings at the earliest opportunity for short-term profits unrelated to any actual productive success drives the battery makers to only focus on markets that support exhorbitant prices and their projections of revenue are built on pipe dreams. But building your business model on exotic applications (military, high priced EVs, etc)is a flawed strategy. But the speculators demand it in return for funding. What is required is visionary investors with staying power. The actual productive profits come with mass-production and as a wide a market as possible.And by the way, all electric energy storage is not the same. This company is already selling mega watt storage solutions to utilities. http://www.xtremepower.com/

    1. @ Katie: I agree with just about all the arguments put forth in this article. Advanced battery development takes very deep pockets, so the LGChems and Sanyos out there have a huge advantage over the little startups, period. The big boys in this space also in general have much deeper engineering talent, along with proven histories of products that work. It’s no mystery why GM chose LG over A123 for the Volt’s battery pack, and Panasonic EV is responsible for the near perfect track record of the NIMH Prius packs to date. THIS is the kind of bulletproof reliability big auto and truck makers will be looking for down the road–and now, for that matter.

      Look for more international partnerships like the one GM has forged with LG, resulting in a win-win for both companies, and countries: Michigan gets a spanking new, state-of-the-art battery plant with all the jobs that accompany it, GM gets reliable batteries (and no waiting line) for its EVs, and LGChem gets a permanent presence in the US (as well as a lifetime customer) and bragging rights as being one of the first to market with an outstanding advanced lithium pack.

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