Frost & Sullivan Market Insight published: 27 Jan 2010
By Davide Brunazzo, Automotive & Transportation Consultant
Abstract
This article provides an overview of the Lithium-Ion battery industry for electric and plug-in hybrid vehicles. The article aims to offer a reflection point to industry players and governmental organizations to understand which factors can drive the growth of Lithium-Ion batteries manufacturing capacity in Europe.
Europe represents today a marginal share of global production of Lithium-Ion batteries
The automotive industry recognizes that Lithium-Ion battery technology is the key to electric vehicle and plug-in hybrid success and up until today, efforts of battery manufacturers to increase their market share have been aimed at reducing the price of Lithium-Ion batteries. Asian battery manufacturers have so far been the forerunners achieving this as can be seen by their global dominance in the production of Lithium-Ion batteries.
Chart 1 – Global production of Lithium-Ion cells in 2009
Source: McKinsey/German Federal Environment Ministry
As can be seen in Chart 1, Asian manufactures represented almost the totality of worldwide production of Lithium-Ion cells in 2009, amounting to almost 95% of global production. The dominance of Asian manufacturers based in Japan, Korea and China is due to three main reasons:
Lithium-Ion technology was initially developed for consumer electronics applications with most production coming from Asia. As there is was a ready made production and supply chain network, Asian battery manufactures have been the first to build up Lithium-Ion cells and Lithium-Ion batteries production expertise
Lithium-Ion batteries for automotive applications require large prismatic cells and while automation exists for tiny AA or AAA cells, this is not the case for large prismatic cells. Low labour costs in China or Korea are key competitive factors in limiting final costs.
Source: McKinsey/German Federal Environment Ministry
As can be seen in Chart 1, Asian manufactures represented almost the totality of worldwide production of Lithium-Ion cells in 2009, amounting to almost 95% of global production. The dominance of Asian manufacturers based in Japan, Korea and China is due to three main reasons:
Lithium-Ion technology was initially developed for consumer electronics applications with most production coming from Asia. As there is was a ready made production and supply chain network, Asian battery manufactures have been the first to build up Lithium-Ion cells and Lithium-Ion batteries production expertise
Lithium-Ion batteries for automotive applications require large prismatic cells and while automation exists for tiny AA or AAA cells, this is not the case for large prismatic cells. Low labour costs in China or Korea are key competitive factors in limiting final costs.
The governments of Japan, Korea and China have provided large R&D subsidies to their battery industries over the last 15-20 years in order to establish core battery technology and advanced manufacturing facilities.
Manufacturing Lithium-Ion batteries in Europe: opportunities and challenges
Manufacturing Lithium-Ion batteries in Europe: opportunities and challenges
Today there is a clear gap between European and Asian energy storage manufacturers in regards of Lithium-Ion technology. The small, weak and fragmented European battery industry for automotive applications will not survive amidst the determined Asian competition unless action is taken. The key challenge that European manufacturers have to overcome to establish themselves in this market is to find a way to reduce development and production costs. The physical construction of a battery manufacturing plant requires heavy investment that can amount to several million dollars. Additionally, to develop a Lithium-Ion battery manufacturing plant, high investment is required in Research and Development. The return-on-investment period for this heavy investment ranges over three to five years.
Historically, the majority of European based battery manufacturers have preferred the option of locating their manufacturing plants in Asia Pacific and importing batteries from there.
The main benefits of such an import model are:
- The possibility to partner with local manufacturers
- The consolidated production expertise
- Good access to raw materials
- Lower labour costs
- The consolidated production expertise
- Good access to raw materials
- Lower labour costs
Frost & Sullivan considers that the option of manufacturing Lithium-Ion batteries in Europe may offer benefits that may offset the advantages of manufacturing in Asia Pacific including:
- Supply chain easier to be managed
- Lower logistic costs (relative high weight drives logistic costs)
- Less expensive and more efficient warranty and aftermarket service
- Lower logistic costs (relative high weight drives logistic costs)
- Less expensive and more efficient warranty and aftermarket service
Chart 2 summarises the advantages and disadvantages of Europe as a manufacturing site, and highlights the opportunities and threats coming with this option.
Chart 2 – SWOT Analysis of Europe as a site for manufacturing Lithium-Ion batteries
Source: Frost & Sullivan
Government backing and improvement in production automation as competitiveness drivers
Governmental support is a key driver for increasing the competitiveness of European as a manufacturing base. Public financial supports have already shown their efficiency in other countries across the world. Thanks to the $2.4 billion grant from the Recovery Act, the U.S. has constructed as many as half a dozen mass manufacturing facilities to supply both large prismatic cells and battery packs.
Similar programs in Europe have already been started. Chart 3 shows current financial aids implemented by European governments for supporting companies investing in manufacturing capacity of Lithium-Ion batteries.
Governmental support is a key driver for increasing the competitiveness of European as a manufacturing base. Public financial supports have already shown their efficiency in other countries across the world. Thanks to the $2.4 billion grant from the Recovery Act, the U.S. has constructed as many as half a dozen mass manufacturing facilities to supply both large prismatic cells and battery packs.
Similar programs in Europe have already been started. Chart 3 shows current financial aids implemented by European governments for supporting companies investing in manufacturing capacity of Lithium-Ion batteries.
Chart 3 – Public supports (grants, loans, funds) in Europe for production Lithium-Ion batteries
Source: Frost & Sullivan
Source: Frost & Sullivan
In 2009 important players like Daimler, Renault and Nissan choose Europe for their investments in battery manufacturing capacity, also because of financial supports provided by governments. Nissan decided to invest in two battery plants in Europe, one in Portugal and one in the UK, both with a projected annual capacity of 60,000 units. At the end of 2008, Daimler acquired 49.9 percent of Li- Evonik's subsidiary Li-Tec. Daimler's acquisition will also benefit from the €60 Mn provided by the German government for its future investment in production capacity. In France, Renault will build a battery manufacturing factory at Flins, west of Paris, with the support from France's Atomic Energy Commission.
Aside from governmental support, there are other elements that can drive forward the growth of battery production in Europe. These factors include:
Joint ventures which will reduce the burden of the investments
Reduced logistics costs as there will be no need to import heavy Lithium-Ion batteries from Asia.
The reduction of production costs thanks to new materials such as the innovative polymer matrix solutions which allows unparalleled production flexibility without any risk of cracks or pinholes caused by mechanical stress or bending and the combination of polymer and ceramic materials reducing failure rate in production.
Critical success factors for companies and governments investing in Lithium-battery technology
Based on the case of Asian batteries manufacturers and on analogies with other technological innovation areas, Chart 4 summarises the critical success factors that companies and governments investing in batteries manufacturing capacity in Europe must consider:
Aside from governmental support, there are other elements that can drive forward the growth of battery production in Europe. These factors include:
Joint ventures which will reduce the burden of the investments
Reduced logistics costs as there will be no need to import heavy Lithium-Ion batteries from Asia.
The reduction of production costs thanks to new materials such as the innovative polymer matrix solutions which allows unparalleled production flexibility without any risk of cracks or pinholes caused by mechanical stress or bending and the combination of polymer and ceramic materials reducing failure rate in production.
Critical success factors for companies and governments investing in Lithium-battery technology
Based on the case of Asian batteries manufacturers and on analogies with other technological innovation areas, Chart 4 summarises the critical success factors that companies and governments investing in batteries manufacturing capacity in Europe must consider:
Chart 4 – Critical Success Factors for companies and governments investing in production capacity in Europe
Source: Frost & Sullivan
If these critical success factors are properly managed, Frost & Sullivan believes that battery manufacturers in Europe will be able to capture a significant part of the strong increase in demand of Lithium-Ion batteries in Europe, demand that is expected to reach 490,000 units in 2015.
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