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Commercialization of Lithium-ion Batteries: New Business Opportunities?

 

Given the growing recent interest in Lithium-ion batteries for different applications, both within the electric car industry as well as outside of it, many new products and services are beginning to appear at the advent of a promising market.  Nevertheless, there is still some confusion as to the real potential for commercialization of this emerging energy storage technology.  

In a recent interview  given to Business Week, Dr. Menahem Anderman, Founder and President of Total Battery, a consulting firm specialized in opening business opportunities in the advanced battery sector, for example, wrongly argues that since Lithium-ion battery technology is still in its infancy, the danger of using it may be not be negligible: "A significant risk is that one cell failure will take other cells with it and then [the trouble] could spread".  As is well known, the safety issue of Li-ion batteries was linked to use of Cobalt in their chemical composition. With the introduction of at least two other types of Li-ion batteries (based on Manganese and Iron Phosphate) into the market, most carmakers  now agree that the problem has been solved.  See, for instance, the recent interview given to CNN by Mr. Wan Chuanfu, Founder and President of Build your Dreams (NYSE:BYD), a Chinese company that is revolutionizing the electric car market.     

Moreover, the above mentioned consulting firm does not seem to have a specific knowledge about the main trends of the industry in terms of what is actually happening in the automobile industry.  It is not familiar, for example, with recent events such as the recent decision by a number of carmakers (i.e. GM, Nissan, Toyota, etc.) to start using Li-ion (instead of NiMH) batteries in hybrid electric vehicles (both conventional and plug-in) which may pave the way for the inauguration of the Lithium Era in the world (See my recent Seeking Alpha article). 

Also, it is not clear about the factors that determine whether Li-ion batteries will be adopted by the global automobile industry in its transition to electric propulsion.  In fact, in a recent Bloomberg story, Mr. Anderman contends:  “I would suggest that the EV market in the U.S. will basically be the California regulatory requirement, plus perhaps 20,000 units.” He then goes on to argue that: “As long as the gasoline price is under $5 a gallon, there’s no real market for EVs.”  This view, of course, ignores other factors that may have something to do with the formation of the market of  both range extended as well as battery electric vehicles,  such as: (i) not only the level of the oil prices but also its volatility; (ii) technological development of such energy storage systems; and (iii) resistance to change, mostly focused in terms of a transition from an energy market dominated by multinational oil companies to a market ruled by state-owned national companies (See my  presentation at the Inaugural Lithium Supply & Markets Conference held in January 2009 in Santiago Chile).

Interestingly enough, I couldn`t find in the firm´s websites any specific business approach to new ventures particularly in the Li-ion battery industry. This shouldn´t be surprising given Dr. Anderman´s rather skeptical view of the EV market. To the extent that, the Li-ion battery is about half the electric car, both in terms of importance and cost, in a way chances are that if a firm has the battery technology, it will also be able to build an electric car. This is in fact the kind of approach followed by BYD and other Chinese car companies. With slight variations, GM  and Mitsubishi may be following a similar approach. Remember also that GM has particulary promised a 10-year guaranteee for its Volt car battery.  Under these circumstances, it is highly unlikely that these batteries may be freely commercialized in the market.  They will be probably sold by those carmakers themselves. Certainly, one could always invest in these companies, but I feel that is not the kind of venture all new entrepreneurs might be looking for. In this context,  there appears a need for identifying some other interesting business opportunities in the Li-ion battery and/or electric vehicle markets.   

In terms of  other business opportunities that imply leasing (instead of selling) the batteries, which is essentially Better Place`s (and Nissan-Renault`s) approach, I can only say that this may be highly dependent on technological development of the batteries.  If, for instance,  technological development comes around fast, then it would not make any sense to invest in any costly battery replacement infrastructure, such as the one proposed by both Shai Agassi and the Japanese-French Consortium. I have been following closely this issue and I tend to believe that this may be a short-lived business opportunity.  But  this is only a preliminary impression, one that needs further scrutiny.  

Lastly, there might be as well other business opportunites outside (but connected to) the Li-ion battery and/or electric car market that may also look promising but they still require further analysis. 

Disclosure: No positions.