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Global Battery Production Capacity Must Grow 21 Times To Electrify The Global Vehicle Fleet

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Includes: LGCEY, LGCLF, PCRFY, SSDIY, TSLA
by: Driscoll Consulting LLC
Summary

Market and policy forces may drive a global transition to electric vehicles.

Current and planned global battery manufacturing capacity is 313 gigawatt-hours per year.

An estimated battery manufacturing capacity of 6600 gigawatt-hours per year would be needed to electrify the global vehicle fleet.

That is about 21 times the current capacity.

Vehicle manufacturers are announcing plans for new and improved electric vehicle models on a seemingly daily basis. For passenger vehicles, the appeal is improved performance and lower operating costs; as prices fall, consumer demand will expand. For trucks and city buses, the appeal is lower life cycle costs and, especially for buses, cleaner air.

Nations may favor electric vehicles to reduce oil imports and protect the climate. Indeed, stabilizing the climate will require electrifying the global vehicle fleet and powering vehicles with solar and wind power.

Current and planned global battery manufacturing capacity is 313 gigawatt-hours (GWh) per year

The world's major battery manufacturers include Panasonic (OTCPK:PCRFY), LG Chem (OTCPK:LGCLF, OTC:LGCEY), and Samsung SDI (OTC:SSDIY). These and other battery makers have an existing and planned manufacturing capacity of 313 GWh per year, according to Bloomberg.

My previous article noted that Tesla (NASDAQ:TSLA) may hit the wall on battery capacity by 2022. The analysis presented here suggests that other automakers will face the same challenge as they scale their electric vehicle production.

About 6600 GWh of battery manufacturing capacity would be needed to electrify the global vehicle fleet

This analysis considers heavy commercial vehicle (HCV) trucks, medium commercial vehicle (MCV) trucks, city buses, passenger vehicles, and commercial vehicles made by auto manufacturers.

Because electric vehicles driven many hours per day achieve the greatest operating savings, fleets of trucks and buses are the strongest candidates for electrification, and thus are considered first.

Electric HCV trucks would require 900 GWh of battery manufacturing capacity

Deloitte projects that 1.8 million HCV trucks will be sold annually by 2026, while a Tesla Semi HCV with a range of 500 miles has been estimated to require a 500 kilowatt-hour (kWh) battery. Multiplying the two values yields an estimated 900 GWh of battery manufacturing capacity needed for HCV trucks. (Note that one million kWh equals one GWh.)

Electric MCV trucks would require 180 GWh of battery manufacturing capacity

Deloitte projects that 0.90 million MCV trucks will be sold annually by 2026, while Volvo plans an electric MCV with a 200 kWh battery. Multiplying the two values shows that about 180 GWh of battery manufacturing capacity would be needed for MCV trucks.

Electric city buses would require 50 GWh of battery manufacturing capacity

Bloomberg projects that 0.18 million city buses will be sold annually by 2025, while Proterra offers an average 275 kWh battery pack size for its city buses. Multiplying the two values shows that about 50 GWh of battery manufacturing capacity would be needed for city buses.

Passenger vehicles would require 3550 GWh of battery manufacturing capacity

An automaker's association estimates that 71 million passenger vehicles were sold in 2017, while the standard Tesla Model 3 will have a 50 kWh battery pack. Multiplying the two values shows that an estimated 3550 GWh of battery manufacturing capacity would be needed for passenger vehicles.

Commercial vehicles made by auto manufacturers would require 1950 GWh of battery manufacturing capacity

An automaker's association estimates that 26 million commercial vehicles were sold by automakers in 2017. This analysis assumes that on average they would have a battery capacity 50 percent larger than that for a passenger vehicle, or 75 kWh. Multiplying the two values shows that about 1950 GWh of battery manufacturing capacity would be needed for commercial vehicles.

Summing the capacity needed across the five vehicle types = 6600 GWh needed

Summing across all vehicle types shows that an estimated 6600 GWh of battery manufacturing capacity would be needed to electrify the global vehicle fleet.

Dividing 6600 by 313 (which is the current plus planned battery manufacturing capacity) shows that capacity must grow about 21 times to meet that target.

Selected Risks

Risks to the battery manufacturers mentioned above, and indeed any battery manufacturer, include:

  • The "best case" scenario for vehicle electrification hypothesized here is only one scenario among many; the actual path of change could be any level of increase or decrease.
  • Any given battery manufacturer may not retain its market share, e.g. due to increasing competition, including from government-supported firms that may not need to earn profits.
  • Continued competition among battery manufacturers could result in low levels of profit, or losses, for some or all manufacturers for an extended period.
  • Companies for which battery manufacturing is one of several lines of business may see their share price driven more by their other businesses than by their battery business.
  • The stock of any battery manufacture mentioned here, or indeed of any battery manufacturer, could decline in value, all the way to zero, as a result of one or more risks, which could include but are not limited to the risks identified above.

Disclaimer/Caution:

No investment recommendation is being made here. Do not rely on any part of this narrative, or the headline, in making any investment decision. Owning individual stocks is inherently risky. The stock of any company mentioned here may become worthless at any time, e.g., upon company bankruptcy. Or the stock price could soar, or do anything in between. Before making any investment decision, consult a financial adviser and read and understand the company's 10-K and 10-Q reports, the company's financial statements, and transcripts of the quarterly conference calls; identify and evaluate company, industry, economic, and political scenarios and risks; identify the suitability of any investment to your own circumstances; and then make your own decision. This article is a product of Driscoll Consulting LLC, whose staff consists of one amateur individual investor, with no financial training, and the headline and narrative above, and the assumptions and calculations on which they are based, are likely to have substantive errors, omissions and/or misinterpretations. In fact, Driscoll Consulting LLC is publishing this article largely in the hope that Seeking Alpha readers would identify any such errors and point them out in the comments section. Moreover, company circumstances may change at any time, and any such information will not be updated by Driscoll Consulting LLC.

This article does not express an opinion on the future or projected value of any financial instrument, and does not make research recommendations (i.e., recommendations as to whether or not to "buy," "sell," "hold," or to enter or not to enter into any other transaction involving any specific interest) or a recommendation as to an investment or other strategy. This article is derived from selected public sources. This article should not be considered as information sufficient upon which to base an investment decision. Nor does this article consider a reader's individual circumstances. You should determine on your own whether you agree with the content of this article. The author disclaims any liability arising from use of this article.

Disclosure: I am/we are long SSDIY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Driscoll Consulting LLC's sole employee is long Samsung SDI via securities traded on a foreign exchange.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.