Tuesday, August 14, 2018

It's harder than it looks (part...)


Amid the soap opera of Tesla, Musk, and whether the stock market is "properly" valuing the EV car market, it is easy to lose sight of the fact that what Tesla is attempting to accomplish is nothing short of miraculous. Because an electric car can be built by a hard-working shade-tree mechanic, the idea that any established car company should be able to build an EV if they just put their mind to it tends to become a sort of conventional wisdom. Tesla shorts repeat this mantra until big money is involved.

It turns out that an EV is a dramatically different sort of animal because many of the skills required to make an ICE car are simply not relevant. Literally millions of hours have been spent over the years to make a smooth-shifting, reliable, transmission. An EV usually doesn't even need a transmission�or a fuel pump, or a bunch of other things that make cars so complex. But what they do need are reliable batteries�LOTS of them. And the problem of buying enough batteries for a backyard EV conversion do not scale up to the problem of producing thousands of battery packs for long-range vehicles every week.

So all the issues surrounding Tesla's driven, grumpy, charismatic leader are way less important than whether the company can produce enough batteries. And that makes Tesla's boring Nevada gigafactory important enough to (almost) justify its market capitalization�which is higher than GM which makes and sells more than 2.6 million vehicles per year compared to Tesla's goal of 250,000.

Electric Car Growth Produces Battery Shortages, Carmakers Can�t Match Production With Demand


August 12th, 2018 by Christopher Arcus

The earlier than anticipated onset of successful, fairly affordable, long-range electric vehicle (EV) demand has caught both battery manufacturers and car companies by surprise � even the most bullish of car companies.

Carmakers like GM, Renault, Hyundai, Daimler, BMW, and VW have all seen demand exceed capabilities and expectations, and battery shortages are evident.

As an example, in 2017, Hyundai encountered unanticipated demand for the Ioniq EV and was unable to satisfy the demand. But the lack of production capacity was related to a global issue, not just a Hyundai issue. The problem was Hyundai didn�t have enough batteries because LG Chem didn�t have enough batteries.

What seemed to be admission of the main cause was leaked in a company memo. The bulletin was originally posted to the IoniqForum.com website on April 21 by user �LLcoolB� from Ottawa, Ontario: �Over the 12 months since sales of the Ioniq Electric in the United States began in March of last year Hyundai sold only 544 of the cars despite an apparent backlog of pre-sale orders.

�Now, a premature ordering halt has been announced in a sales bulletin to dealers due to a Hyundai �temporary global battery supply shortage� apparently from their battery supplier, LG.

�It now appears as though demand for the IONIQ Electric is far higher than anticipated. As a result, Hyundai is attempting to increase production on its side, but LG Chem won�t be able to match that with increase battery production, at least not immediately.�

As InsideEVs dryly notes, �This is a unfortunate reality that InsideEVs has explained on many occasions whenever OEMs tout the ability to quickly �increase production� due to unseen demand (which as we know, rarely ever actually materializes) � without accounting for the fact they don�t have an existing commitment to a 3rd party battery supplier for those cells.�

While battery production volumes eventually ramp up, the increased demand results in delivery delays, as Norwegian customers have experienced with the Kona EV, with its rapid popularity.

Risks & Rewards

There is financial risk in battery factory investment. There is also risk in being unable to access battery cells. Failing to have their own battery factories and expertise puts EV makers at a serious supply, cost, and battery performance disadvantage compared to those with secured battery supplies.

Early EV entrants like Nissan, Renault, and Tesla have some advantage with existing battery supply volumes already in place. Renault and Tesla have been able to obtain increased production because of their existing relationships with cell makers.

Rather than invest in a particular chemistry, the issue is investing in a factory (or factories) so that supply is not in competition with other EV makers. That�s crucial at this stage, as long as battery demand exceeds supply. The risk in factory investment as opposed to battery technology investment is not that great. Battery manufacturing processing is similar for NMC, NCA, and other existing lithium cells.

Most battery technologies use the same roll-to-roll powder coating manufacturing technology and advanced future tech like solid state can also do so. (See the third-to-last slide, titled �Cell Processing,� in this slide deck.)

The Critical Role of Research & Development

Keeping up with technology is a matter of R & D. Tesla does it with an exclusive arrangement with a battery expert, Jeff Dahn, an NMC original patent author, who leads chemical research at Dalhousie in coordination with Panasonic experts and by continuously sampling and monitoring new technology cells. That way, Tesla is not at the mercy of battery company expertise.

Key Players in Battery Production

The battery design process is multifaceted. There are tiers to the process. Battery companies source separators, cathode and anode materials, and electrolytes from various providers. All of these are aspiring to become the preferred materials providers. Components come from companies like BASF and 3M, as well as more niche companies. Initially, those companies developed battery types like NMC as a means of selling the components they produced. Those cell designs are licensed to battery makers like LG and many others, with Argonne and 3M being NMC patent holders.

Some cell designs originated at universities, like Goodenough�s LiFeP chemistry, and are also licensed.

�The competing NMC patents go back a decade and a half. The first was filed in June 2000 by Michael Thackeray, a South African-born researcher working at Argonne. Ten months later, 3M filed a competing patent application on behalf of Jeff Dahn, a researcher at Dalhousie University in Halifax, Nova Scotia.�

Jeff Dahn and Dalhousie University are familiar to those following Tesla, and they have an exclusive arrangement. A cadre of different companies exist at different levels, licensing proposed battery designs and materials. But a key factor in the industry is that they don�t generally own factories themselves. The design team sells or licenses to battery factories.

Volume Demand Drives Development

Owning the world�s single largest EV battery factory and having the highest product demand are two major Tesla advantages. The company can choose any new tech that develops and work it into the factory. Most important of all, they have the volume demand that justify it. Other automakers don�t have battery factories that compare to Tesla�s and don�t have the same level of consumer demand for their electric vehicles.

Because Tesla is so large, companies are continuously submitting samples to the company and are competing for its attention. Naturally, they want to sell or license to the biggest customer. On the flip side, Tesla is an EV leader in part because it innovates and leads on batteries.

No ICE company would dream of outsourcing engine expertise. Outsourcing core competency is the door to extinction, unless it�s used as a stepping stone to capturing that competency by admission to the market.

Investing in a particular set of battery tech is where Daimler got burned, not in owning a factory. They lacked the volume and expertise to make it profitable and to properly develop battery technology. It was too small, too early, too expensive.

The large conventional auto companies invested in a succession of failed technology, GM with Envia, Daimler with Li-Tec, and Nissan to some degree with AESC and the NEC joint venture, whose plans to sell the unit to China�s GSR were cancelled.

Battery Core Competency Crucial to EV Success

When Daimler failed with Li-Tec, Daimler incorrectly concluded that having a battery factory was not the way to go. The real reasons they failed were that they lacked both expertise and volume demand, and chose the wrong technology, not because they had a factory. They still need the expertise, and need to make compelling EVs with volume demand, and need to figure out which cell technology is best, but now they are at the mercy of all their competition � which bids for the same factory output and may delay shipments to Daimler, thus limiting EV volumes. Daimler, BMW, VW, Nissan, Renault, as well as various Chinese electric car and electric bus companies are in competition for cells from CATL.

Volume, Volume, Volume

Standard business concepts dictate a drive towards obtaining the highest volumes in order to lower costs and beat competition. Getting ahead in the drive toward greater volume works in both directions, with winners winning even more and losers losing faster.

The road to battery success may not be easy, but history provides us examples of failure and success.

The model for success is shown with Tesla. Carmakers must enlist battery expertise and partner with a battery company in an exclusive arrangement where they benefit from factory output. Failing to do that is like a conventional car company failing to owning an engine factory or have any significant internal combustion expertise. That would be unthinkable.

The situation is summarized in the following statement from a VW exec. �Quite frankly, if we compare ourselves today with Samsung and LG they are light years ahead of us,� VW Group�s Thomas Sedran, head of global strategy, said.

Conventional car companies are in a quandary, where the only sources for batteries to compete with Tesla are companies like LG Chem, SK Innovation, CATL, and Samsung SDI, which are just beginning advanced NMC 811 production over the next year.

It seems that only Tesla figured EVs would be successful this early and planned ahead to build a gigafactory to supply the vast amount of cells necessary to build the large numbers of electric cars consumers want. Even Tesla has to expand its battery factory size and efficiency by 3� to fulfill demand for both storage and EV batteries. The original plan was for 35 GWh for cars and 50 GWh total. The updated plan is for about 100 GWh for cars and 150 GWh total.

Tesla also throws in a bit of fun, as is typical of the firm and quite appreciated by consumers � who also like to have fun.

Tesla�s current rate of production of 75 kWh packs for the Model 3 is equivalent to 23�24 GWh annually. This production level is expected to rise as Gigafactory 1 is completed. more

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