Electric Car Battery Glut Looms on the Horizon

As the solar panel industry dusts itself off from a long-anticipated glut in 2009, another green technology — large format lithium-ion batteries designed for transportation and grid storage applications — could be edging toward overcapacity.

According to market forecasts from Lux Research, global sales for these batteries will reach about $3.7 billion (6.3 gigawatt-hours) in 2015. Production capacity in that year, however, could be nearly triple that amount, with companies equipped with capacity to supply 18.2 gigawatt-hours, for some $10.7 billion if they were all sold. Lux senior analyst Jacob Grose told me in an email, “We are definitely predicting a Li-ion glut coming.”

Given the number of companies planning to break ground this year on new lithium-ion battery manufacturing facilities (see our map of the U.S. green car battery buildout), or expand existing facilities, John Gartner of Pike Research (which pegs the global lithium-ion battery market for transportation applications alone at $7.9 billion and 16.9 gigawatt-hours in 2015) anticipates we could start to see excess capacity starting in 2012. “How much of this capacity is actually used, that’s an open question,” he said, but supply could outpace demand by 2012 as well.

“Battery manufacturers are preparing for a best case scenario,” said Gartner, noting that quite a bit of uncertainty remains. “The financing isn’t all in place. They probably won’t live up to some of their own expectations, mainly in the U.S.,” as opposed to Japan and South Korea’s battery giants that already have commercial-scale manufacturing operations.

Not everyone anticipates a looming battery glut. Oliver Hazimeh of the consulting group PRTM said today that while his firm does not expect “any significant overcapacities in the next few years” for the sector as a whole, individual suppliers may find themselves with unused production lines as automakers search for their groove in the EV business. Original equipment manufacturers, or OEMs, said Hazimeh, may “re-source” or change their battery supply agreements.

For young battery companies in the U.S., Gartner commented in an interview today that excess capacity could present a major hurdle in the coming years. A123Systems and other U.S. battery developers planning to build out new plants in the next few years (some of them with ambitious production goals tied to government funding), “are not sitting on a lot of cash,” noted Gartner. “Once they establish that manufacturing, they need to be instantly generating revenue.”

“Everyone will have their own estimates of future market demand and production capacity,” said Maurice Gunderson of venture capital firm CMEA Ventures. So while declining to offer specific projections, Gunderson told us this week he thinks it’s “likely that the current rate at which battery production capacity is being built will exceed the growth of demand, and so temporary overcapacity will result at some point in the future.”

But you know what? That’s not such a bad thing, he said. “Production capacity growth will slow, and demand will have a chance to catch up.”

It’s a pattern Silicon Valley has seen before. “We see this in many fast-growing industries,” said Gunderson, offering solar, disk drives and semiconductors as examples. “It’s not unique to energy, nor is it a fatal flaw in a new industry. In fact, it’s a natural consequence when supply and demand are both growing very fast.”

Asked if this trend is informing CMEA’s investment strategies at all, Gunderson said no, for the time being, “because we believe an oversupply condition is several years away.”

Photo credit General Motors

Related reports on GigaOM Pro (sub. req’d):How EV Battery Startups Can Cross the Valley of Death,” “How To Break Into the Energy Storage Market,” and “Better Battery Life Motivates Mobile Chipmakers

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