A Debate Over the Commercial Viability of Lithium-ion Batteries

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There has been a lot of hype about the development of Lithium-ion batteries for use in automotive applications, notably around all electric and plug”in hybrid cars scheduled to come onto the market in 2010 and beyond. GM, Ford and a number of other producers have models in the pipeline that like Toyota’s gas/electric drive are all based on electric drive but with a supporting gas engine to give pick-up and support on the open highway. Toyota started with the nickel metal hydride battery for their hybrids but they recently announced trials with lithium-ion as a precursor to offering plug in hybrids.

Widespread as the media interest has been, most commentators would agree the Lithium-ion battery has a long way to go in terms of unit cost and efficiency. Mind boggling sums are being poured into research and development, both private and tax payer dollars. Much of it will probably be wasted before enough micro steps in terms of technological developments and cost savings from production efficiencies and economies of scale combine to bring the price down to a competitive level. Sales will always be niche in overall terms. While a standard Ford Fusion costs $20k and a Hybrid Fusion costs $30k ” you have to do a lot of miles to claw back that kind of premium by lower fuel costs. At an average of 40mpg from a hybrid and 30 mpg from a conventional gas engine (Fords figures) the current premium largely for the battery packs on hybrids does not make a compelling case.

And that is the basis of an article by John Petersen that appeared recently in Seeking Alpha. Mr Petersen is debunking the whole concept that lithium-ion batteries will ever be economical. The industry is largely being built on start up companies years away from turning a profit. The technological hurdles are so significant that it will be years before lithium-ion battery power has a hope of being competitive. Needless to say with so many corporations and governments pouring so much money into R&D., not to mention gearing up for production to service GM, Ford and a number of other producers with products in the pipeline Petersen sounds like a lone voice in the wilderness ” but then so did the few (e.g. Warren Buffett) who questioned the economics of the dot com bubble before it burst. Certainly we have seen our share of technological hopefuls attracting millions of VC dollars only for the concept to fail not because it didn’t work but because it couldn’t be made to pay. So more often than not we take a guide from more experienced organizations, world leaders with a proven track record of survival in tough environments. Companies like Johnson Controls, JCI has become a world leader in conventional lead-acid automotive batteries and a Tier One automotive supplier of car parts who understands the economics and dynamics of the industry as well, if not better, than anyone. Johnson Controls held back from the early hype but last year teamed up with Saft in France to set up a lithium-ion battery manufacturing operation to make batteries for the Mercedes S class hybrid. The joint venture has just announced plans to build a similar plant in Holland Michigan to make lithium-ion batteries for Ford’s Fusion hybrid, although one can’t help suspecting the promise of millions of dollars of state aid probably had some impact on the decision. If firms like Johnson Controls-Saft feel there is a future in lithium-ion batteries we are encouraged to believe they have read the runes correctly. Mr Petersen may well be right that a commercially viable volume all electric vehicle is still a long way from reality but as a midway step the hybrid may well be the proving ground the industry needs to commercially develop the lithium-ion battery.

–Stuart Burns

Comments (5)

  1. Pavel says:

    Of course the first design waves of Lithium and other batteries will be less economical than the designs 20 years from now. Most technologies go through an evolutionary process (Chuck Darwin would be pleased to see how many seem to be partly based on randomness!).
    I am old enough to remember early manual and automatic transmissions which bear little resemblance to the multiple new excellent iterations. I’m too young to remember the last wave of steam powered vehicles but know they were far better than the first versions. I’m ready for a plug-in hybrid right now and will install a 220V outlet in my driveway as soon as we buy one.
    All the talk about how long it takes to repay extra Hybrid costs on saved fuel money is overstated. This is the time to be bold and move forward. It is time to reprioritize – spend less here and there so that more can be ‘invested’ in an electric vehicle and any kind of solar/ wind power. I’m prepared to be wrong.

  2. stuart says:

    Pavel, I like the cut of your jib!

  3. I’m a die-hard opponent of cars with plugs because the economics just don’t work. My most recent article on the topic shows why in all the gory detail.

    http://seekingalpha.com/article/139292-the-obama-fast-track-for-hybrid-electric-vehicles-hevs

    I’m also hard on Li-ion because I don’t believe it is the panacea that many claim. But it is a very valuable technology in applications where size and weight are mission critical specifications.

  4. maybe one day the lithium ion batteries can replace the lead acid battery.

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