Lithium-ion battery prices in 2009 were around $1,200 per KWh. Thanks to Musk’s Law, which is all about having the entrepreneurial spirit, vision and bravery to take on the global automobile incumbents and battery producers, battery prices have collapsed in recent years. And going forward thanks to the decision of Elon Musk,  Tesla and Panasonic to spend $4-5bn on a battery factory we are likely to see production costs fall to as low as $125/KWh by 2020.

Assuming a 20% profit margin brings us $150/KWh prices for new lithium-ion batteries. What does this mean? For a car like the Mercedes B Class which has a petrol and electric version it means that the EV will be cheaper to buy and operate over a three year period. The Mercedes B Class EV has a range of 200 km. The next generation may have close to double that range. Add to that the fun factor of being able to drive an EV with its unbelievable acceleration and torque not to mention the environmental aspect of not having to buy a diesel or gasonline powered car and suddenly the customer has a better value proposition than the combustion engined car. $150/KWh prices for batteries will have huge repercussions for not only the motor vehicle industry but also the oil and power industries. And what exactly are those repercussions?

  1. The increasing penetration of EVs will have an impact on oil demand. EVs will canabilise oil demand. It will initially cap the growth in oil demand but as the demand for EVs increase, demand for oil may actually fall. This will have an impact on the oil price, CAPEX in the oil industry as well as have significant repercussions for both oil importing and exporting countries.
  2. There will be huge changes in the value chain of the automobile industry. The coming of EVs will mean that the battery will become the most important component of the car.  Given that Europe does not have one major lithium-ion cell producer there must be serious concerns amongst automobile suppliers like Bosch that they will be locked out of batteries. For the automobile manufacturers the move to EVs is not only going to be expensive (in terms of the need to reequip factories and acquire other technical knowhow) but it may also be the opportunity for the Chinese automobile manufacturers such as Chery and BYD and new players such as Apple to really become global players in the automobile market.
  3. EVs will change our power system forever. If every automobile, for instance, in Germany, uses one battery charger then putting this infrastructure in will be the equivalent of building the German housing fleet again in terms of meter and connection points (over 40m) to the grid. And each new EV will give the owner or the equipment manufacturer the opportunity to become a potential supplier of power to the grid as well as our homes and businesses. And the numbers are enormous. If Germany’s car fleet was all to go electric it would have close to 1,000GWh of storage capacity which would be enough to power Europe for a whole hour! Whatsmore these batteries would be basically have close to zero marginal cost. The customer will pay for them but the BMW’s and Tesla’s will control the power flows in and out of those batteries through power services agreements. This could all mean that BMW and Tesla become leading global power traders with a global fleet of managed batteries. And this is far from a dream. Buy a Renault or Nissan EV today and your electric car already has the capability for two way power flows to and from the grid.
  4. Cheap second life batteries will come our way. These will be reconditioned battery packs from EVs which can be used in other less stressful environments such as for backup power, as well as for use in our homes and businesses.
  5. Solar and batteries will be the big revolution. The issue with solar is that it is intermittent but combined with batteries and you have a hybrid power solution which already makes economic sense in certain situations in our grid based world. Going froward, as the costs of these technologies continue to fall the economics of solar and storage will only get better. Solar and storage will also be used to bring power to people who currently do not have power, and in fact we are already seeing it thanks to the battery/solar offers of companies such as the Berlin based Mobisol.

And going forward, we will continue to see technology improvements and cost reductions for both batteries and solar over the next years and together they will cause the greatest revolution seen in the transport and energy worlds in over a century!

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  • Apple ,
  • automobile industry ,
  • BMW ,
  • BMW i ,
  • BMW i3 ,
  • Bosch ,
  • BYD ,
  • capex ,
  • Chery ,
  • combustion engine ,
  • electric car ,
  • electric vehicle ,
  • EV ,
  • germany ,
  • Mercedes ,
  • Mercedes B Class ,
  • Mercedes B Class EV ,
  • Mobisol ,
  • Nissan ,
  • oil market ,
  • oil price ,
  • Renault ,
  • tesla ,

Comments

  1. 6. potential Tesla market share erosion. Cheap and abundant batteries will bring every auto OEM into the EV business. Car makers will gain or erode share based on styling, performance, and value. While tesla has shown it can target the luxury performance market, it has not yet shown that it can update designs/tooling as quickly as the incumbents. It’s X is 2 years late. What will happen to Teslas 30B market cap when BMW, Mercedes, and Lexus go EV? And then the big 3?

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