Part 2:
All the big producers are adding capacity in part because it drives down unit costs, as the past few years have shown (see chart 3). Lithium-ion cells (the basic components of batteries) cost over $1,000 a kilowatt-hour (kWh) in 2010; last year they were in the $130-200 range. GM says it is paying $145 per kWh to LG Chem for the cells that make up the 60kWh battery for the Bolt (the pack, thanks to labour, materials and electronics, costs more than the sum of its cells). Tesla says that cells for the Model 3 are cheaper. Lower costs are not the only improvements; large amounts of R&D investment have led to better power density (more storage per kilogram) and better durability (more discharge-then-recharge cycles). The Bolt comes with a battery warranty of eight years.
But getting prices down this way has not just produced cheaper, better batteries. It has also resulted in significant overcapacity. Cairn ERA estimates that last year the manufacturing capacity for lithium-ion batteries exceeded demand by about a third. Both it and BNEF say that the battery manufacturers are either losing money or making only wafer-thin profits on every electric-vehicle battery they produce. Despite the seeming glut, though, they all have plans to expand, in part to drive prices even lower. Mr Jaffe explains their thinking as that of the “traditional Asian conglomerate model”: sacrificing margins for market share. This may be a sound strategy given the ever-greater hopes for electric vehicles in the near future. But at the moment it is also one that looks rather unnerving. Although Mr Jaffe believes that increased demand for both electric vehicles and stationary storage will justify the rush to expand, he accepts that, for now, “It feels like a gold rush—but there’s no gold.”
There are, though, other valuable metals in the picture. Making more batteries means acquiring more lithium, as well as various other metals, including cobalt, for the cathodes. These make up about 60% of the cost of a cell. Being assured of a constant supply of them is as much a strategic consideration for battery-makers as mastering electrochemistry. Since 2015 lithium prices have quadrupled, says Simon Moores of Benchmark Mineral Intelligence, a consultancy. Cobalt’s price has more than doubled over the same period; prices of chemicals containing nickel, also used in cathodes, are rising too.
New supplies of lithium should not be too hard to find; there are thought to be at least 210m tonnes of the stuff, says Mr Moores, compared with current annual production of 180,000 tonnes. New fields are being opened up. In July SQM of Chile, the world’s biggest lithium producer, said it would invest $110m in a lithium joint venture in Western Australia. Cobalt is more tricky. Not only are supplies scarcer, but a lot comes from the Democratic Republic of Congo. This raises both ethical problems (production can rely on child labour) and business ones (no one wants to depend on warlords for a vital resource). LG Chem has said it is trying to reduce the cobalt component of its battery cells, while continuing to improve their performance. Further down the road, recycling the metals from old batteries could make the industry much more sustainable.
One of the reasons manufacturers are confidently piling on capacity despite costlier raw materials is that, at the moment, little else can compete with their wares. Other battery technologies that sound as if, in principle, they might have advantages are often touted—but none of them enjoys the decades of development that have turned lithium-ion devices from an intriguing idea into a dominant technology. This work has generated a huge amount of knowledge about the fine details of manufacturability, the choice of electrolytes and the ever more sophisticated nanotechnology of the metallic cathodes.
Kenan Sahin, who heads CAMX Power, an American company that supplies materials for cathodes, says the lithium-ion battery’s cost and weight, its ability to charge and discharge repeatedly, its durability and its safety have all been achieved through an endless process of fine-tuning, rather than eureka moments. He likens battery chemistry to drug discovery in the pharmaceutical industry. “It’s really difficult. Whatever you have needs to work at large scale and the side-effects have to be acceptable,” he says. This is all hard for a would-be usurper to emulate. For the foreseeable future, ever-improving lithium-ion technology—perhaps with new solid electrolytes—will make the running, benefiting from yet more refinements the more applications it supports.
Until now, the mainstay has been a cylindrical cell called the 18650, which looks like a rifle shell. It is 65 millimetres long, 18mm in diameter and has an energy density of perhaps 250 watt-hours per kilogram. (The energy density of petrol, for comparison, is about 50 times greater; but the cell can store that much energy hundreds or thousands of times.) Tesla and Panasonic have now developed the 2170, a bit longer and wider; Mr Musk says it will be the most energy-dense battery on the market. The company says that the cost of driving a Model 3, released in late July to rave reviews, will be half that of any of its previous vehicles. At the car’s launch Mr Musk seemed a bit overawed at the prospect of producing 500,000 such vehicles next year: “Welcome to production hell,” he told the assembled workers.
On August 7th Tesla announced plans to sell bonds worth $1.5bn to support its expansion, giving a badly needed breather to the equity market, where it usually raises cash (and where its value has risen by two-thirds over the past year). The company has said that it has 455,000 pre-orders for the Model 3, which, if taken up, would generate enough cashflow by year-end to start shoring up the company’s finances. If it all goes to plan, Mr Musk hopes to see the gigafactory become the largest building in the world, cranking out 100GWh a year—and to be joined by further gigafactories elsewhere; the next would probably be in China.
All this presupposes that electric vehicles really are poised for take-off. There is no doubt that they are getting better and cheaper. But there are other constraints on their use, most notably charging. In Britain 43% of car owners do not have access to off-street parking and thus would not be able to charge cars at home. Nor are domestic supplies always up to the strains of, say, an 11kW charger; using the kettle or immersion heater during the six hours it would take to charge up a 90kWh battery could blow the fuses. The answer will be fast-charging stations, possibly like petrol stations; some car companies are beginning to build them as a way to assuage the “range anxiety” that turns some drivers off electric vehicles. Whether such facilities can expand fast enough to allow the industry’s expansive ambitions to be fulfilled remains an open question.
This uncertainty about the speed at which electric-vehicle usage will grow is one of the things that makes stationary storage an attractive alternative market for the battery-makers. Installations such as the one recently built in a nondescript lot on the outskirts of San Diego, California, by San Diego Gas & Electric (SDGE) have none of the glamour of glistening new models hitting showrooms. It is a 384,000-cell car battery impersonating a trailer park: the dullest Transformer ever. But its ordinariness is part of its beauty, says Caroline Winn, chief operating officer of SDGE; the utility uses it to offer power at times of peak demand. Modular construction meant the 120MWh facility—just a touch smaller than the one Tesla has promised South Australia—was ready to go only eight months after the start of the project. It runs so quietly it is hardly audible. Building a gas turbine to do the same job would have been cheaper but would have taken years, in the unlikely event that local residents had given it the go-ahead in the first place. The battery facility “is a lot prettier than a gas turbine,” Ms Winn says.