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Warranty Implications For BEV And Start-Stop Vehicles

This blog describes the financial pros and cons of the different battery packs offered by various EV manufacturers and start stop vehicles and how this could play out in the future for the companies. This is not intended to be a discussion about how many cars Nissan, Ford, Tesla, BMW, or any other manufacturer sells per year or a reflection on the company. This is to highlight the implications of the battery warranties for their 2012 start stop cars and BEVs going forward on the future value of their stock.

Here are the facts concerning the battery packs:

Nissan

Lithium manganese oxide, (air cooled)

8 years/100,000 miles (70% of charge)

Ford

Lithium polymer (liquid cooled)

8 year/100,000 miles (not 5 year/60,000 miles)

http://insideevs.com/ford-confirms-8-year100k-mile-warranty/

http://green.autoblog.com/2010/09/02/2012-ford-focus-electric-to-use-liquid-cooled-lithium-polymer-ba/

Tesla

Lithium-nickel-cobalt-aluminum oxide (liquid cooled)

40 kw hr- warranty for 8 year or 100,000 miles

60 kw-hr- warranty for 8 year or 125,000 miles

85 kw-hr- warranty for 8 years and unlimited miles

Currently Tesla and Ford have been sparse providing what the warranty covers, but it can be assumed that they will not deviate drastically from the Volt or Leaf battery warranty which states 70-80% of the charge remaining based on charging conditions after a set number of years.

Start-Stop

Currently start-stop/micro-hybrids vehicles use AGM type batteries

Huge market- 2012 projected sales are approximately 7 million

https://seekingalpha.com/article/297511-micro-hybrids-the-fuel-efficiency-innovation-of-the-decade

Typical AGM warranties are 3 years, but can extend to 10 years pro-rated.

Currently with start-stop systems per CAP-XX estimated start-stop kicks on 100 times per day and the battery only system failed at 44,000 cycles

My own experimental start-stop is about 20 times/day.

The lead-carbon may cycle 2-3 times longer than traditional lead batteries

Lithium Titanate batteries can last over 100,000 cycles depending on the DoD

The life of the battery can be extended using capacitors and Peugeot is currently using the capacitor configuration to extend the battery life in its start-stop.

Battery suppliers and battery chemistry

Nissan is involved with NEC and has a manufacturing site making the batteries. In terms of the chemistry itself, Lithium Manganese Oxide is stable and durable and can withstand about 1000 deep cycles. It is known for its durability, but the cooling mechanism is questionable- prolonged heat can destroy the battery.

LG is the primary provider of the Ford batteries. The lithium polymer batteries do have a higher rate of degradation compared to other lithium chemistries which could play a role in their warranty. From my research, the batteries drop to 80% of initial capacity between 500-1000 cycles

Panasonic supplies the base Tesla batteries and the packs are assembled at the Tesla plant. It can also be found from the Panasonic specification sheets that these batteries lose about 1% per month for the first 5 months and lose about 0.15% per month thereafter (looks very linear). The specification sheets also show that the battery can withstand 500-1000 deep cycles without any significant lose. The saving grace is that Tesla is not even remotely using deep cycles and advises its owners against using the bottom 10% of the battery or using the top 10%.

Currently the AGM batteries are used in microhybrids. There are many manufactures of these batteries. There are other solutions for the start-stop batteries which may be different lead chemistries, lithium chemistries, and ultra capacitors. The other batteries chemistries may be used in the future, but depends on cost, and warranty.

What does that mean to an investor?

The answer is it depends on how they handle quite a number of things.

1. In the case of Tesla do they "run out the clock" for the initial battery degradation or account for it during the design and building of the car?

If this is the case, when the consumer gets it, the 85 kwhr is already given to the user after the initial degradation so any more degradation will not be noticeable. Losing a mile every few months is not noticeable and most users will chalk it up to driving habits, tire pressure, one hot day, rounding, etc.

I would assume that the "running the clock" strategy would be the case, since they are not going to give a car to someone and months later have a call from angry customers saying they lost 5% of their battery capacity. That would look bad from a PR perspective and the stock price may decrease.

Impact- Low.

The batteries are not going to be immediately installed, and shipment from Japan is going to take about a month, then the car has to be manufactured. By the time someone gets the car it will be at least 3-4 months minimum from when the pack was produced.

2. What specifically is the battery warranty level 90%, 80%, 70% for Nissan, Ford and Tesla Model S?

For Nissan, in my judgment, they made a critical error in air cooling the battery. The warranty of the battery is 8 years/100 K miles and 70% charge. Currently it is one year and some batteries are already down to 80%.

For the Ford, 8 years, 100,000 miles cuts it very close to the degradation rate if they use 80%. Lithium polymer batteries are one of the worst in terms of degradation, cycling, and overcharging. Given the system is liquid cooled, but the number of charging cycles for the average driver is going to be around 1,500. As an investor I would not be comfortable knowing a certain technology has a scientifically tested life of 500-1000 cycles and has a warranty for at least 1,500 cycles

For the Tesla, if it is 80% and it's before the initial degradation, in 8 years , it cuts it close to 80%, I would feel more comfortable at that level with a 70% warranty. If the warranty is 80% left after initial degradation, they would have 85% of the battery left that the consumer sees, which would leave a suitable margin.

In my opinion, 5-10% window is a good range between actual degradation and warranty.

Impact

Nissan- Severe, currently there are cases where the battery is already at 80% capacity in under a year.

For Ford, the impact is high given that in all likelihood if they choose the 80% mark they may be replacing the batteries. If they choose 70% to keep with the Leaf, they may also get into trouble since real world conditions may not be close to the theoretical degradation conditions.

For Tesla, the impact is low, given the track record of most Roadster owners, besides the isolated "bricking" incidents- which could be chalked up to misunderstandings by a few customers. The Roadster has had the "as expected loss" in capacity or lower than expected loss, which means they set limits very conservatively. They NEED to set the limit correctly for the Model S, if not they will have many battery packs to replace. If they set it as 80% or 75% they should be fine. Also it should be noted that most, if not all Roadster owners did not see the significant decrease in range after the first few months which would denote that they are "running" the clock when it comes to battery degradation.

3. What specifically would be the warranty for the start-stop batteries and will vehicle regulators push the warranty into "emissions"?

Everyone can agree that start-stop vehicles get better mpg than a regular car. We can also agree that start-stop decreases the life of the battery compared to a non-start-stop vehicle batteries.

Typically the AGM warranties are for 3 years or they could be prorated afterwards, the commercial warranty is significantly less.

The concern is as follows as per the EPA:

"Under the final rulemaking issued by the EPA in May for new national vehicle emission standards, (starting with the 2012 model year), "emission-related components on advanced technology vehicles," including batteries in hybrid electric vehicles, will be required to carry only an 8-year, 80,000-mile defect warranty."

Currently both Axion and A123 have batteries that can last "5 years without breaking a sweat", but data is needed to determine the degradation for at least 10 years.

https://seekingalpha.com/article/665821-micro-hybrids-and-the-multi-billion-dollar-battery-battle?v=1340619013&source=tracking_notify

Impact- Very severe. If it is lumped in with emissions, there are government mandates that require emissions testing. If the start-stop vehicle is outputting more CO2 than expected, the person will have to get the car repaired or battery replaced. This would be good for Axion and A123 since the AGM and capacitor combination may not be enough for the 8 year warranty, but the other chemistries may provide the needed start-stop durability.

4. New battery chemistries

Given the shape of the Nissan battery it can be easily removed if needed and replaced. The main issue is that a manufacturing site has been set up to make those batteries. Switching chemistries may prove difficult if cheaper batteries come along that require cooling or if manganese becomes scarce.

In the case of Ford, they have a "box" located in the trunk. It is not a matter of chemistry that becomes a factor, but finding a facility to make that exact shape since it is unique. It is liquid cooled, but they still need to have the batteries placed in the "box"

The Tesla Model S uses "off-the-shelf" batteries, unlike other manufacturers and assemble their own pack, so they can adapt more quickly to new or cheaper battery chemistries if needed. The battery, if under warranty may not be replaced with the same battery chemistry you originally had, but the vast majority of consumers will not care. That could be a huge cost savings if the price of some metals skyrocket.

Start-stop chemistries are improving, such as lead carbon, different lithium chemistries, but in order to be monetarily safe from a warranty perspective, the battery must last 50,000 cycles in temperature extremes. This is the same issue that happened to the Nissan battery.

Impact

Nissan- High, cannot substitute cheaper chemistries if cooling needed

Ford- Medium, can substitute chemistries, but may require a retrofit to allow for a different battery shape.

Tesla- Low, a change in battery chemistry to cheaper materials would be in Tesla's favor.

Start-stop- medium, there are very few chemistries than can achieve the desired cycles. If the battery is blended with capacitors this extends the life.

5. Mark-up for the batteries

Nissan obtains its batteries from subsidiary of NEC and Ford from LG. Both battery manufacturers have a mark up and the auto manufacturers also have a specified mark up. If the manufacturers charge more, and the battery is still under warranty, that's more money that Nissan or Ford would have to pay to their suppliers. Ford also has a secondary supplier in Samsung so they are in better shape than Nissan.

Tesla has a unique situation in that they use "off the shelf" batteries, if needed, they could go to another supplier to supply their cells for their packs.

With start-stop there are many lead battery manufacturers. The mark-up for these batteries is going to be low simply because of a competitive market and a "regular" battery may suffice if the battery is not required for emissions inspection. The main issue is that people may just drive when the battery no longer functions as expected unless legally compelled. The other issue is that even if people are legally compelled, they may swap batteries for the purpose to perform the emissions test since it is easy to remove from car to car.

Impact

Nissan and Ford have left themselves open for price gouging by their suppliers, Nissan more than Ford. Tesla has not. There is a lot of competition with start-stop batteries so there is price pressure.

6. Decrease in battery costs

The ONLY way this comes into play is if the warranty was knowingly wrong and they set aside a certain amount of money to replace the batteries. Most companies would just cut-back the warranty to less time/mileage. I could see start-stop soaking up the costs for 1 replacement if needed

7. Market for "used" batteries

There would be a minimal market for used Ford Fusion EV or Leaf batteries that do not have a capacity for a daily drive. There are other uses, such as providing back-up power to solar cells or the grid, but the expected price for these batteries will be at a substantial discount compared to an automotive battery. A random search yield that the back-up batteries for solar grid systems are going for around $160/kwhr, which means that Nissan and Ford should not sell them for more than that price.

http://www.wholesalesolar.com/products.folder/battery-folder/Surretterolls.html

This is a double edged sword for Ford and Nissan. On one hand, if the battery is under warranty and they need to replace it, they will not be able to recover a significant amount of money by selling the "used" battery. At the same time, if out of warranty, when the range is unacceptable, a person would have to purchase a battery pack from either Nissan or Ford at a significant cost or scrap the car.

Using the Panasonic data, an 8 year old 85 kwhr battery will have more charge than a "new" 60 kwhr battery. What does this mean to Tesla? This also has benefits for the company and drawbacks.

If they need to replace a battery under warranty, the "old" battery could possibly sold as a certified "60 kwhr" or "40 kwhr" rebuilt replacement or sold to battery swapping stations, or sold to a power grid.

This also means the market for the "replacement" packs for either the 60-kwhr or the 40 kwhr is very limited to people who cannot find or purchase a "used" pack when the owner of an 85-kwhr pack upgrades their battery pack. It should be noted that for their Model X, the 40 kwhr pack is not an option so it would appear that they are already phasing out the lower kwhr battery packs. This means an avenue of revenue is gone for replacement parts.

In a typical lead battery there is about $48 worth of lead on the open market, less if sold to a scrap yard, at current prices of $1/lb. With the start-stop batteries the most viable option would be to "force" people to purchase the batteries when they no longer provide the benefit. Most people would rather spend $5-$10 more per week than put out an extra $400. The only way to do that is to tie it in with failed emissions. This is a double edged sword, if that is done, than the batteries MUST have a warranty as part of the emission system.

Replacement batteries

In terms of warranty replacements and costing money if and when the batteries need to be replaced, Ford has the medium monetary risk when it comes to the replacement of the batteries since lithium polymer batteries are not meant to go through the amount of charge/discharge cycles, they have a limited supplier, a unique shape and have a very limited market to sell used batteries.

Nissan has a high monetary risk when it comes to battery replacement because they limited their chemistry, under engineered the cooling , have a single supplier, and have a limited market to sell used batteries.

Tesla has the lowest risk, depending on how they set the warranty threshold. They do have an advantage in that they could switch chemistries if needed, and there is expected to be a larger market for Tesla's used battery than the other two automakers.

In terms of start-stop batteries it depends on the regulatory enforcement. Currently, it is doubtful that an AGM battery can sustain the specifications needed for years required if is tied to the EPA emissions warranty. The saving grace is the cost and ease of replacement. Other chemistries offer alternatives and workarounds, but they have to be less than the initial cost plus the replacement cost and an AGM battery. This also has drawback; the fact that batteries are one of the easiest parts to replace, it may not be uncommon for people to "replace" batteries prior to emission tests and return the tested battery, hence limited replacements. How many people would do this? I don't know, but most people if given the change would swap out and save themselves $400-800 for few minutes of work.

This is my opinion for the companies

Company

Bullish/bearish

Reason

Panasonic/LG/Samsung/NEC

Neutral

Batteries only one part, cannot make a judgment based on batteries

Nissan

Bearish

One year in and already have some at 80% batteries. Huge financial liability of they have to replace a number for packs

Ford

Neutral

Depends on how they write the warranty, not the most robust chemistry.

Tesla

Moderately Bullish

Shown track record with warranty, need to see the Model S/X warranty

Maxwell technologies

Bullish

Capacitors used to extend the life of batteries in start-stops, regardless of battery chemistry. 7 million vehicles @ $50/capacitor stack is a lot of money

A123

Bearish

Why pay $800 for a battery when I can get an Exide for $200 and a capacitor stack for $50?

If Maxwell releases a capacitor to replace a start-stop battery, stock price will collapse

If they lump the battery warranty in the emissions this may justify the case for purchasing this over the AGM, but I would go with lead-carbon instead because it is cheaper.

Exide

Neutral

Couple the "cheap" AGM batteries with capacitors as long as they don't force the EPA emissions warranty for batteries

Altair nanotechnologies

Neutral/slightly bullish

Make lithium titanate batteries which hold promise for start-stop vehicles. If they capture about 2% of the current start-stop market, they triple their gross income

Axion

Slightly Bearish

Why pay $400 for a battery when I can get a regular one for $200 and $50 for a capacitor stack?

If Maxwell releases a capacitor to replace a start-stop battery, stock price will collapse

If they lump the battery warranty in the emissions this may justify the case for purchasing this over the AGM. Have to replace the AGM twice to justify a $400 cost.

Zenn

Gamble

Big gamble- They have a significant interest with EEstor. If EEstor starts turning out ultra capacitors as the claim, Zenn will skyrocket and would completely destroy the price of all battery makers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.