Published on September 4th, 2017 | by Zachary Shahan0
It’s The Batteries, Baby!
September 4th, 2017 by Zachary Shahan
In so many conversations about electric cars and the transition to electric transport, certain commenters throw around the claim that conventional automakers can jump on the electric bandwagon as soon as “the time is right.” As soon as consumers demand them, large automakers can turn on the EV production switch and go into full production. “It’s just about putting the pieces of the car together — assembling the various components of the cars — and no one does it better than [pick your favorite conventional auto company].” Furthermore, “Tesla doesn’t have any real technological advantage. It can’t do anything large automakers can’t do.”
Perhaps I’d feel comfortable with those arguments if if I knew either less or more about the EV battery market, but as my knowledge stands today, there are some real flaws there. And no, I’m not happy that those arguments aren’t true. I’m more interested in the transition to electric transport hastening quickly than I’m interested in Tesla leading the transition. If Toyota, Honda, BMW, Volkswagen, Mercedes, GM, or Ford could compete with Tesla tomorrow with simply a little more interest, I’d love that! The not-so-optimistic news, unfortunately, is that they are years behind Tesla on the core component of an electric car — the battery — and it seems like they still don’t realize that they need to hustle to start closing the gap (instead of letting it widen).
Why is this a problem? It is a problem because of something else many commenters have noted — Tesla can’t do it alone. Tesla won’t be 100% of the car market (let alone car + truck + bus market). Unless something crazy happens, it won’t even capture 50% of the auto market. And we need essentially a complete transition to electric transport. We would all benefit if Toyota, Honda, BMW, Mercedes, Volkswagen, GM, and Ford could turn on a dime and compete with the Tesla Model 3 tomorrow, but these companies can’t do that.
Tesla appears to be a year or 10 ahead of other automakers on the battery front in a few key ways — battery cell chemistry, battery pack design, and production capacity (which is also related to economies of scale and overall EV cost). Other battery producers are definitely making progress on battery chemistry, and other automakers are building battery pack plants in some regions, but the degree of improvement on each of these things is powerful. Before getting into Tesla’s approach in more detail, here are some of the more positive stories about other automakers or their suppliers when it comes to EV batteries:
- Volkswagen Considering $11 Billion Battery Factory In Germany — unfortunately, more recent conversations I’ve had about this indicated that the VW board was still debating the best battery approach
- Volkswagen: 40 Battery Gigafactories Needed For Electric Car Revolution
- General Motors To Build An EV Battery Factory In China This Year
- Electric Vehicle Battery Prices Are Falling Faster Than Expected
- Kreisel — New Battery Competitor In Home Storage & EVs (In Depth)
- Samsung SDI Drops Hydrogen Fuel Cells For Focus On Batteries
- Volkswagen Switching To Flat EV Battery Architecture
- LG Chem To Open EV Battery Factory In Europe
Unfortunately, despite this progress, I think the following words from Giles Keating, a former Credit Suisse research chief and now chairman at investment consultancy Werthstein Institute, capture too much of the story:
“Tesla was always all about electric cars, whereas I think the conventional auto manufacturers, they were in denial. They just kind of almost wanted batteries to be weak so that they wouldn’t have to go that route so that their existing route of [internal combustion engine] business can continue… For most conventional manufacturers it was about beating the emissions rules rather than about trying to revolutionize stuff.”
Perhaps that is changing now as automakers see that they have to compete, but I think it still captures much of the present sentiment and certainly much of the sentiment of the past several years/decades.
The good news is that technology will march on regardless. Batteries will get better, cheaper, and more abundant. Samsung SDI, LG Chem, Panasonic, SK Innovation, Kreisel, and other will keep improving EV batteries in order to win more deals, and the EV market will improve and grow, as it has been. However, there will be leaders and there will be laggards.
Early on, Tesla chose to go with a very different battery cell than other automakers. I won’t profess to know all the reasons for this, but cost, power density, energy density, longevity, and the ability to carefully customize the size and shape of the battery pack were surely some of the factors.
As it turns out, the power Tesla vehicles can pull out of their batteries has been hugely valued by customers, the amount of energy Tesla’s batteries can store has been unmatched (due in part to the number of battery cells Tesla stuffs into the packs, of course*), the batteries have been holding up very well (only 7% degradation on one Model S with 250,000 miles and 6% on one with 200,000 miles), and Tesla’s skateboard battery pack design allowing for maximum space above the floor has been wildly popular.
It seems using a commodity 18650 Panasonic battery cell several years ago was the right call, but Tesla went ahead and designed a different cell for its “affordable,” long-range Model 3. Yes, Tesla worked with Panasonic on this, but Tesla reportedly led the design of the cell in order to ideally match the battery’s capabilities and dimensions with Tesla’s needs. Some other automakers have developed battery pack production arms, but we’ve yet to see any sign that they are leading the battery cell design process. In other words, they seem to be assuming that battery cell producers will be able to maximize battery cell design for EV use primarily on their own, and then just sell them to automakers at an attractive price. Unless we are missing important context here, that seems to mean automakers are putting a lot of faith into battery companies while limiting their own competitive advantage in terms of the power–energy–cost balance.
As just one more example of Tesla’s leadership in this space, it brought onboard one of the best known names in battery cell research, Jeff Dahn, in order to continuously research and develop improvements to battery cells. Other automakers must have some battery cell researchers on staff, but are they pushing the envelope? Are they leading the automakers into any chemistry improvements or reworked cell designs?
No matter the battery cells, combining them into intelligent, carefully managed and monitored battery packs is important for improving durability (and thus long-term costs). Minimizing extra/costly components and maximizing the energy and power the car can pull out of the battery cells are core traits of effective, efficient, cost-competitive battery packs. (Of course, protecting the battery cells is another fundamental purpose of the battery pack.)
Tesla — led by CTO JB Straubel — has been continuously working on improvements to battery pack design in order to keep bringing down costs and improving performance. This has led to thousands of dollars in reduced battery pack costs (passed on to consumers as reduced Tesla car costs) and has also led to performance improvements (like quicker 0–60 mph times).
Several automakers (if not all of them) are engaged in R&D for their battery packs, but they’re yet to indicate that they’ve made significant in-house progress bringing down costs, improving performance, or improving energy density in their cars’ packs. Are they making progress? One would assume so. Electric car costs have been coming down and certain models have been getting range boosts (the Nissan LEAF, BMW i3, Volkswagen e-Golf, and Ford Focus Electric, for example), but there’s still only one other electric car in a truly mass-market price category that competes with the range of the Tesla Model 3 (but probably two models once the new LEAF is unveiled in a couple of days). Does that mean other EV batteries aren’t improving as fast? Possibly, or just that these other cars aren’t designed and priced as competitively in general. But yeah, Tesla’s battery prices seem to be falling faster than everyone else’s.
Battery cell and battery pack design are super important, but so is the manufacturing process. The same batteries could be manufactured in ways that waste lemonade buckets full of money or in innovative, efficient, cost-cutting ways. Manufacturing costs often relate to two simple rules, though: more manufacturing capacity brings down cost and more manufacturing experience brings down cost.
Tesla is building the biggest battery factory in the world and already produces some batteries for it. The Gigafactory dwarfs historical battery production and any other factories under construction that we’re aware of. Furthermore, Tesla is exploring several other locations for new Gigafactories for specific markets (Europe, and Asia, for example). The economies of scale Tesla is creating, and already utilizing, offer serious benefits for Tesla.
How long till another automaker achieves similar economies of scale? We have no idea, but what we do know is that battery producers often want an order commitment in order to scale up production, and automakers have a hard time planning any large increases in demand if they don’t have access to a lot of affordable batteries — a catch-22 until someone just decides to make a move and be a leader.
Will battery production scale up to the same size as the Gigafactory for other automakers in time? Indeed. Will that lead to economies of scale and lower cost? Surely. Can these other automakers order enough batteries for 500,000 electric cars tomorrow, next year, or even in 3 years from now? Most definitely not! What does that mean? Among other things, that means the large automakers can’t turn on a dime and compete with Tesla anytime soon. Even if it has a car and charging network that competes with the Model 3, it doesn’t have enough battery supply.
What it also means, however, is that the EV transition can’t happen as quickly as many of us wish it would. It means we need Gigafactory-scale announcements from Volkswagen, LG Chem, Daimler, Samsung, GM, Kreisel Electric, etc. very soon if we are going to see any legitimate Model 3 competitors. Unfortunately, it seems all but inevitable the Model 3 will have no genuine sales competitor in the electric car market until the Model Y comes out. And I would not be surprised at all if we get news of Tesla Gigafactories to support Model Y production before we get any sense that a larger automaker will be able to produce 1 million electric cars a year … presuming it has that kind of annual demand for its electric cars.
This may all sound like a horror story to Tesla haters, but it’s also not uplifting to Tesla lovers who mostly want to see a quick transition to zero-emissions vehicles and a livable climate for future generations.
Battery price trend chart by Nykvist et al. (2015), with modification by me to add a 2016 Tesla battery price statement from a Tesla exec.
From all of the points above, every independent research report I’ve seen has put Tesla’s batteries at the lowest cost per kWh of energy storage. Tesla’s cars also remain the quickest electric cars in their classes (well, the quickest cars of any kind in their classes).
Yes, LG Chem battery cells, perhaps Samsung battery cells, and perhaps other battery producers’ cells are not tremendously different from the cells in Tesla’s battery packs, but there has been no sign that a non-Tesla production electric car has batteries that can match the combination of energy + power + durability that Tesla’s batteries have already achieved — again, that’s not something that makes me happy.
Furthermore, we know that Tesla is pouring a significant amount of its resources into improving on these factors on a daily basis, whereas we have little signal that other automakers are working as feverishly to improve EV batteries for near-term electric cars. Maybe there’s more going on behind the doors than we hear. Maybe we will soon be surprised with some big announcements. In the meantime, many Tesla enthusiasts are so enthusiastic about Tesla precisely because it is “making it happen.” We love Tesla because it is making electric cars much more compelling and ramping up production capacity in order to actually get millions of them into customers’ hands.
*At significant cost, especially before Model 3.