Who'll rule the battery biz?
After 'a mad scramble' by startups, segment shakeout begins
A shakeout of North America's electric vehicle battery suppliers is under way.
In January, Ener1 Inc., the New York-based battery maker that owned a stake in bankrupt Norwegian EV producer Think Global, filed for Chapter 11 reorganization.
That same month, A123 Systems of Waltham, Mass., laid off 35 percent of its workers at two Michigan plants after reducing its revenue outlook for 2011.
Meanwhile, Boston-Power Inc. of Westborough, Mass., plans to move the bulk of its operations to China, where the government is offering big subsidies to bolster the EV industry.
Given slow sales of the Chevrolet Volt and Nissan Leaf, some industry insiders have predicted it will take another decade or so for the U.S. market to generate high-volume sales of EVs. Battery makers appear to have gotten ahead of the market: One study says "excessively grand expansion plans" would result in production capacity at twice the level of market demand by 2015.
A shakeout was inevitable, says industry consultant Jon Bereisa.
"There was a mad scramble" by startup companies to produce lithium ion batteries, said Bereisa, CEO of Auto Lectrification, a suburban Detroit consulting firm, "but the EV industry can't absorb all that capacity."
Which suppliers have the deep pockets to wait for the market to develop? And which suppliers can afford to develop the second- and third-generation batteries?
According to an industry study published last September by Roland Berger Strategy Consultants, these key suppliers have emerged:
-- A123 is expected to be a leading supplier of batteries for EV buses. It also will produce batteries for the Chevrolet Spark EV.
-- LG Chem Ltd., South Korea's biggest chemical company, makes batteries for the Chevrolet Volt.
-- NEC Corp., a Japanese electronics multinational, formed a joint venture with Nissan Motor Co. to produce batteries.
-- Panasonic Corp., the consumer electronics giant, makes batteries for the Toyota Prius hybrid.
-- SB Limotive, a joint venture between Korean electronics giant Samsung SDI and Robert Bosch GmbH, will supply EV batteries for BMW.
With the prominent exception of A123, all of these ventures are very, very large companies with deep pockets.
For example, SB Limotive disclosed last September that it would invest $500 million on product development and tooling by 2013. Meanwhile, LG Chem announced last April that it will spend $1.8 billion over the next year or so to expand battery production.
In its report, Berger predicts that the five leading companies will control 80 percent of the global EV battery market by 2015. Since Berger expects there will be twice as much production capacity as needed by 2015, the consulting firm predicts a shakeout.
"Some of the battery producers have excessively grand expansion plans," wrote Wolfgang Bernhart, who authored the study. "This is why we'll see considerable consolidation across the market going forward."
A123 soon may fall off Berger's list of key battery suppliers. Its largest customer, Fisker Automotive Inc., said on Feb. 6 that it has halted work at its Wilmington, Del., plant to prepare the factory to build plug-in hybrids.
Because A123 lacks the financial resources of an NEC, LG Chem or Panasonic, it is unclear how the company will handle the loss of a major customer.
Moreover, some other megasuppliers are trying to muscle into the battery market. SK Innovation Co., a Korean energy conglomerate, is building a $1 billion plant to produce lithium ion batteries for its new joint venture with Continental AG.
In a Jan. 10 interview, Continental CEO Elmar Degenhart said it would take another decade to develop batteries cheap enough to spur high-volume EV sales.
"You can't expect to make big profits four or five years from now," he said. "There are a lot of small players [in the EV battery market]. We believe the smaller players will disappear."
Bet on China
So how do the small suppliers plan to survive this shakeout? Boston-Power, which has raised $360 million in capital since it was founded in 2005, is betting its future on China.
The company is building a battery plant near Shanghai plus an r&d center in Beijing.
Once Boston-Power builds its battery plant this year, it will compete for EV contracts, said company founder Christina Lampe-Onnerud.
But how will Boston-Power raise enough money to compete with the behemoths? Once the company establishes a niche in China, it might raise more funds to expand. Or it might form an alliance with a larger partner -- perhaps an automaker.
"I do believe automakers will not treat batteries as just another part of their supply chain," she said. "They'll have to own at least part of this industry. It's my goal to keep our options open."
You can reach David Sedgwick at email@example.com.