Sep 8 2008
With gas prices at $3.70 per gallon and attention from Beijing to Belgium focused on carbon emissions, light electric vehicles (EVs) – from mass-market hybrids like the Toyota Prius to pure electric vehicles like the Tesla Roadster – are a hot topic with the auto and finance industries alike. Earlier this month, lithium-ion (Li-ion) battery manufacturer A123Systems sought to capitalize on this interest, filing for an IPO that could raise as much as $175 million. However, while light EVs promise real opportunity, they will create more losers than winners, according to analysts monitoring the field at Lux Research.
“Lithium ion batteries can significantly extend the range of light electric vehicles, so companies and investors are right to be excited about them,” said Ying Wu, Senior Analyst for Lux Research’s Alternative Power and Energy Storage Intelligence Service. “However, Li-ion batteries for electric vehicles won’t hit the market in a big way for three more years – and the winner-take-all nature of the game means many companies will come to grief.”
Lux Research’s ongoing tracking of alternative power and energy storage opportunities finds that:
- In 2007, about 500,000 hybrid electric vehicles (HEVs) were sold, accounting for $484 million worth of batteries. But plug-in hybrid electric vehicles (PHEVs) and pure EVs are slated for introduction in 2010, driving the market for all light electric vehicles – including HEVs, PHEVs, and pure EVs – to 3 million units in 2012, leading to a battery market of $3.8 billion in that year.
- Although HEVs will continue to grow at 40% annually in the next five years, the next frontier is PHEVs, which need greater energy storage capacities to support longer all-electric ranges. As a result, PHEVs generate more battery revenue per vehicle – meaning that a small increase in PHEV shipments will have a disproportionate effect on the size of the light EV battery market.
- This growth in PHEVs will drive booming market share for Li-ion batteries: In 2012, Li-ion will account for 46% of the EV battery market, currently dominated by nickel metal hydride (NiMH) batteries, which had a 99% market share in 2007.
- Supporting such rapid growth in Li-ion batteries, will require major expansions in raw materials like lithium carbonate. Growth in EVs will lead to a boom in lithium exploration, with global mining companies going hunting for new economically recoverable lithium.
- Even with increasing raw materials production, the penetration rate of Li-ion batteries into the EV market could ultimately be constrained by the availability of lithium – not just battery manufacturing capacity expansion.
“A123Systems’ success in the EV market will not be a slam dunk,” added Wu. “The battery makers for the 2012 vintage PHEVs have not been chosen yet, automotive companies continue to pressure battery makers to reduce costs, and there’s stiff competition from firms like the LG Chem subsidiary, Compact Power, and Johnson Controls-Saft. Investors betting on A123 will need to be able to stomach steep risks. One thing is certain, though – A123Systems’ IPO will set a benchmark for company valuations in the battery industry.”