Are Automotive Battery Manufacturers Facing Overcapacity?

The share of electrified powertrains is expected to increase significantly in all major automotive markets as a result of marked decreases in the cost of batteries over the next decade. Yet the desire to capitalise on this growing market may lead to problems in the years ahead: According to Roland Berger Strategy Consultants, planned investments in battery production will result in significant overcapacity occurring between 2014 and 2017, especially in the US and in Japan. As a consequence, experts at the strategy consultancy believe only six to eight global battery manufacturers will survive the next five to seven years. This is the conclusion the company drew from its “Powertrain 2020 – Li-ion batteries – The next bubble ahead?" market survey.

“Manufacturers of lithium-ion (Li-ion) batteries currently enjoy a great amount of hype, but massive consolidation is expected to come in the next five to seven years,” said Wolfgang Bernhart, partner with Roland Berger Strategy Consultants. An aggressive scenario put forward by Roland Berger is that plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV) will account for no more than 1.2 million vehicles in key regions by 2015. Li-ion battery demand from these HEV/PHEV and EV will account for 0.82 million “EV equivalents”, whereas installed battery capacities in 2015 will amount to more than 2.6 million EV equivalents. While demand for Li-ion batteries will continue to rise until 2020, demand for three million EV equivalents won’t be reached until 2018 at the earliest, Roland Berger believes.

As a result of this development, Roland Berger says planned investments will result in significant overcapacity between 2014 and 2017. Given the announced investments, capacity in 2015 will reach 200 per cent of the demand projected for 2016. In addition, not all planned investments have been announced; as-yet unknown investments by key players may lead to further overcapacity, and national subsidies could stimulate even more investments.

Furthermore, notes Roland Berger, high levels of R&D and CAPEX will be required in order to rapidly drive down costs: between 50 and 100 million euros for new cell chemistry and 350 million euros for a 100,000 unit plant. “Therefore, only six to eight global battery manufacturers will survive in the next five to seven years,” stated Bernhart. “The critical size will be approximately 600 million euros in revenues in 2015.” To prepare for this anticipated scenario, Roland Berger recommends Western governments “act now in order to avoid losing future technologies to Asia”. The consultancy adds that battery suppliers also need a well-defined strategy to gain market share fast in order to survive, and investors should be aware of potential massive investment risks. “Unfavourable factors are piling up. But managed correctly, electrified powertrains will still be a profitable market in the future,” Bernhart concluded.