Can Lithium Batteries Be Made Competitively In The United States?

1 year ago by George Bower 31

Building Batteries In The US (above A123 Systems Employee Checks the Production Line at the Livonia, Mich Facility

Can You Build Batteries In The US? (Pictured above: An  A123 Systems Employee Checks the Production Line At The Company’s Livonia, Michigan Facility In 2015)

The US could be competitive given an 8% cost of capital

The US could be competitive given an 8% cost of capital

LG Chem lithium-ion battery cell

LG Chem lithium-ion battery cell

In a recent article we saw that Panasonic, BYD and LG Chem were the biggest players in the battery market.

Although this CEMAC study was published in summer of 2015 and focuses on 2014 data, there are still some interesting trends pointed out in their analysis: most importantly that the US can be competitive given the proper conditions.

The primary variables effecting US competitiveness are presented along with some other interesting data relative to the percentage of total demand for automotive versus consumer electronics and unused manufacturing capacity.

First, Asian companies dominated the Lithium battery market.

Asian companies dominate the Lithium battery market

Asian companies dominate the Lithium battery market

Second, consumer electronics consume the majority of lithium battery manufacturing with some 69% of the market going to consumer electronics and 31% going to automotive and grid storage in 2015. Growth forecasts to 2020 predict the auto and storage market expanding to 40% in 2020.

Consumer electronics consumed the majority of Lithium battery production

Consumer electronics consumed the majority of Lithium battery production

The 2014 data shows huge overcapacity in almost all regions. For example, the US only utilized 20% of its manufacturing capacity in 2014.

Huge overcapacity of manufacturing in 2014

Huge overcapacity of manufacturing in 2014

Even with conservative growth forecasts, this excess capacity will be easily used up by 2018

Overcapacity to be soon used up

Overcapacity to be soon used up

Excluding the cost of capital, material costs are the biggest driver of battery cost.

Material costs are the biggest driver of battery cost

Excluding the cost of capital, material costs are the biggest driver of battery cost

The US could be competitive in the Lithium battery market given low materials cost and an approximate 8% cost of capital.

The US could be competitive given an 8% cost of capital

The US could be competitive given an 8% cost of capital

Tesla’s current cost of capital is approximately 9%

lithium batteries gb slide 7Cathode material cost, yield, and the cost of capital are the primary variables affecting the Lithium battery costs.

lithium batteries gb slide 8We would say this study indicates Tesla has a pretty decent chance of making a success of the giga factory if they can keep materials cost and the cost of money down to reason.

References:

1) Automotive Lithium Battery Supply Chain and US Competitiveness Considerations
2)GuroFocus

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31 responses to "Can Lithium Batteries Be Made Competitively In The United States?"

  1. Anon says:

    Tax Carbon used to ship imported items like Chinese Batteries, solar panels, rare earth minerals, etc.

    Problem fixes itself…

    US instantly becomes competitive again.

    #TaxCarbon

    1. SparkEV says:

      That will increase prices for consumers. Technically, that will make US competitive in US by killing demand. That’s not good.

    2. pvwowk says:

      Sounds great, but the carbon cost for shipping is minuscule compared to the cost of the product.

      My understanding is the highest cost for shipping is on a truck from the shipping terminal.

      Lets use the amount above for the cathode material. $24/kg. Lets say a truck can transport 20000 kgs (around 45000 lbs).

      That means one truck will be able to move $480,000 worth of product. The going rate for trucks is around $1.50/mile. That means, if they have to transport the product 2000 miles, it’ll cost $3000. Lets say you double the cost of fuel (current carbon tax schemes do not double the cost of fuel). That will probably make it $2/mile (around 30% of their cost is fuel). That would add $1000 to the shipment. For product that’s worth $480,000, an extra $1000 is nearly a “who cares” cost.

    3. jerryd says:

      Sorry Anon but that has nothing to do with it. It is a good idea, carbon/pollution tax, but unlikely to increase shipping much.
      Battery costs are far lower than stated as are materials.
      They are made without a human touch by robots.
      Since there is little labor costs, making batteries in the US cost no more than in China.
      In fact our material prices are lower than China’s.
      Not sure where they got their prices from but materials are around $60/kwhr and of course LG is $145/kwhr and Tesla about $125/kwhr now.
      Lithium carbonate is the most expensive at $8/lb but only .5lb/kwhr is needed. Most of the rest is alum, copper, plastic, carbon all under $4/lb and only 15lbs.kwhr now.

      1. wavelet says:

        Without a human touch??
        I’ve read report of actual visits to Chinese battery factories. A lot of human labor is involved in soldering, welding, various types of QA etc.

        1. jerryd says:

          Not in American, Japanese and likely Korean battery factories wavelet.
          And what you are talking about is making them into packs as the cells have to be made by robots in a non O2 atmosphere completely clean, no humans allowed.
          Only after the cells are spit out is there a chance of human touch.
          But big companies have robots that do that too.

      2. HeisenberghtNUTS says:

        Thanks for the numbers. Since I’ve gone nuts I stopped adding value to the discussion. It’s nice that you still do. Without numbers discussion would be obsolete. People would just post useless stuff like much, high, low, huge, tiny etc…

        Do you have numbers on the degree of automation in cell manufacturing? To my best knowledge soldering and welding are typically for easy to automate tasks. I wonder if this is already done with cell manufacturing.. Nay they say! All your base!

  2. pjwood1 says:

    I think investors, such as Tesla’s, actually accept company growth as part of the return. Share price appreciation isn’t something that necessarily “costs” Tesla anything, anyway. I am going to guess that is part of the “8% after-tax cost of capital”. Sometimes called “equity premium”.

  3. kdawg says:

    What about the shipping costs?

    1. Ziv says:

      Figure f6 has it in the mix of costs. Small but not one to be ignored since it helps “on shoring” business.

      1. kdawg says:

        Ah, I see it now. Seems like a small sliver. There’s a lot of logistics costs with shipping, I’m surprised it’s not more.

        1. Ziv says:

          It is a small percentage of the total cost, as you note. Those new Pana-Max freighters may pollute in a huge way but the price of shipping a ton from Asia to North America must be relatively low. But I have to admit that I have know idea of what the actual unit cost to ship and 18 kWh pack or a 60 kWh pack from China or Korea to the US is. Like most things, I imagine the answer is, “It depends.”

          1. Pushmi-Pullyu says:

            Bulk shipping via water (ocean or river) has always been cheap, even in the age of sail.

            As someone already indicated upstream, the per-mile shipping cost is far higher for shipping overland from the port to the factory. Obviously there’s an advantage to putting your factory in, or very near, a port city.

  4. Jake Brake says:

    Considering the level of automation involved in manufacturing the production cost should be very similar between regions assuming the same equipment cost. There is probably a case for manufacturing big heavy products like batteries next to your customers instead of shipping them around the world. It would be smart to product batteries in Michigan for the Big 3, Poland for the EU companies, China for Chinese companies, etc… Utah to China/EU doesn’t make the most sense. Boats have a tough time docking in salt lake.

    1. HeisenberghtNUTS says:

      Michigan? No mames! The slide says Mexico 😉

      While I doubt that culture will allow for Tesla style work it would be nice to see gigafactory 4 in Mexico.

      Viva Mexico cabrones! Los pinche ricos no saben madre DE LA vida maravilloso!

      Nay they say! One apple a day!

    2. SJC says:

      24M has a battery that reduces costs, they made a machine to produce the batteries that is lower cost as well.

    3. Pushmi-Pullyu says:

      Jake Brake said:

      “Considering the level of automation involved in manufacturing the production cost should be very similar between regions assuming the same equipment cost.”

      You’re ignoring:

      1. Cost of labor

      2. Environmental regulations restricting manufacturing techniques

      3. Red-tape restrictions, fees, and tariffs

      All three factors may create significant differences between regions, affecting the cost of production. For example, lower labor costs and fewer environmental restrictions were important factors in Tesla’s decision to locate the Gigafactory in Nevada, rather than close to its auto assembly plant in California.

  5. Jeff N says:

    Interesting article. Battery assembly seems to be highly automated so labor cost differences shouldn’t matter too much. Lots of part production is local to the final assembly plant because that allows tight as-you-go production planning and scheduling.

    1. SJC says:

      EnerDel bought by Russians, A123 bought by the Chinese, it seems like America can not stay the course, if there is not a quick massive profit investors leave.

  6. wavelet says:

    The most interesting thing here is that the overall difference between regions (incl. shipping to US market) is already at most 10%… That means things are becoming pretty much commoditized, and that any change in 1-2 factors could change the “best location” analysis.

  7. Alex says:

    I will boycott the Bolt, built in China, screwed together in Michigan.

    1. Jeff N says:

      You do realize that South Korea and China are different countries, right? Would you feel differently if those parts were coming from Germany?

    2. ModernMarvelFan says:

      “I will boycott the Bolt, built in China, screwed together in Michigan.”

      Can you please tell me which part of the Bolt is built in China?

      A reference would be nice as well.

      1. Jychevyvolt says:

        There’s got to a part that was made in China. Transistor, capacitor, diode, bolt, screw?

      2. ffbj says:

        I thought it mostly would be made in the U.S. Maybe he means the battery by LG Chem. Personally I don’t care where it is made if it is a decent car.

        1. Jychevyvolt says:

          Maybe a loose bolt?

          1. Pushmi-Pullyu says:

            More like a few loose screws and nuts, given the “made in China” claim. 😉

            http://tinyurl.com/helob5h

    3. HeisenberghtNUTS says:

      Screwed up in Michigan you mean?

      Boycott your fun!

      Nay that say! Out of the way!

    4. Mirco says:

      Most parts of GMs Bolt will be built in the US and South Korea. You can’t boycott something nowadays, because most products are made in China and elsewhere. It’s called globalization.

    5. Alex says:

      Duties and transportation costs will show that Bolt will be not competitive to Model 3, and Hyundai also not will be competitive with a 28 kWh battery. The right way all big automakers do today, produce in local factories all above the world. But faceless CEO like Barra does not have any courage like Musk or Ghosn.

  8. M Hovis says:

    Nice report George. Very informative as we have come to expect from your post!