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SEOUL – With the advent of the electric vehicle (EV) era, the umbilical cord that ties automakers and battery makers together is becoming something of a tug-of-war.
Alarm bells have been ringing in battery makers’ C suites since last year when prominent carmakers including Tesla and BMW announced plans last year to produce in-house batteries for their EVs.
Still, no seismic change is anticipated in the near future, as experts predict that automakers will be forced to rely on battery makers, given the considerable time and massive investments it will take before automakers can succeed in battery mass-production.
That is particularly good news for Korea Inc, where batteries are a core component of the national industrial portfolio. Experts forecast that the three domestic battery makers’ growth is secure – at least, for now.
Meanwhile, another battery battle is also brewing between EV pioneer Tesla and traditional automaker Toyota over the battery standard of the future. Tesla is betting on upgraded and improved traditional batteries, while Toyota is getting behind a more radical solution.
In-house vs outsource
Following Tesla and BMW’s announcement last year that they would produce their own batteries for electric vehicles, Hyundai Motor Group has also said it is technically preparing for its own development and production.
These moves by automakers illustrate the central importance of batteries to EVs, which themselves look set to be the winning next-generation car as internal combustion engines suffer increasing regulatory pressure.
Naturally, there are multiple variables in efficiency beyond simply the batteries. For example, differences in mileage and performance depend upon the technologies that electric car manufacturers use for battery handling, such as packaging and cooling.
Even so, battery quality, to a major extent, determines the mileage and performance of electric vehicles. Consequently, batteries account for a high proportion of the cost of an EVs: according to one expert, around 25% of the vehicle price.
This makes securing a stable supply chain of high-quality batteries a critical task for EV makers.
“Batteries are integral parts of EVs, and battery makers do not lower prices and are late to increase capacities. For these reasons, Tesla and some automakers announced plans to produce batteries,” Kim Chul-joong, an industry analyst with Mirae Asset Daewoo in Seoul, explained to Asia Times.
“However, it will take considerable time for them to mass-produce batteries with safety and quality.”
It’s a tough field. “Unexpected problems come [even] with batteries made by companies that have manufactured batteries for decades,” Kim noted.
To this end, industry experts predict that automakers and battery companies would jointly produce batteries for automobiles. Or – as seen in the semiconductor industry – automakers may design their own batteries, but will consign the manufacturing.
Last September, Tesla announced its plan to produce its own cylindrical battery cell. The company claimed that its own battery would provide five times more capacity, six times more power, and 16% longer mileage. Tesla also plans to produce 100 gigawatt-hours worth of batteries by 2022 and a 100-mile (160km) range battery by 2030.
100 gigawatt-hours – or 100GWh – is a major ambition. It would be enough to equip around 1.3 million EVs.
Industry sources are skeptical.
“It will be difficult for Tesla to produce this amount of batteries by 2020 – that is the number of batteries that LG Energy Solution has made after investing 10 trillion won ($9 billion) over ten years,” the source said.
That is a big deal. LG Energy Solution is Korea’s largest, and the world’s second-largest battery manufacturer behind China’s CATL.
“Tesla, which sold 500,000 electric cars last year, is expected to sell 1.3 million EVs in 2022 and they would need 100GWh of batteries in 2022,” he added. “I understand this is the true meaning of Tesla’s remarks.”
Indeed, Tesla founder Elon Musk admitted that he would be unable to produce enough in-house products, so will continue to outsource. “We intend to increase, not reduce, battery cell purchases from Panasonic, LG & CATL (possibly other partners too),” he tweeted last September.
After Tesla’s announcements last year, “LG Energy Solution expanded its production capacity,” Kang Dong-jin, an analyst at Hypossiblyor Securities, told Asian Times. “Tesla’s market share in electric vehicles is expected to reach 20% this year, so it needs a lot of batteries.”
Going forward, Kang expects Tesla to produce a certain amount of its own batteries and receive the rest from battery companies.
LG Energy Solutions has said it will ramp up its total production capacity to 155GWh this year – an increase of 35GWh from 120GWh last year.
The increase in production capacity includes both pouch and cylindrical types, though the proportion of cylindrical batteries – as used by Tesla – will increase further. However, cylindrical batteries and pouch batteries are both lithium-ion products that use liquid electrolyte.
“LG will supply most of its cylindrical batteries to Tesla this year,” said an industry player. “The rest are likely to be provided to companies such as Lucid.”
Lucid is an EV startup founded by a former Tesla engineer.
Industry experts said LG is supplying cylindrical batteries for the long-range, high performance variants of the Model 3 Tesla, produced in China. Batteries for the low-cost, standard Model 3 are supplied by China’s CATL.
LG has also announced its ambition to develop cylindrical batteries with five times more energy density and six times more power than current batteries. That would grant it the performance demanded for Tesla’s improved cylindrical battery, announced last September.
Some rumors allege that LG is participating in the development of Tesla’s new battery, but an industry source denied it,
While automakers are announcing their own battery production plans, independent battery production is a tough field to break into.
Cho Chul, a senior researcher at the Korea Institute of Industrial Economics and Trade, or KIET, said, “Unless car manufacturers have a clear advantage in new types of batteries, prices, and efficiency, they will not be able to beat battery specialists.”
A high-voltage market
According to SNE Research, an EV and battery market research firm, the total amount of battery capacity used in automobiles last year reached 142.8 GWh. That was a 21% increase from 2019.
China’s CATL topped the list by selling 34.3GWh of batteries due to a quick recovery in the Chinese electric vehicle market, while South Korea’s LG took second place with 33.5GWh. Japan’s Panasonic ranked third, and China’s BYD ranked fourth. Samsung SDI ranked fifth with 8.2GWh, while SK. Innovation ranked sixth with 7.7GWh.
Battery makers are investing on the understanding that demand will soar. LG Energy Solutions, Korea’s largest battery company, said its battery production capacity would reach 155GWh this year – up 35GWh from 120GWh last year.
SK. Innovation plans to increase its production capacity from 40GWh at the end of last year to 60GWh this year and 130GWh by 2025. Samsung SDI did not disclose specific plans.
Hyundai Motor Securities expects the momentum of Korean battery makers to accelerate further, with sales growing 42.8% to 33.3 trillion won this year and LG expected to outperform CATL in annual revenues for 2021.
According to the securities house’s research, LG’s total battery sales this year are forecast to be worth 18.9 trillion won, up 50.9% from last year, and operating profit is expected to increase 101.1% to 1.1 trillion won.
The expanding market for EVs is responsible for much of this capacity.
Of a total battery sales volume of 18.9 trillion won, LG’s EV battery sales are expected to reach 15.2 trillion won in 2021 – up a whopping 61% from 2020. Samsung SDI’s automotive battery business is expected to achieve a surplus this year. And SK’s sales of automotive batteries are expected to reach 3.3 trillion won, suggesting it will start turning a profit in 2022.
Here come the JVs
Amid this swirl of activity, joint ventures are emerging.
LG and GM invested 1 trillion won each to establish a battery production JV in Ohio, US. The companies will hold a 50:50 stake. According to Kang of Hyundai Motor Securities, that stake is indicative of the balance of bargaining power between battery companies and automakers.
SK. Innovation, the smallest of South Korea’s three battery makers, is increasing its production aggressively, and has established a JV with China’s Beijing Electric Vehicle. SK also plans to establish a joint venture plant with China’s EVE Energy.
Similar cooperation is underway in Korea’s industrial rival Japan. Toyota, the world’s largest car maker by sales volume, has established a joint venture with Japanese battery maker Panasonic to produce a different type of power source: solid state batteries.
“Toyota is technologically ahead of battery companies in developing solid state batteries,” said Kang. ‘But even if it owns most intellectual property rights related to a solid state battery… a joint venture would have been inevitable because they need Panasonic’s battery manufacturing technology and know-how. “
While Tesla focuses on improving the performance and lowering the unit prices of existing lithium-ion batteries, other automakers, led by Toyota, are actively developing what are widely considered next-generation batteries – solid state batteries. Toyota announced last December that it would unveil electric cars with full solid state batteries in 2021 and commercialize them from 2022.
Toyota versus Tesla
As their names suggest, the difference between the battery types are related to liquids versus solids.
Electrolyte, which transmits electricity between the positive and negative sides of a lithium-ion battery, is liquid, and has a relatively short life span. It is also flammable – posing the risk of leakage and even explosions.
Solid-state batteries are safer as their electrolyte is solid, meaning less chance of ignition. These batteries can also reduce charging time and offer potentially larger capacity than conventional lithium-ion batteries.
With solid state batteries, battery cooling systems – a core technological strength of Tesla – can be greatly reduced. This potentially allows conventional automakers to narrow the electric vehicle technology gap with Tesla, making solid state batteries a game-changer.
However, solid electrolyte is less efficient in terms of electrical conductivity than liquid electrolyte. The nascent solid state batteries also suffer a disadvantage in price competitiveness compared to lithium-ion batteries, which already enjoy an economy of scale that looks set to expand, leading to ever-lower prices.
This suggests a technology standards battle is shaping up.
Still, it is early days for solid state batteries. Many experts questioning whether they will truly emerge as next-generation batteries.
“Solid state batteries indeed have many advantages, but no one knows if lithium-ion batteries will be popular in the future,” Cho of KIET said. “If the performance of lithium-ion batteries improves and consumers are satisfied with the improvement, the era of all- solid batteries may not come.”
Kim Chul-joong, an analyst at Mirae Asset Investment & Securities Co., is also cautious about the future.
“There are no companies mass-producing solid-state batteries, and there is standardization,” he said. “To produce these batteries, large-scale investments must be made as facilities must be changed.”
Then there is the price factor.
Tesla is focusing on lowering the price of lithium-ion batteries, he noted.
“If this works out, the price of lithium-ion batteries could fall faster in the mid to long term,” he said. “In other words, if lithium-ion batteries improve their performance and prices fall more quickly, expensive, solid-state batteries may not be able to beat lithium-ion batteries.”
According to a report by Hyundai Motor Securities, Toyota holds 803 patents for solid state batteries; Hyundai Motor Group holds 188 patents; LG Energy Solution has 116, US startup QuantumScape holds 94, and Samsung Electronics and Samsung SDI combined have 51 patents.
But while it may be lagging in patent terms, Samsung SDI is the most active of the Korean battery makers when it comes to researching and developing solid-state batteries.
Last March, Samsung SDI published the results of a study on solid state batteries with a mileage of 800km and 1,000 times the life span of current batteries. Samsung SDI aims to mass-produce all-solid batteries in 2027.