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Electric Drive - Still Crazy After Five More Years

Mar. 26, 2012 6:00 AM ETAONEQ, TSLA, TM, GM, NSANY, BLDP, ALTO, VWDRY, FSLR343 Comments
John Petersen profile picture
John Petersen

The sunshine, lollipops and rainbows electric car press was at it again in mid-March. This time they were gushing over a $3,800 report from Pike Research predicting that automotive johlithium-ion battery prices will fall by more than one-third by 2017. According to Pike, the market for Li-ion batteries for transportation will grow from $2.0 billion annually in 2011 to more than $14.6 billion for 28 million kWh of batteries by 2017. For those without a calculator handy, the figures work out to a future industry average price of $520 per kWh in 2017 versus a current industry average price of $780 per kWh.

At the outset it's probably worth observing that the Pike forecast of 28 million kWh of annual battery sales by 2017 is a good deal more aggressive than last summer's forecast from Lux Research that estimated 2017 lithium-ion battery demand at 12 million kWh in their $200 oil price scenario, 3 million kWh in their $140 oil price scenario and under 2 million kWh in their $70 oil price scenario.

3.25.12 Lux Graph.png

Where Lux is forecasting a massive glut of lithium-ion battery manufacturing capacity for at least a decade, Pike apparently believes the capacity glut will only punish manufacturers for five years. Neither scenario strikes me as particularly attractive for investors in battery manufacturers like A123 Systems (AONE) which is struggling to find customers for 645,800 kWh of government financed battery manufacturing capacity and suffered $45 million in unabsorbed manufacturing costs last year.

Regardless of whether you prefer the Pike or the Lux forecast, electric drive will remain hopelessly uneconomic because small batteries are beautiful when it comes to transportation economics but large batteries are aggressively ugly.

To prove the point again, I'm going to assume that Pike's numbers are correct. I'm also going to assume an annual average fuel consumption

This article was written by

John Petersen profile picture
I'm a lawyer and accountant who's devoted the last four decades to advising entrepreneurs on corporate finance, SEC registration and reporting, and corporate governance matters. All of my client projects have involved high levels of uncertainty, compressed timelines, and urgent financial needs that demanded unparalleled responsiveness. I know how to get major projects completed on time and within budget. I'm a 1979 graduate of the Notre Dame Law School and a 1976 graduate of the W.P. Carey School of Business at Arizona State University. I was admitted to the State Bar of Texas in 1980 and subsequently licensed to practice as a CPA in 1981. While I don't hold myself out as a practicing accountant, I regularly use my in-depth knowledge of accounting methods, processes, and procedures to offer nuts and bolts counsel to clients who need integrated advice on finance-driven legal matters.As general counsel for the C Change Group, I'm involved in all of that company's domestic and international initiatives.

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