Lithium-Ion Batteries for Hybrid Vehicles?

Includes: F, GM, HMC, HTHIY, NSANY, TM
by: Juan Carlos Zuleta

The recent Hitachi (HIT) announcement that beginning next year and by 2015 it will increase its Li-ion battery production by 70 fold for hybrids is quite significant for the Li-ion battery market. Until now, most analysts thought that there was no real potential for use of Li-ion batteries in Hybrid Electric Vehicles (HEVs). They erroneously believed that Nickel-Metal Hydride (NiMH) batteries were the best choice for today´s HEVs, whereas Li-ion batteries were reserved for tomorrow´s Plug-in Hybrid Electric Vehicles (PHEV), Range Extended Electric Vehicles (REEVs) and Battery Electric Vehicles (BEVs).

This argument, of course, never made sense. It rested on the unreasonable two-fold assumption that Li-ion batteries are not ready for prime-time and that plug-ins (and, for that matter, REEVs and BEVs) are a scam. For one thing, Hitachi´s notice tears apart the first half of the above contention. For another, Toyota's (NYSE:TM) latest decision to begin mass-producing PHEVs by 2012 and Nissan´s (OTCPK:NSANY) conviction that ”now´s time to go electric” completely demolish the second half of it. Indeed one should not be surprised since PHEVs can be really thought of as an extension of HEVs.

So if Li-ion batteries are to be used quite soon in plug-ins and both range-extended and battery EVs, then why not utilize them now for conventional hybrids as well? The new General Motors (GMGMQ.PK) appears to have understood this. It just asked Hitachi to produce Li-ion batteries for its 100,000 hybrids that it plans to sell from next year.

Taken together, this only means that both NiMH and Lead Acid (LA) battery makers have many reasons to worry nowadays. And some of them, perhaps aided by their government, appear to have started to take some actions. In China, for example, they may be behind their government´s decision to impose restrictions to lithium-ion battery vehicles. At first sight, these constraints may seem somewhat astonishing, considering that China holds one of the most advanced lithium-ion battery car makers of the world, namely Build Your Dreams (BYD) (OTCPK:BYDDF). However, they may be indeed part of a rather rational approach to help a number of other car producers that for the last five years or so have been heavily investing in NiMH and LA battery technologies for their different cheap plug-ins and electric vehicles, already running on Chinese roads and/or getting ready for export to other countries.

While I doubt anything like it could happen in Japan or in the U.S., one should be aware that all these recent events will begin to change dramatically the battery car market as a whole. In this connection, Hitachi´s approach is likely to be followed by other battery makers in Japan and elsewhere.

But this may be a short-lived approach. We will not have to wait too long until the major car makers of the world realize that mass-producing REEVs and BEVs (rather than HEVs and PHEVs) is the correct way forward. The new GM and Nissan seem to be quite clear about it, while Toyota also appears to be moving (albeit cautiously) in the right direction.

l have previously explained why I thought it was in Toyota´s (and Honda's (NYSE:HMC)) interest to behave this way. But, given GM's recent re-launch and Nissan's renewed financial situation after having been granted a $1,6 billion loan to develop advanced Li-ion batteries for its new pure electric car, to retain its largest share in the automobile market of the world, Toyota will probably need to modify significantly its current conservative business strategy.

Disclosure: Author is a lithium economics analyst based in La Paz, Bolivia. In January 2009 he participated as an invited speaker at the Lithium Supply & Markets Conference held in Santiago, Chile. He holds no positions in any stocks.