About three-quarters of the way along the serpentine production line at Nissan's Sunderland plant, a worker tirelessly installs fuel tanks on countless Qashqai chassis—the SUV that makes up the majority of the factory's production. But every now and then, another car will pass by on this production line: an electric vehicle called the Leaf.
At this time, the worker's task changes from installing fuel tanks to installing batteries. His movements are perfectly coordinated with the robotic arm beside him, seamlessly switching between gasoline and electric vehicles.
Until recently, many people found this shift incredible. For the past century, the internal combustion engine had been the primary power source for cars and ships. This certainly gave it a significant head start. Despite the Leaf being touted as the world's best-selling electric car, the Sunderland plant, the UK's largest car manufacturer, produced only 17,500 Leafs last year, while the Qashqai produced a staggering 310,000 in the same year. In stark contrast, the Qashqai was profitable, while every Leaf was sold at a loss.
Global electric vehicle sales reached 750,000 units last year, less than 1% of the new car market. Carlos Ghosn, head of the Renault-Nissan Alliance, stated in 2011 that the two companies alone would produce twice that number of electric vehicles by 2016. In hindsight, this prediction was clearly overly optimistic, but similar forecasts are not uncommon.
However, while the exact timing of electric vehicle takeoff remains uncertain, it is widely agreed that the technology will soon become a big business.
Affordable electric vehicles with driving ranges close to a full tank of gas (such as the TSLA Model 3 and GM's Chevrolet Bolt) have recently hit the market, and a redesigned Leaf will be unveiled in September. The current state of the Sunderland plant demonstrates that gasoline and electric vehicles can now share a production line, thus simplifying the popularization of these vehicles by increasing production volume.
I. The Great Leap Forward in Lithium Batteries
Many predictions suggest that the lifetime cost of owning and driving an electric vehicle will be comparable to that of a gasoline-powered car within a few years, thus driving a surge in electric vehicle sales in the 2020s and making them mainstream in the 2030s. my country contributed approximately half of global electric vehicle sales last year, and it is projected that 2 million electric and plug-in hybrid vehicles will be on the road in 2020, reaching 7 million within 10 years.
Bloomberg New Energy Finance, a consulting firm, points out that oil companies' expectations for electric vehicles are also much higher than they were a few years ago. The Organization of the Petroleum Exporting Countries (OPEC) now predicts that there will be 266 million electric vehicles on the road by 2040. The UK and France have also stated that they will ban the sale of purely gasoline-powered cars by then.
This is all thanks to the significant expansion of the lithium battery business and the widespread consensus that the industry will continue to grow rapidly. The first lithium batteries were launched 26 years ago, initially used in Sony's CCD-TR1 camcorder. That product was very popular, and so were the batteries it used, which were subsequently used in computers, mobile phones, cordless devices, electronic cigarettes, and other products.
The more electronic products that use batteries, the greater the demand for lithium batteries. Last year, consumer products contributed approximately 45 GWh of lithium battery production. To put it simply, if all these batteries were used to power the UK (where the average power consumption is 34 GW), they could provide about 1 hour and 20 minutes of continuous use.
In the same year, the production of lithium-ion batteries used in electric vehicles reached half that of consumer electronics: 25 GWh. However, Sam Jaffe of battery consultancy CairnERA predicts that demand for automotive batteries will surpass that of consumer electronics as early as next year, marking a turning point for the entire industry. Significant expansion has already begun.
As the world's top five lithium-ion battery manufacturers, Panasonic of Japan, LG Chem and Samsung SDI of South Korea, and BYD and CATL of my country are all increasing their capital expenditures and expect their production to triple by 2020. It is estimated that TSLA's $5 billion Gigafactory in Nevada, built in partnership with Panasonic, already has an annual production capacity of approximately 4 GWh. TSLA stated that it will achieve a production capacity of 35 GWh in 2018. Just four years ago, this capacity was enough to power all the lithium-ion batteries produced worldwide.
The Gigafactory isn't just for electric vehicles. After hearing news of electricity regulations in South Australia, TSLA founder Elon Musk told the country's prime minister in March that TSLA could supply enough battery capacity by the end of the year to ensure the grid would never be paralyzed again.
Inside the super plant, they are currently working hard to cram in 129 MWh of output to fulfill the boss's promise. When installed across the Pacific, it will be the largest of its kind on a grid-connected system in the world. But many more similar systems will be deployed in the future.
As grid operators seek ways to smooth out the impact of intermittent solar and wind power supply, industrial-scale lithium-ion battery packs are gaining popularity—especially by piecing together multiple battery packs used in automobiles and tweaking their chemistry and electronics to support faster charge and discharge rates.
Consumers who want to be independent of the grid can buy smaller battery packs—or store the electricity they generate themselves to sell back to the grid during the day or night when electricity prices are highest. Batteries have become an integral part of truly realizing the vision of low emissions in the future.
II. Global production surge
The basic principle of lithium batteries is easy to understand. When the battery is charged to a potential, lithium ions are drawn deep into the graphite electrode. During use, these lithium ions return through the liquid electrolyte to a more complex electrode—the cathode—made of a compound of lithium and other metals.
On the other hand, the basic operating model of the battery business is very opaque, mainly because suppliers are too focused on confidentiality and the unpredictable economic situation of the Asian giants who are market leaders.
The past few years have shown that all major manufacturers are increasing production capacity, partly to lower unit costs. As a fundamental component of batteries, lithium-ion cells cost over $1,000 per kWh in 2010, but this dropped to between $130 and $200 last year. General Motors stated that when it purchased 60 kWh battery packs for the Bolt, it paid LG Chem $145 per kWh for the cells (the price of the battery pack is higher than the total cost of the cells because labor, materials, and electronic components must be considered).
TSLA states that the Model 3's battery cells are cheaper. Lower cost isn't the only improvement. Significant R&D investment has resulted in higher energy density (increased capacity per kilogram) and greater durability (more charge/discharge cycles). The Bolt's battery comes with an 8-year warranty.
However, lowering prices in this way not only allows for the production of cheaper, higher-quality batteries, but also leads to severe overproduction. CairnERA estimated last year that lithium battery production was one-third higher than demand. Both the agency and BNEF stated that battery manufacturers either lose money or make only a small profit on every car battery produced.
Despite oversupply, they all plan to continue expanding, partly in order to further reduce costs. Jeff explained that this mindset is part of the "traditional Asian giant model": sacrificing profit margins for market share.
Given the bright short-term prospects for electric vehicles, this seemed like a sound strategy. But now, it appears somewhat unsettling. While Jeff believes rising demand for electric vehicles and energy storage facilities can support this rapid expansion, he now also sees it as "a gold rush without gold."
However, it does contain other valuable metals. To produce more batteries, more lithium is needed, along with various other metals, including cobalt used in the cathode. These metals account for approximately 60% of the cell cost. For battery manufacturers, ensuring a continuous supply of these materials is just as important as mastering the electrochemical technology.
Since 2015, according to Simon Moores of consulting firm Benchmark Mineral Intelligence, lithium prices have tripled, cobalt prices have doubled, and the prices of nickel-containing chemicals used in cathodes have also increased.
Morse stated that finding new lithium sources is not difficult; global lithium reserves are at least 210 million tons, while current annual production is only 180,000 tons. New lithium mines are gradually being exploited. In July of this year, Chile's SQM, the world's largest lithium producer, announced a $110 million investment in Western Australia to form a lithium joint venture.
The situation with cobalt is even more complicated. Not only is supply scarce, but much of it comes from the Democratic Republic of Congo. This region faces both ethical issues (reliance on child labor) and commercial problems (no one wants to rely on warlords for vital resources). LG Chem has stated that it is trying to reduce the amount of cobalt used in battery cells while continuing to improve performance. In the future, recycling this metal from spent batteries will improve the sustainability of the entire industry.
One reason manufacturers are confidently expanding production despite rising raw material prices is that lithium batteries currently face virtually no competition. While other battery technologies often claim fundamental advantages, none have evolved like lithium batteries, transforming from a mere idea into a dominant technology over decades. This process has spurred the development of numerous supporting technologies, including precision manufacturing, electrolyte selection, and even more complex metal cathode nanotechnology.
Kenan Sahin, head of CAMXPower, a U.S. cathode material supplier, said that the cost and weight of lithium batteries, the number of charge-discharge cycles, durability and safety are all achieved through countless adjustments, and cannot be accomplished overnight.
He likened battery chemistry to the drug discovery process in the pharmaceutical industry. "It's really difficult. Whatever you want to do at scale, you have to accept the corresponding side effects," he said. This is something potential usurpers can hardly imitate. For the foreseeable future, the ever-advancing lithium-ion battery technology—potentially using new solid-state electrodes—will continue to lead the way and benefit from the ever-expanding range of applications it supports.
To this day, the most mainstream battery cell remains the cylindrical 18650. It is approximately 65 millimeters long and 18 millimeters in diameter, with an energy density of about 250 Wh per kilogram. (For comparison, gasoline has an energy density about 50 times higher, but a battery cell can store hundreds or even thousands of times more energy.)
TSLA and Panasonic are currently developing 2170 cells, slightly longer and wider than 18650 cells. Musk stated that this will be the highest-density battery on the market. The company said that the driving costs of the Model 3 delivered at the end of July were half that of any previous model. At the car's unveiling event, Musk's statement about achieving 500,000 units in production next year was quite awe-inspiring. "Welcome to production hell," he told the assembly line workers.
TSLA's announcement on August 7 of a $1.5 billion bond issuance to support the company's expansion plans provided a much-needed breather to the stock market—the company frequently raises capital through the stock market, and its share price has risen by two-thirds over the past year.
The company has stated that it has received 455,000 pre-orders for the Model 3, which should provide sufficient cash flow by the end of the year to bolster its financial position. If all goes according to plan, Musk hopes the Gigafactory will become the world's largest building, with an annual production capacity of 100 GWh. The company may also build Gigafactories elsewhere, with my country being a possible next location.
All these initiatives suggest that electric vehicles are poised for a boom. These products are undoubtedly becoming better and cheaper. However, several factors limit their practicality, the most significant being charging. In the UK, 43% of car owners lack street parking spaces, making it impossible to charge their vehicles at home. Furthermore, charging a 90kWh battery with an 11kW charger for six hours can potentially blow a fuse.
Fast charging stations, similar to gas stations, are one solution. Some automakers have begun building such facilities to alleviate the "range anxiety" unique to electric vehicle owners. However, whether the expansion speed of these facilities can support the industry's overall ambitions remains to be seen.
The uncertainty surrounding the rate of increase in electric vehicle usage has made energy storage facilities an attractive option for battery manufacturers. One such facility recently built by San Diego Gas and Electric Company (SDGE) in a parking space on the outskirts of San Diego is far from the glamorous image of a new car unveiling. It's actually a car battery disguised as a trailer park, containing 384,000 cells. This is probably the most sluggish Transformer ever.
But SDGECOO Caroline Winn says its charm lies in its ordinariness. The facility is designed to supply electricity during peak demand periods. Modular construction allowed this 120MWh facility—slightly smaller than the one TSLA promised to build in South Australia—to go from groundbreaking to operation in just eight months. It's also remarkably quiet, almost inaudible.
While the cost could be reduced by using gas turbines for the same work, it would take years and would be impossible to obtain the consent of local residents. Wien also stated that the battery facility is "much prettier than a gas turbine."
III. Ultimate Energy Source
For TSLA and other battery manufacturers, grid-connected energy storage projects represent the most attractive segment of the electricity market, allowing them to fully utilize potentially surplus production. Furthermore, self-consumption energy storage systems can also boost battery demand. TSLA has entered this market with its Powerwall residential battery, hoping to complement its solar panel offerings.
Nissan is also expanding into the on-premises energy storage market. The company is partnering with US power management company Eaton to supply batteries from its used Leaf batteries to its facilities as backup power, replacing diesel generators. Their first major customer is the Amsterdam Stadium, home of Ajax football club.
These systems may not be very competitive in price, but the government provides them with various subsidies. In May of this year, New York State regulators granted ConEdison, a utility company, the right to allow its corporate customers to install batteries in Brooklyn and Queens to feed electricity back into the grid.
New York City's power grid has been in disrepair for years, dating back to the era of George Westinghouse and Nikola Tesla over a century ago. The city is currently striving to incorporate more renewable energy into its power supply, and energy storage facilities offer a new way to help cope with peak demand. State energy official Jason Doling stated that the project is ideally suited for installation in high-rise buildings, providing power to elevators during the morning and evening hours when electricity prices are highest.
However, the New York Fire Department remains concerned that lithium batteries in buildings could cause fires. Last year's Samsung Galaxy Note 7 "exploding battery" incident made the world realize that lithium batteries, if poorly designed, can burn due to short circuits. But overall, new materials and ceramic coatings used on electrodes have made car batteries very safe.
Besides safety concerns, companies installing self-use energy storage systems say outdated regulations and insurance issues pose obstacles. Anil Srivastava, head of Swiss battery manufacturer Leclanché, says this limits their access to funding. They also need to find ways to make energy storage facilities cost-effective.
Sometimes, this is almost the only regulatory-compliant solution (as was the case in San Diego): after the Aliso Canyon gas tank leak in 2015, the California Public Utilities Commission was concerned about potential power outages in Los Angeles. When price becomes a significant factor, batteries need to find more than one service to offer to users—a process known as "revenue stacking." For example, a system can supply power to the grid not only for short-term frequency regulation but also as a way to handle peak demand.
It may sound complicated, but finding multiple ways to sell the same thing is an inevitable trend in the battery industry, just as it tailors different products for different markets and different scales of use. While the current boom may seem a little worrisome, the industry does indeed appear poised for significant long-term growth.
