Last February, Daimler CEO Dieter Zetsche ruled out investing in battery-cell production for electrified powertrains because supply already was exceeding demand.
"The dumbest thing we could do is to add to that overcapacity," he said.
Less than a year later, Volkswagen Group is signaling the opposite concern as it sizes up contenders for one of its biggest contracts in recent history: cell supplier for cars that will be underpinned by its forthcoming MEB electric platform.
"The capacity is not there," Thomas Sedran, VW's head of group strategy, said in December, referring to the six largest global cell suppliers competing for the contract. "Nobody has the capacity."
Automakers are under increasing pressure to electrify their powertrains to meet toughening global emissions regulations. The big question is whether there will be enough battery cells available in the next decade to meet the fast-rising demand predicted by automakers such as VW Group, Daimler, BMW Group, General Motors and Ford Motor Co. VW is leading the charge, saying it expects to sell between 2 million and 3 million EVs annually by 2025.
VW is not alone in its optimism for European, Chinese and -- to a lesser extent -- North American uptake of EVs. By 2020, Tesla wants 1 million EV sales globally, Nissan in Europe predicts 20 percent of its sales will be EVs, and Ford forecasts that EVs will account for 15 to 20 percent of the total Chinese market. Moving to 2025, Mercedes predicts 15 to 25 percent of the vehicles its sells globally will be powered by batteries. BMW has said the same but includes plug-in hybrids in its estimate. Ford reckons that by then, about a quarter of all vehicles sold globally will get all or some of their power from a plug.
There is good cause for this optimism. In 2016, GM, Renault and their battery partner, LG Chem, did much to remove one of the biggest hurdles to EV sales -- range anxiety. GM says the Chevrolet Bolt/Opel Ampera-e can travel more than 310 miles on a single charge. Renault says the second-generation Zoe has a range of about 250 miles. (Range projections are based on the European test cycle, which is more generous than the U.S. cycle.) The new lithium ion pouch cells from LG nearly doubled the Zoe's energy rating to 41 kilowatt-hours from 22 kWh but still fit neatly into the existing car. The next big jump in range will come around 2019, executives and analysts predict.
The other great hurdle that has slowed the uptake of EVs is the price of the battery, but that is falling as energy density rises. Financial analysts at Exane BNP Paribas in September published a bullish report on EVs, saying it expects battery pack prices to nearly halve to $215 per kWh by 2020 from $400 per kWh now. It sees the price dipping to as low as $140 per kWh in 2025.
Daimler's Zetsche is even more optimistic. "We can see 100 euros ($104) per kilowatt-hour on the horizon," he told Automotive News Europe in September, without specifying when the price would fall that low.
Because of the expected rapid decline in this cost, Exane BNP Paribas predicted that by 2025, automakers will generate bigger profit margins from EVs than from vehicles with internal combustion engines.
"We are now within sight of levels that will act as a tipping point for mass adoption of EVs," the company added.
For that, it estimates the industry would need global battery production capacity of 600 gigawatt-hours, enough to build 8.6 million vehicles with an average battery size of 70 kWh.
"One weakness in our EV argument is that it currently requires battery supply that does not exist," Exane BNP Paribas warned.
Installed global capacity for lithium ion batteries is just 41.57 GWh, according to figures from consultancy EV Volumes in Sweden. Among automakers, Tesla has taken the lead in expanding that capacity by building a 35-GWh factory in Sparks, Nev., to meet its goal of producing batteries cheap enough and in large enough quantities to build its targeted 500,000 units a year of the Model 3, its entry-level car, by 2018. Tesla said it is planning a second factory in Europe.
Telsa's desire to make its own batteries is not shared by most other automakers largely because they lack the expertise. "Quite frankly, if we compare ourselves today with Samsung and LG, they are light-years ahead of us," VW Group's Sedran said.
He estimated the capital expenditure needed to supply all of VW Group's EVs with in-house batteries at about $21 billion. "We need to check whether [the six suppliers tendering for the cell contract] have the financial means to build the capacity," he added. He wouldn't say whether the contract would be awarded to a single supplier or split.
Currently, the automaker producing sizable quantities of lithium ion cells in Europe is Nissan at its plant in Sunderland, England. The battery factory, one of three Nissan has globally, still uses the comparatively low-density LMO lithium chemistry, but that could be updated when Nissan upgrades the plant as part of a promise it made in January 2016. Nissan might also stop making cells and just build the pack.
Neither of Nissan's alliance partners, Renault and Daimler, believes it makes sense to produce their own EV cells. "We are a carmaker, not a chemist," Marianne Bataillon, Renault EV project leader, told Automotive News Europe.
Daimler boss Zetsche shared a similar view with Automotive News Europe when asked whether Daimler would restart production of its own cells if the price per kilowatt-hours fell sharply enough. "Politicians and unions are asking us to do that, but it would not make sense. ... Today, the cell is almost a commodity good, so the cost is going down fast."
Daimler quit making its own cells in December 2015 when it shut down its Li-Tec unit in Germany, citing costs. Zetsche said Daimler had the best cell available but that this advantage was worthless because customers couldn't feel the difference. Today, Daimler "pursues a competitive multiple supplier strategy" for cells and will concentrate instead on building the pack around them at its Accumotive division in Kamenz, Germany, where it is constructing a second plant.
"The intelligence of the battery does not lie in the cell but in the complex battery system," Zetsche said.
Christian Mueller, IHS Markit's European manager for automotive component analysis, agrees with Zetsche. The analyst expects that most automakers will focus on making battery systems in-house partly to offset the potential loss of thousands of powertrain assembly jobs, but also to better differentiate vehicles from those of rivals through control of the electric power delivery.