The search for winners in the new battery era

Just as John D Rockefeller’s Standard Oil rose to dominate the 19th-century crude industry as rivals fell by the wayside, the coming battery era will have its champions and laggards.

Some of the winners will be entirely new businesses; others will be today’s large companies that adapt to dominate in new areas. 

“In a Darwinian world, if we do not change we disappear,” Carlos Tavares, head of the world’s-fourth largest carmaker Stellantis, warned last month.

Car manufacturers, mining companies and battery developers are all trying to carve out a space in the world of next-generation batteries, forming a series of alliances while placing technological bets.

“The market changes so rapidly and is so dynamic,” said Michael Finelli, president of growth initiatives at Solvay, a Belgian supplier of specialised chemicals for batteries. “A winner today could be a loser tomorrow and a loser today could be a winner tomorrow.”

Miners gain the upper hand

Whatever technology becomes dominant, batteries powering tomorrow’s electric vehicles will require vast amounts of mining and processing.

Electric car motors contain rare metals not used in combustion engines, while shortages of lithium, nickel and cobalt used in their batteries are forecast for much of the coming decade.

Miners such as BHP and commodity traders including Glencore are therefore set to be big beneficiaries of the EV revolution as bans in regions such as the EU and the US loom for new petrol and diesel vehicles, giving them the upper hand in their dealings with battery and car companies.

However, rapidly changing technology makes picking winners increasingly difficult as new developments stoke demand for different metals.

Lithium miners such as Albemarle and SQM, which have profited from sky-high prices of the mineral in recent years, argue their material is at the core of many battery types so faces a less uncertain future. But even they face the prospect of their market position diminishing if other types of battery such as sodium-ion take off.

Mined raw materials also need processing into battery-grade chemicals, an industry dominated by China. As geopolitical concerns rise over the country’s grip, the rush for alternative sources has started, with western groups including Albemarle, Pilbara Minerals and Syrah Resources racing to develop processing capabilities elsewhere.

Battery groups chase CATL’s lead 

Competition among battery producers is shaping up to be an all-Asian tussle, with China’s CATL by far the global leader.

Korean business LG Energy Solution and Chinese group BYD are scrambling to catch up, with Japan’s Panasonic and SK On and Samsung SDI of Korea also in the running.

The Chinese groups have benefited from a booming domestic EV market, where unit sales of plug-in hybrids and pure battery vehicles jumped from 1.2mn in 2019 to 6.9mn last year. While the pace of growth has moderated, nearly 4mn EVs were sold in the country in the first half of this year — almost a third of all vehicle sales. That compares with European sales of 2.6mn EVs in all of 2022 and fewer than 1mn in the US.

Still, Chinese car and battery companies face an uncertain future in the US after the introduction of the Inflation Reduction Act, which offers billions of dollars in subsidies for companies producing batteries free from Chinese components. 

LGES is betting on rapid growth in the US EV market to close the gap with CATL, whose 37 per cent global market share is roughly three times the size of its closest competitor.

Robert Lee, head of the company’s North American operations, told the Financial Times this year that the higher energy density of LGES’s nickel-rich batteries and its relationships with global carmakers would give it a long-term advantage.

“Our aspiration is clearly to be number one globally in the long run,” he said.

Japan’s Panasonic, which supplies Tesla and partners with Toyota, is in talks with Mazda and Subaru as it prepares to quadruple its US battery capacity. The company has prioritised development of a lithium-ion battery with much higher energy capacity than current devices, but is also seeking to reduce supply chain risks to stay competitive.

“We will need to ensure supply chains outside of China and we are moving in that direction,” chief executive Yuki Kusumi said in May.

The battery revolution has shifted the bargaining power in the automotive supply chain. As with mining companies, battery makers are also gaining clout over carmakers.

Tim Bush, a Seoul-based battery analyst for UBS, noted that LGES holds a 51 per cent stake in its $4.4bn joint venture with Honda to produce batteries in Ohio — a symbolic switch in seniority between a car company and its supplier that would have been unthinkable in the pre-EV era.

But the battery makers worry that in the medium to long term, the JVs could result in the transfer of their battery manufacturing knowhow to the carmakers they are supplying, shifting the power balance again.

Battery groups’ research budgets offer one glimpse into which businesses are best positioned.

CATL, Samsung and LG lead the industry’s R&D spending, with CATL outspending almost all other Chinese battery companies combined, according to Neil Beveridge at Bernstein.

“We believe this creates a sustainable advantage over peers,” he said, while also warning that “perhaps the biggest threat” to those three groups came from car groups with “even larger R&D budgets”.

Carmakers seek control of battery supply chains

Car companies traditionally manufacture only a handful of their own components, farming the majority out to suppliers. Battery vehicles, which contain a fraction of the moving parts of their forebears, change that equation.

The biggest question carmakers must tackle is how much of the battery they “own”.

Gill Pratt, chief scientist at Toyota, the world’s largest carmaker, believes batteries will be the big differentiator in a vehicle’s driving experience. “That’s where the magic and the innovation and the chemistry is,” he said.

Some carmakers have decided to invest in their own battery systems. The advantage of owning the technology is that car companies can monopolise their own developments and — crucially — guarantee their own supply.

General Motors has gone all in, developing a system that will underpin all new EV models, while building plants and even investing directly in mining groups. 

“We felt we needed to control our own destiny,” said Sham Kunjur, head of the group’s raw materials unit. “If you’d asked us three years ago or four years ago if we would be directly engaged with mining companies, we would have clearly said no, but sometimes necessity is the mother of invention — we had to change our mindset.”

Germany’s Volkswagen has formed “Power Co”, a unit that will supply some of its battery needs.

“The electric vehicle world will be defined clearly by battery costs, so it makes total sense to have certain control about that,” said Thomas Schmall, who oversees new technologies and component purchasing at the world’s second-largest carmaker. VW also believes that owning the technology will allow it to make breakthroughs that others cannot access. 

Nissan, however, offloaded its battery business AESC to China’s Envision in 2018, betting that batteries would ultimately become commoditised. 

Technology ownership carries the risk that carmakers lock themselves into a standard that is subsequently overtaken while also diverting precious spending from other areas of their business.

Privately, some senior executives say they are starting to believe investing in batteries is a mistake. There are already signs that cut-throat competition among battery makers is starting to squeeze profit margins.

“I don’t believe there will be any competitive edge on battery technology,” said one top European director, adding: “The logical thing to do for any carmaker would be to leave battery supply to a group of specialists and treat it as a commodity.” 

Even Tesla, the undisputed market leader in fully electric vehicles, has softened its stance on vertical integration, buying in batteries from CATL for its most popular models.

In the lucrative luxury segment, where discerning supercar buyers are willing to pay for incremental performance improvements, owning the battery system may well remain a differentiator. 

But even a carmaker like Ferrari, which makes every part of its V12 engines itself, will need to bring in partners for battery technology for its future electric models.

“You identify what is strategic for you and where, instead, you have to invest with the right partners” said Benedetto Vigna, the Italian group’s chief executive. The company is focused on finding “the player that has mastered the cell chemistry . . . in a unique way, so that we can make unique batteries”.

Winners, losers and ‘blood on the floor’

In the next-generation battery world, many carmakers, battery producers and materials groups are branching further up or down the supply chain.

Korean conglomerate Posco Group, one of the world’s largest steelmakers, announced plans last month to invest $47bn in battery materials by 2030 — 47 per cent of its total investments — as it attempts to construct an “integrated value chain” encompassing mineral production, transportation, processing and production.

But the unpredictable nature of the market means returns cannot be guaranteed even after hefty investments.

Five years ago lithium iron phosphate [LFP] batteries were deemed to have no future. Now they are the dominant technology in China, by far the biggest EV market.

“We may be coming to a world in which the market becomes very brutal,” says Steve LeVine, author of The Powerhouse, a book about the invention of the lithium-ion battery. “There will be a small number of winners, a lot of losers and a lot of blood on the floor.”

Additional reporting by Claire Bushey in Chicago, Edward White in Seoul and Kana Inagaki in Tokyo

This article is the second in a series on next-generation batteries