Lithium-ion Batteries: 9 Years of Price Stagnation

This May will mark the nine-year anniversary of "Costs of Lithium-Ion Batteries for Vehicles," a seminal study from the DOE and Argonne National Laboratory that sent America lurching down a path toward an HEV, PHEV and EV future based on Li-ion batteries.

Since nine years is a respectable length of time in most industries, I thought it might be interesting to review the prevailing expectations in May of 2000, consider the cost reductions achieved over the last nine years and question whether the market frenzy over Li-ion battery companies is even close to rational. Regular readers know that I'm an unrepentant critic of both Li-ion batteries and the companies that make them. So if you're a true believer in Li-ion technology, I would implore you to stop reading now.

To keep it simple, I'll dispense with the foreplay and get straight to the vulgar financial issues. In its May 2000 report "Costs of Lithium-Ion Batteries for Vehicles," the DOE published its estimate of the prices Li-ion battery packs would need to achieve before HEVs, PHEVs and EVs could be cost-competitive. For complete details see Section 6 beginning on page 37.

Battery Type	Baseline	Optimistic	Industry Goal
High-Energy (35 kWh Battery Pack)	$706 per kWh ($24,723)	$250 per kWh ($8,767)	>$150 per kWh (USABC)
High-Power (100 cells, 10 A-h each)	$2,486	$1,095	$300 (PHGV)

These figures were not a forecast of what the Li-ion battery companies were likely to achieve. They were a simple statement of the fundamental economic barriers to entry that had to be overcome before a market could develop.

After nine years of work and incalculable spending on Li-ion battery research and development, the following table shows exactly how far the Li-ion battery industry has come.

Manufacturer	Chemistry	Current Price	Target Price
Ener1 (HEV)	Li-polymer	$660 per kWh	N/A
Valence Technologies (VLNC)	Li-phosphate	$1,000 per kWh	$500 per kWh
Altair Nanotechnologies (ALTI)	Li-titanate	$1,000 per kWh	N/A
A123 Systems (power tool packs)	Li-phosphate	$1,228 per kWh	N/A
2008 DOE SEGIS-ES Estimates (PV Solar battery packs)	Various	$1,333 per kWh	$780 per kWh
2009 NEDO Survey Results (Average of Japanese Producers)	Various	$2,018 per kWh	$1,000 per kWh (next year)

Price stagnation is the kindest term I can use for nine years of research that has failed to reduce costs.

In the 2008 Annual Progress Report for its Vehicle Technologies Program, the DOE reported that the cost of high-energy Li-ion batteries for PHEV and EV applications "is approximately a factor of three-five too high on a kWh basis." Likewise, with respect to high-power Li-ion batteries for HEV applications, the DOE reported that the cost "is approximately a factor of two too high on a kW basis." Is it any wonder that a recent report on the electric two-wheeled vehicle (E2W) market in China says that roughly 85% of new E2Ws are powered by heavy lead-acid batteries instead of their lighter Li-ion cousins? Could it have something to do with a 400% price differential and a population that knows the value of a dollar?

I have seen all the glowing reports about immense progress in the Li-ion battery sector. One of my personal favorites is on Slide 14 from a Summer 2008 presentation by David Anderson of the Rocky Mountain Institute that shows a highly favorable "industry consensus" regarding future Li-ion battery manufacturing costs (Click here for image PDF).



In what alternative universe is that kind of industry consensus reasonable? Over the last nine years Li-ion battery companies have had a hard time maintaining Y2K price levels much less reducing them. While their products are safer, I've seen nothing to indicate that the industry consensus is based on anything other than hope and the certain knowledge that unless prices collapse Li-ion batteries will never be cost effective in HEVs, PHEVs and EVs.

To put it bluntly, the progress the DOE hoped for in Costs of Lithium-Ion Batteries for Vehicles never materialized. We live in a resource constrained world where demand for water, food, energy and every conceivable commodity is increasing rather than decreasing. Since the DOE said in the introduction to Section 6 that materials costs account for 80% or more of finished product costs, it is patently unreasonable to believe that further cost reductions are possible, much less likely.

I am an incurable optimist and believe that cost-effective solutions to our energy storage problems will be found. But in the case of Li-ion batteries what started as cautious skepticism in a DOE report has gradually morphed into a baseless urban legend of immense proportion, a lie so colossal that nobody would expect a responsible industry sector to distort the facts so blatantly or allow the politicians and press to do the dirty work for them. I think it's time for the investing public to rely on their own experience instead of the deafening drumbeat of PR and hype that says, "your experience is meaningless – listen to our promises instead."

Stock market investors are currently placing big bets on Li-ion battery companies in the hope that massive Federal grants and loans will increase the intrinsic value of their investments to a level that roughly approximates current market values. While that plan may have short-term appeal for day traders and other speculators, the fact remains that you can tie a pork roast around an ugly baby's neck and the dog will play will play with it for a while, but bad economics are ugly to the bone.

If you want a long-term investment that will grow over time and derive immense benefit from the coming cleantech revolution, then the low-profile lead-acid battery manufacturers including Exide (XIDE) Enersys (ENS) are probably the best choices. If you want a low-cost speculation on advanced acid or lead-carbon technologies in the final development stages, then C&D Technologies (CHP) and Axion Power International (AXPW.OB) may be good choices.

In life, the plain and reliable girl next door usually makes for a better wife than an airbrushed centerfold. In batteries, the plain and reliable lead-acid variety that we've used for decades have far more potential to serve our needs than the famously expensive and finicky batteries we use to power our cell phones and laptops.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a substantial long position in its stock. He also holds small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) and ZBB Energy (ZBB).

Comments

[John Petersen]

The following comments were posted on altenergystocks.com before the article was picked up by Seeking Alpha:

Reread our report; the goals were set by DOE/USABC, not Argonne. We did not make any price forecasts. Our optimistic numbers were lower bounds on where we thought prices could go, and did not meet DOE goals. Note also that you need to be careful that you are comparing similar batteries. Today's batteries should be somewhere in between our high energy and high power cases.

Posted by: Linda Gaines | April 5, 2009 06:35 PM

Linda, I apologize for my lack of precision about the parties responsible for the goal setting and cost analysis functions. It's also important to note that today's batteries are better than the ones that existed in 2000, particularly in terms of cycle life and power. It does seem, however, that the performance gains over the last nine years fall well short of the performance targets in the original report. I think it would be wonderful if ANL, the DOE or some other authoritative source could create a follow-on report that shows where we were, what changed and where we are now.

Posted by: John Petersen | April 6, 2009 12:57 AM

And from the "You can't make this crazy stuff up" department my horoscope for today says:

Monday, Apr 6th, 2009 -- You take the long-term approach in nearly everything you do now. While others are working in the moment so they can get through the day, you are looking way down the road. Unfortunately, it can be discouraging when no one else sees what is so obvious to you. Your attempts to enlighten everyone will probably only annoy them and make you more frustrated in the process. Focus on what you know to be true; everyone else will eventually catch up with you, wondering how you knew it all along.

Posted by: John Petersen | April 6, 2009 01:19 AM

2009 Apr 06 02:14 AM

[Conan the Barbarian]

Good Morning, did you read the "H.R. 1835" article?

Any thoughts on AXPW as it would travel through a CNG vehicle environment?

2009 Apr 06 02:19 AM

[John Petersen]

Conan, thanks for the heads up. The H.R. 1835 article strikes me as a breath of fresh air and good news for proponents of a more comprehensive energy policy.

seekingalpha.com/artic...

While I spend all my time writing about storage, I'm a firm believer that we need to use every available tool in the box and focus first on slowing the export of cash in exchange for oil. As that battle progresses, we can devote more attention to building out new power generating facilities and the smart grid and developing EV solutions that work. The biggest problem I see with trying to force longer term solutions into the short term is that you don't give the key technologies enough time to really mature. In my mind, this is one of those journeys of a thousand miles and I don't think any of us can do more than vaguely describe some of the mile-markers we are likely to pass en-route to the finish line. I'll guarantee that none of us can accurately describe 2060.

2009 Apr 06 02:38 AM

[John Petersen]

Conan, with respect to AXPW - CNG and future vehicles, I honestly don't know what the most cost effective solution will be. The nice thing about the PbC is that it's a general purpose device with a broad range of potential stationary and traction applications, but until manufactured devices are rolling off the line and fully tested, it will be impossible to say what the highest and best uses are. No one device is best in class for every potential application. It's true for Li-ion and it's true for PbC. The only way we'll ever find out is build them, test them thoroughly under real world conditions and then let the engineers and accountants figure out what works best.

2009 Apr 06 02:45 AM

[Douglas Korthof]

Why not draw the obvious conclusion, that the (assumed) need for Lithium is FALSE?

NiMH and lead have proven successful in Electric cars and hybrids; NiMH is the lowest-cost battery that lasts more than 100,000 miles (perhaps 200,000 miles, we don't know yet).

NiMH batteries have carried EVs over 200 miles in range; 400 lbs. of NiMH, the same weight as would be used in the so-called VOLT, would yield 12 kWh of accessible energy, enough to go 60 miles in an EV or EREV.

The Toyota RAV4-EV has proven over 17,000,000 miles of all-electric travel on NiMH batteries. Why fool with Lithium, when NiMH is recyclable for CASH, long-lasting, and 25% the cost of Lithium? NO cost decrease for Lithium, despite the economies of scale in lap top batteries; and no increase in life (no Lithium EV has so far gone more than 50,000 miles without significant battery degradation).

GM's insistence on using Lithium just shows they don't want to make an EV, and are lying about their intentions.

Lead-acid PSB 1260 batteries carried the EV1 more than100 miles on a charge, more than needed for the so-called VOLT.

2009 Apr 06 02:58 AM

[John Petersen]

Doug, the only good explanation I've ever heard for preferring Li-ion over NiMH came from Jack Lifton who explained that NiMH batteries require tantalum and Toyota has done a good job of effectively cornering the market on that strategic metal. Since Toyota is talking about using Li-ion in the future despite their dominance of NiMH, I get the sense that tantalum supplies may be more constrained than Toyota would like, but NiMH is far superior to Li-ion on a raw price-performance basis.

2009 Apr 06 04:32 AM

[John Petersen]

Speculawyer, as always I would like to thank you for your respectful, collegial and carefully documented comments. I understand that DIY enthusiasts can buy cheap LiFePO4 batteries of unknown quality from Internet websites managed by China, Inc. Unfortunately that option is not open to manufacturers who need to worry about things like 5-year warranties and products liability insurance.

Notwithstanding the existence of cheap quotes from companies that I can't invest in, I continue to believe the best way to measure a manufacturer's costs is to rely on recent statements from its CEO. I've never said that Li-ion costs won't decline over time, but the notion that prices will drop like a stone and leave huge profits for the manufacturers is insanity.

2009 Apr 06 05:49 AM

[Douglas Hvistendahl]

Keep one eye on MDI and the Flow-aire technology. No one else has a small compressed air storage so close to mass production. It will either flunk or be a rule-breaker.

BTW, a backup flywheel MFG company, ACPW, has a CleanSource (tm) design that uses flywheels for the first short bit of a power down, and backs it up with CAES using micro turbines. Not practical for transportation, but the cool air coming out of it replaces the air conditioning when a data center is being powered from this storage source. This gives 2/1 results.

2009 Apr 06 07:35 AM

[aquaculture]

The price stagnation is easy to understand. Before 2k real wages had increased and historically energy storage per dollar had been doubling every ten years -for the past 150 years or so.
But there is every reason to believe that there may not be any improvement in this for the next 20 years:
-U.S gov. debt causing inflation.
-globalisation and overpopulation -devaluing people.
-technological acceleration, keeping wages further down.

Therefore Americans -except for select elite- will simply not be able to afford Li-ion powered cars, even if mass production of lithiumcarbonate would be possible/desirable, which it is not:

-not environmentally sound. It would cause futher irreparible ecological damage to ecosystem.
-world demand from portable electr, light ev (bikes) will absorp much of planned production increases.
-realistic achievable production will be sufficient for only a small fraction of transportation needs.
-most lithiumcarbonate reserves in geographical areas hostile to U.S. politics, possibility of new conflicts of interest.

I think gov. loans to A123 etc. are very elitist. How does that help the American people?

2009 Apr 06 07:39 AM

[John Petersen]

Douglas, I'm very interested in compressed air and its potential and even own a few shares of ACPW that have performed very well.

Aquaculture, I hope your view of the future is unduly pessimistic. I personally think Americans do their best and most creative work under challenging conditions and unless we're willing to assume that innovation has somehow ended, the things that are yet to be invented and developed should amaze us all. One of my fondest hopes is that something will come out of some nanotech lab and make everything we currently view as state of the art obsolete. I don't think the government loans to A123, HEV and VLNC will be justified or justifiable unless they can conclusively demonstrate how the new factories will make products that are about 2/3 cheaper than the products they make in their existing factories. But those decisions are not mine to make. I believe more would be accomplished if the government supported research and testing and the market supported commercialization, but talking political policy is almost as emotional as talking battery chemistry.

2009 Apr 06 08:17 AM

[Mad Hedge Fund Trader]

The price should improve with the next recovery. If we do move from a carbon to a lithium based economy, what are the implications? Will we all become mellow? Politicians, industrialists, and environmentalists who see battery powered vehicles as the wave of the future are overlooking the fact that 50% of the world reserves of lithium are found in impoverished, landlocked Bolivia. This is a country that until now was best known for killing off famous foreigners (Che Guevara, Butch Cassidy and the Sundance Kid), and being the source of a new form a venereal disease. Lithium ion batteries are four times more efficient than the current generation of nickel cadmium batteries, and are essential for electric cars to finally become economically viable. But now that the country finally has something the world wants, nationalism is rearing its ugly head. Local politicians see their country as the Saudi Arabia of the highly corrosive, toxic, reactive metal, and are already discussing ways to restrict access. Will La Paz become the headquarters of OLEC, the Organization of Lithium Exporting Countries? The only other supplies are to be found in Chile, Argentina, Australia, China, and Nevada. Will American oil company executives be programming their cell phones with the 591 country code? Should the US invade to insure supplies? Iraq worked didn’t it? The best way for opportunistic investors to play this is to buy Sociedad Quimica Y Minera (SQM), Peru’s largest producer of lithium.

2009 Apr 06 09:32 AM

[sonrisa777]

Thank you for this very interesting perspective. I agree that Chinese people know the value of a dollar, probably more than we do! I'm all for recycling and improving what we have instead of looking for something that could be better (maybe) but that costs an arm and a leg to produce. It's a pretty reductionist view of the issue, but that's what I understand so far of what I've read regarding the 2 different types of batteries.

2009 Apr 06 09:43 AM

[Paul Killinger]

On the subject of legislation, it is worthwhile to note there are bills NOW coming up for votes on both sides of Congress that would deeply subsidize consumer purchases of new high mileage vehicles (similar to the current mortgage subsidies for homebuyers) built in the U.S. Since there are few true EV's for sale yet, their passage could result in millions of more ICE's plying our roads for the next decade or longer. It appears the necessity of saving our nation's existing auto industry today is pre-empting our President's desire to wean us off foreign owned energy resources at some point in the future.

2009 Apr 06 10:01 AM

[Paul Killinger]

As regards investing, this may give a bump to Ford and the remaining viable automotive suppliers.

2009 Apr 06 10:06 AM

[John Petersen]

Paul, wouldn't it be wonderful if the subsidies were tied to the differential between the mileage your trade-in gets and the mileage the new vehicle gets? Trade the Hummer for a Malibu and get a whopping big check!

I also don't know if you noticed it but Michael Fitzsimmons has a new article on NGV's that should warm the cockles of your heart:

seekingalpha.com/artic...

2009 Apr 06 10:25 AM

[tiananman]

I sincerely hope that EV technology does not become another political football, like corn ethanol. The government's foray into subsidizing that particular technology was a disaster.

The best we can hope for is that they leave it alone. Will EV and ZEV technology EVER be an affordable, realistic option for the majority of Americans if the Gov't intervenes with subsidies, laws, and restrictions?

No. Like a scientist fudging his own experiment, the very act of government intervention guarantees the deal will get queered.

And the only problem li-ion has is a matter of scale. As the lightest metal in existence (and therefore the greatest energy/weight ratio), the usage of lithium in batteries is an inevitability.

2009 Apr 06 10:30 AM

[Road Runner]

I agree with speculawyer. The LiFePO4 technology is way to new to conclude that its price will never drop. It only came into production in 2006. Let's have this discussion again in 5 years when we actually know enough about the cost of a high volume manufacturing operation using establish chemistry and processes. This technology is so new that everything is state-of-the art meaning that there is still a huge amount of trial-and-error going on in battery chemistry and manufacturing processes. But, one thing is sure - the raw material costs of this battery are very cheap. If you still think there is going to be a Lithium shortage, see my previous posts.

I am not arguing that the Pb-C technology will not be successful. Both Pb-C and LiFePO4 technologies could be very successful side-by-side. The new alternate energy economy demands robust cheap energy storage at a very large scale. In fact, energy storage is a key element that is currently holding back forward movement with alternative energy. (I’ve talked about the details before so I won’t cover them again here).

Axion has a very interesting and promising technology, if it can pull a fully-specified production-ready Pb-C battery of its … lab. I know LiFePO4 is a winner because its been proven. I’m unsure about Pb-C because I haven’t seen a real working production battery.

2009 Apr 06 10:44 AM

[creativforce]

It is not surprising to anyone to see no progress in lithium battery technology during the last 8 years of battery antagonistic, pro-oil corrupt Texas leadership. That doesn't mean the next 4 (8?) years won't be better for these batteries.

A better question is why there hasn't been more progress in NIMH battery technology. Ever since Chevron sat its big bottom down on ECD (Cobasys) there has been zero progress out of Detroit.

However, Toyota, the only company that owned a NIMH manufacturing license before Chevron arrived at ECD has done amazing things with it. The new Prius at better than 50 mpg is a great example.

But Ford is encountering shortages from Sanyo and every battery coming from Cobasys is apparently flawed...Mercedes has sued them and GM received an order that had mysterious leaks according to industry news reports: "General Motors is also unable to take advantage of the hot hybrid market. GM recently said that its domestic supplier, Michigan-based Cobasys, shipped as many as 9,000 hybrid battery packs that leaked and had to be replaced. Anderman said that the Cobasys problem “did not surprise him." In an interview with HybridCars.com, a Cobasys executive claimed that media reports about its battery problems were "not entirely true."

Producing nickel-metal hybrid batteries to last the lifetime of the vehicle—as much as 150,000 miles—is “not a trivial task,” said Anderman. The next generation of hybrid batteries, using lithium ion, are expected to be even more challenging from a technical and planning perspective."

Can somebody tell me why an oil company is in charge of battery manufacturing and can't the government investigate these guys?

A decade ago, Cobasys made great batteries for the EV1, but they forgot how to do it? While Toyota hasn't reported a single problem with their Prius battery. In fact many Taxi companies that have been running Prius cars report better than 300,000 miles on the batteries with no problems.

Is CHP or AXPW working on a hybrid prototype to undercut the $25,000 + price of the Prius, Insight, and Fusion? If so, I'll be happy to invest. Where's the product? And where's the market?

2009 Apr 06 11:04 AM

[Road Runner]

Please, please, please people stop viewing non-phosphate Li-ion batteries (like what is in your cell phone and laptop) to phosphate based Li-ion batteries (the new LiFePO4 technology) as having similar characteristics. They are totally different chemistries and have totally different characteristics! The phosphate (the PO4 part) tightly holds the oxygen molecules vastly improving the characteristics. It has much longer life. It will not catch fire. Etc.

Plus, LiFePO4 based batteries use plentiful, non-toxic Iron (Fe) instead of expensive heavy metals like Cobalt. This hugely improves the expected future costs of the battery because Cobalt is expensive and Iron is obviously very cheap. But, the cost will not be lower in the next 5 years (my guess) because demand will far outstrip supply. But, at least in 5 years, we will know enough to get a meaningful estimation of future costs.

2009 Apr 06 11:25 AM

[John Petersen]

Tiananman, unfortunately it's already a political football and people are demanding government intervention based on hopes and PR rather than documented proof. I'm all for research, development and testing of all possible alternatives, but crowning a winner before the horse race strikes me as less than optimal.

Road Runner, I've not suggested that Li-FePO4 is destined to fail, but it's certainly not guaranteed to succeed. When you cut through all the happy talk, different types of Li-ion batteries are a lot like ice-cream. They all use the same basic materials and fabrication methods and the only real differences are the flavors you put into the mixture. Some flavors have higher power and others last longer, but you don't have an entirely new technology each time somebody comes along with a new additive. Those are extensions of the same basic technology - and that basic technology has not fared well to date when it comes to cost.

creativeforce, the political agenda in DC had very little to do with the work battery developers were undertaking. I firmly believe that there will be big advances over the next 8 years. The raspberries are reserved for people who promise huge advances next year. There's no question that ECD dropped the ball when it licensed NiMH to Toyota and they then went out and cornered the tantalum market. There is probably plenty of blame to go around for the errors of the past, but blame doesn't change the fact that we are where we are and our only choice is to move forward from here in a rational manner. CHP is starting to build the Firefly battery as we speak. Axion will be testing its PbC in a modified Honda over the next several months. Over the short term, the best low risk approach would be to stick with the big boys and focus on the new technologies when the companies start announcing results.

2009 Apr 06 11:36 AM