Battery Tech: Charging Ahead

Insight by and

The eighth episode of the Thematic Outlook Podcast Series focuses on the lithium-ion battery market. Bill Bird, Head of Thematic Content and Gabe Daoud, Battery Technology & EV Charging Analyst discuss opportunities, risks, key players, and policy initiatives. They also speak about lithium-ion batteries as a cornerstone technology that supports several mega-themes likely to play out over the next decade.

Press play to listen to the podcast.

Transcript

Gabe Daoud:

So we do think over time winners and losers in the E-mobility race will likely be defined by battery tech and securing supply chains.

Bill Bird:

Hello and welcome to the Thematic Outlook podcast series, part of Cowen Insights podcast. My name is Bill Bird, Cowen Head of Thematic Content, and I’m joined by Gabe Daoud, Cowen Senior Research Analyst for Battery Tech & Electric Vehicle Charging. Gabe recently published a deep dive Ahead of the Curve series report on the lithium ion battery industry. In the report, Gabe highlights that lithium ion batteries are a cornerstone technology supporting several mega themes likely to play out over the next decade, and catalyzed by EV adoption policy support and increased OEM auto activity. Gabe, thanks for joining us today.

Gabe Daoud:

Yeah, thanks Bill. So happy to be here. Thanks for having me.

Bill Bird:

We have a great topic. So let’s dive right in. Gabe, why will lithium ion batteries be a dominant theme for investors? Why do you think they’ll want to pay attention to it over the next decade?

Gabe Daoud:

Yeah, Bill, and I think as you said in your opening remarks, we do view the lithium ion battery essentially at the cornerstone of a ton of themes likely to emerge over the next several years and likely through the decade, whether it’s 5G, AR/VR, EDGE networks, renewable energy, and the obvious one, electric vehicles, we do think it will play a part in a lot of these trends. EVs have obviously been recognized as the tech of choice with respect to limiting greenhouse gas emissions from the transportation sector. Thus EVs will likely become a ever growing part of the passenger vehicle fleet. And just to put that into context, globally, EV sales doubled year over year in 2021 reaching about 6.7 million units and thus far in 2022 through September, we’ve already sold 7 million units and it’s largely because of the three Cs that we like to call it, choice, cost and charging.

All of those three are improving. And so we think EV adoption is likely to continue throughout the decade. And obviously EV batteries are a key factor in that and a key factor in price and range, which is what folks focus on the most. And so we see EV OEMs ultimately competing based on batteries versus historically where internal combustion engines competed on engine and transmission. So we do think over time winners and losers in the E-mobility race will likely be defined by battery tech and securing supply chains.

Bill Bird:

Gabe, let’s unpack that a little bit more in terms of the size of the market, how you dimensionalize the opportunity, how do you think about the size of the prize, how big is this market, how big will it be over time?

Gabe Daoud:

So we do see a significant growth ahead. So let me try to frame it for you. Lithium ion battery demand is generally driven by consumer electronics, energy storage applications, and is clearly dominated by passenger EV demand and even commercial EV demand. But there’s still maybe some ways to go for commercial EV demand. I mean, think medium and heavy duty vehicles, those vehicles you have to really arrive in size. So it’s really driven by passenger EV demand. And so we do see incredible growth ahead if EVs do continue to penetrate light duty vehicle sales as the market expects. So in 2021 demand reached 430 gigawatt hour and that grew 85% year over year. Over the next 10 years, we think we’ll see 21% demand CAGR culminating in nearly 6.1 terawatt hour of battery demand by 2035, which is an incredible figure.

And so in terms of dollars and market size, even if you assume battery pricing continues to decline, which it has historically, on a dollar per kilowatt hour basis, battery pricing was over $1,100 per kilowatt hour in 2010. And in 2021 the average price was about $132 per kilowatt hour. And that’s obviously helped spark EV adoption as cost has moved materially lowered. So if you assume that costs continue to migrate lower and break below that key $100 per kilowatt hour number, you’re still looking at a market size of 365 billion by 2035, which is relative to a market size in 2021, which is estimated to be around about 60 billion. So obviously significant growth ahead and we do think the market is large enough to support a number of companies here.

Bill Bird:

Let’s talk a little more about some of the companies who will go after this opportunity. Who are some of the industry players to watch and how do you segment them, as you look across the landscape?

Gabe Daoud:

Historically, the lithium ion battery sector has been dominated by China and Asian incumbents, whether it’s CATL, LG, Samsung, SK Innovation, these are the players that are dominating the market and maintain a significant share of lithium ion battery manufacturing and capacity. But given the size of the market and the importance, there’s been a number of companies that have emerged over the past several years attempting to disrupt the battery industry because as great as batteries are, there’s really only been modest improvements in energy density. And again, energy density is just think of the amount of energy that could be stored for a given weight or given size of a battery. So since commercialization in 1991, there’s only been modest improvements. Now there’s certainly been promises of battery breakthroughs before, but I do believe we’re perhaps as close as we ever have been in commercializing some of these new technologies which ultimately hope to improve performance, costs as I mentioned, and also safety, and now maybe getting into the nitty gritty of the tech just a bit, but we do think silicon dominant anodes will become more common as we progress through the decade.

Silicon offers nearly 10 times the theoretical energy storage capacity relative to traditional anodes that are mostly comprised of graphite. So this is a known issue and a key reason as to why energy density has been unable to really materially improve, the anode has been the key bottleneck in that equation. So we do think silicon is a material that could change that over time. Now, there’s been known issues with silicon and it’s always been known to be a great way to increase energy density, but there are drawbacks and concerns. But again, there’s a number of companies working on it currently that we do think will break through and ultimately that will change over the next several years as you’ll start to see some silicon dominant anodes become commercialized in EVs. Beyond silicon dominant anodes, there’s also lithium metal anodes and solid state architectures that get plenty of hype given the potential to significantly drive energy density improvements.

And what’s the reason why we want to see energy density improvements? Well, one of the key reasons folks don’t go electric is because you’re worried about range or charging. And some of these new technologies could offer range per cycle of 400 miles or greater. So it’s a pretty big improvement relative to batteries that are commercialized today. Maybe best vehicle gets you maybe 300 miles on a single charge while some of the new technologies that are emerging not only could improve safety and cost, but also extend that range to 400 miles plus, there’s even some companies talking about 500 miles of range. So lithium metal is the ultimate end game, we think, on the anode side. We think that’s certainly the material that is the most energy dense, but again, there’s known issues around lithium metal and also solid state designs that we think will likely limit the amount of commercialization that we’ll see prior to 2025.

I think there’s still some concerns and some developments that have to take place on the tech side and also supply chains need to mature since dealing with thin sheets of lithium metal from a supply chain and even manufacturing standpoint is tough and challenging and complex. So I think once that kind of corrects itself or takes care of itself, we could maybe see lithium metal and solid state commercialized beyond 2025. But again, near term we’d be watching for companies that are attempting to commercialize silicon anodes.

Bill Bird:

Gabe, is anyone close to delivering the holy grail of batteries?

Gabe Daoud:

Yeah, well definitely, definitely a good question. And what we’ve learned is there’s really no such thing as the holy grail of batteries. Batteries, like any engineering project, is always, it’s about trade offs. So you may have the most energy dense battery, but then you might not be able to charge that battery as quickly as you’d like. You may have a battery that could charge very quickly, think of it as maybe called a power battery, a battery that’s more focused on power to enable fast charging, but then it won’t have the most energy dense metrics, thus it would be limited on range. So I think a ton of trade offs.

Again, I think one thing that we’re excited about is the potential to go to silicon because it does provide an energy density benefit and the material does actually enable faster charging times. There’s a number of companies out there who have shown data on battery cells going from zero to 80% state of charge in just over five minutes. So obviously if that’s something that could be commercialized, it would certainly support the E-mobility theme and likely get folks over the hump. But in terms of the holy grail, we’d be maybe a bit cautious on using that phrase, but there are a number of technology improvements in the works that we do think could be commercialized and will ultimately improve some of those metrics that I talked about.

Bill Bird:

It’s a small industry today and as you say it’s set for exponential growth. What are some of the risks around supply chain and what will define the winners and losers?

Gabe Daoud:

Yeah, certainly the supply chain aspect of the sector is key and important. You can almost think of it as the industry is somewhat in some ways working backwards. You have a lot of the auto OEMs first announcing certain level of EV targets in terms of new vehicle sales by 2035. And then from there they start working backwards. From there they start announcing JVs with some of the cell manufacturers, the incumbent ones, to stand up gigafactories to produce these batteries. And then from there they’re starting to work further upstream of that to secure the necessary components that actually go into the battery, whether it’s the cathode or the anode or separators and electrolytes or even further upstream actually at the mines where you’ll need lithium and nickel and cobalt, et cetera. So the industry’s in some ways, like I said, kind of working backwards.

The targets are coming first and then it’s almost like a scramble to secure the necessary components and the facilities to make this all happen. But we do think, again, that securing supply chains is likely going to define the winners and the losers. Again, as I noted earlier, it’s a sector that’s been dominated by China. Majority of the supply chain sits offshore. It’s not here in the US, really the US is not much of a player on any component within a lithium ion battery. And that’s starting to change. There’s been a number of policy initiatives that we could certainly get into, but China dominates not necessarily the raw material side, but they are active on the raw material side, but they certainly dominate on the material processing side and other key components including cathode and anode manufacturing, separator electrolytes, et cetera. And also China is where majority of the gigafactory capacity sits today. And we don’t think this will necessarily change much throughout 2030. We think most of the battery manufacturing capacity will still sit in China, but the US and the EU will certainly grow throughout 2030. And I think again, that’ll likely be supported by a number of the policy initiatives that we’ve seen, particularly here in the US over the past couple years.

Bill Bird:

You raise a good point about some of the new initiatives in the US. Maybe we could talk a little bit further about how the US and EU catch up. Can they catch up and does it matter? How much does it matter?

Gabe Daoud:

Yeah, I think from a national security standpoint and from an energy security standpoint, if the US is going to embark on this big shift and focused on limiting greenhouse gas emissions from transportation and thus going electric, I think it’s important to secure a domestic supply chain for the most critical component of that shift, which is again, the battery. So I do think it’s important even from, like I said, a national security standpoint, the US military is pretty reliant on lithium ion batteries. So I think all that matters. And now it’s really just a matter of how quickly can the US catch up. And certainly the Biden administration has been very focused on this. Remember, very early 2021, there was a hundred day supply chain review initiative and batteries was a big part of that. And then shortly thereafter, the federal consortium on advanced batteries laid out a blueprint to urgently develop a domestic supply chain.

And then obviously the two big pieces of legislation that passed over the last two years, you have the Bipartisan Infrastructure Law that passed in the fall of ’21 and then recently the Inflation Reduction Act that was signed into law, both pieces of legislation focused very heavily on renewable and clean energy and also incentives to secure a domestic supply chain. The Bipartisan Infrastructure Law has two programs, each three billion of grants. The first three billion is for material processing and the second three billion is more on the component or manufacturing side. And we just saw last month, first awards issued from these two programs, which was good to see. It’s a nice start. It shows that, again, the administration is focused on this and now some awards have been granted and some of these companies, whether public or private, can begin to benefit from this. And more recently, the Inflation Reduction Act contained a number of initiatives on the EV and the battery side, particularly on the battery side, the Section 45x Advanced Manufacturing Production Credit.

It’s a pretty big deal in our view. We wrote about this in the Ahead of the Curve piece that you noted. We think it’s a bit underappreciated how meaningful this will be for battery manufacturers here in the US. Not only could you potentially be eligible for grants from the Bipartisan Infrastructure Law to build gigafactories, but then on an ongoing basis, at least through the next 10 years, with IRA, you could be eligible for production credits to the tune of $35 per kilowatt hour if you’re just simply a battery manufacturer here in the US. And I talked about some of the cost figures earlier. So if your cost is $130 per kilowatt hour, let’s say, well now you’re getting a $35 per kilowatt hour credit. It’s a pretty meaningful number. And we’ve tried to put some more specific numbers in detail around the economics of that.

And it’s clear that any facility here in the US that’s receiving that credit will see a significant improvement in economics. And you’re already starting to see a shift in mindset by some companies to maybe shift capacity from Europe to here in the US because of these credits. So I think these pieces of legislation are likely to drive significant growth in supply. And again, I think it makes sense. I think everyone is incentivized because the US is likely to become a pretty big demand hub in its own right as vehicle or EV adoption continues to grow. The US has lagged China and Europe, but again, as cost comes down, the choice of EV models improves and the charging infrastructure improves as well. I think all that will again create significant demand in the US ultimately incentivizing a number of these companies to build a supply chain in the US. And then again, on top of all that, we have this great policy support. So I think overall you will see significant growth in the US battery industry and that’s the reason why I think investors should be paying attention.

Bill Bird:

Gabe, you covered this market from a number of different angles. We talked a bit about tech, policy. What are some other things that you’re watching as you think about drivers of the market, upside to the market, things that really could help you gauge the development of the market?

Gabe Daoud:

Yeah, I think one thing we will continue to keep our eye on is just, again, continued EV adoption. That’s really the driver of it all and it’s also obviously a key demand driver as we noted. But then alongside that, I think a continued build out in charging infrastructure will help that we cover the charging space too. And they obviously go hand in hand. We think it will certainly help the psychology of folks maybe not willing to go electric. If there’s a good network of chargers that work in the US, I think that will help incentivize the shift to electric. And you’re also seeing policy support behind the build out of charging infrastructure as well. So I think charging infrastructure and OEMs rolling out new EV models that are cost competitive to their ICE counterparts, all that will help certainly help drive EV adoption, which again will help drive battery demand.

And again, we think the OEMs that will end up becoming winners will be the ones who maybe differentiate on the battery tech side and then also secure the necessary components to deliver a finished battery. So that’s certainly something we’ll be looking out for. And then just continued improvements on the tech side. I think it’s a really interesting sector with a lot of smart battery engineers working on delivering a better battery. And we hit it, we certainly laid out a number of companies and technologies that could emerge, in the note, over the next several years, but again, we’d be watching for progress on silicon and lithium metal anodes and even solid state batteries. Although, like I noted earlier, solid state’s probably a little bit more longer dated versus silicon.

Bill Bird:

Gabe, throughout the year, you do a lot of really interesting events and conferences around battery tech and I always enjoy attending those. Looking ahead, what are some of the marquee events or expert calls that you plan to host related to this theme?

Gabe Daoud:

Yeah, thanks Bill. So we’ll certainly host a number of companies at our March mobility conference. It’s becoming a pretty big event, an important event for us. Last year we hosted a number of companies, both public and private, across batteries and also EV charging. So certainly we’d be watching that because we think we’ll get a pretty nice update from a number of these companies. And then yeah, we plan on hosting a number of battery experts again next year. We hosted, over the past year and a half or so, a number of battery experts from Professor Jeff Don to Dr. Shirley Ming and a number of other experts that we think help certainly shape our views on the tech and what to expect there. So we’d certainly be watching some of those calls next year as well. So we expect another busy year. I think there’s a lot to talk about and a lot to follow in this space. And so stay tuned.

Bill Bird:

Well, looks like we’re coming up on around a half hour, Gabe, so thanks so much for your thoughts today. Really appreciate it and thank you everyone for taking time out to tune in. Until next month, be well, and we look forward to our next guest.


Get the Full Report

If you’re already a member of our Research portal, log in.

Log In

If not, reach out to us directly for more information.

    More Like This

    Podcast

    Nuclear Power and SMRs in Canada

    Read More >
    Podcast

    Sustainable Procurement with Founder & CEO of Kloopify

    Read More >
    Podcast
    Refueling a hydrogen-fueled car

    Hydrogen Combustion Engines with Westport Fuel Systems

    Read More >