Corporate Investment In Battery Tech Has Exploded

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By Alex Kimani

At a time when the Covid-19 pandemic continues to decimate the global transport sector, the EV trajectory has remained incredibly bullish. S&P Global has reported that global EV sales expanded an eye-popping 43% in 2020 to reach 3.24 million units. In sharp contrast, global light vehicle sales are estimated to have tanked 20% last year, with sales in the United States declining 14.7% to 14.5M units, the lowest level since 2012.

Yet, despite the robust growth, only 4.2 of 100 new vehicles sold last year worldwide were of the electric type.

Whereas many buyers cite sustainability and environmental concerns as some of the most compelling reasons for switching to an electric vehicle, high initial costs of EVs still act as a leading deterrent.

EVs’ higher sticker price can primarily be blamed on expensive batteries, bearing in mind that powertrain costs make up ~70% of an EV’s initial costs.

But the good news for EV bulls is that not only have battery costs continued to fall quite dramatically, but there’s also a lot more money flowing into the sector, which could further accelerate the pace of innovation.

According to a recent report by global communications, research, and consulting firm focusing on cleantech, Mercom Capital Group, corporate funding and M&A’s for the battery storage, smart grid, and energy efficiency sectors more than doubled in 2020 to $8.1 billion compared to $3.8 billion in the previous year.

Venture capital activity was markedly lower, though, with global funding for battery storage, smart grid, and efficiency companies coming in 12% higher with $2.6 billion, compared to 2019 levels.

Battery storage and recycling

Battery storage gobbled up the lion’s share of investments, with corporate funding into the sector climbing 136% to $6.6 billion with 54 deals consummated. As expected, lithium-ion batteries continued to attract the most dollars, with a $600 million equity raise by Swedish lithium-ion battery maker Northvolt being the key highlight. However, the report also noted that other storage technologies, including solid-state batteries, energy storage systems, energy storage downstream, and flow batteries have been recording strong interest, too.

Encouragingly, investor interest in the space has clearly been on the rise, with 105 VC investors participating in battery storage deals last year compared to 78 deals in 2019. Breakthrough Energy Ventures was the top investor in 2020, while utilities and oil and gas companies were involved in four battery storage deals.

Interestingly, large battery companies such as Northvolt are now turning their attention to an often-neglected space: Battery recycling.

A recent IHS Markit Report has noted that a large number of EV batteries are approaching their end-of-life stage, thus presenting a huge opportunity for recycling. IHS has projected that over 500,000 tons (57 GWh) of batteries reached their end-of-life point in 2020 with 1.2 million tons (121 GWh) and 3.5 million tons (350 GWh) expected to do so in 2025 and 2030, respectively, thus creating a sizeable repository of recyclable material.

Falling battery costs

As we have pointed above, these growing investments in battery storage are likely to accelerate the pace of innovation and lead to further decreases in battery costs.

Last December, Bloomberg NEF, a clean energy research that has been, among other things, tracking battery costs, announced that battery costs had dipped below the $100 per kWh threshold for the first time ever.

The crucial milestone was achieved for battery packs designed for electric buses in China.

In the EV industry, the $100 per kWh battery cost price point is generally regarded as being critical for the wider adoption of electric vehicles by making them cost-competitive at the sticker price, which remains an important psychological barrier for many buyers.

Whereas that historic feat wasn’t for passenger electric cars, the segment is not too far behind.

BNEF estimates that the average battery cost in 2020 clocked in at $137/kWh and will drop to $100/kWh by 2023.

That’s a phenomenal decline considering that lithium-ion battery pack prices were above $1,100 per kilowatt-hour in 2010, meaning they will have dropped more than 90% by 2023.

Another notable trend: Many electric buses in China use cobalt-free lithium iron phosphate (LFP) battery chemistries, which boast lower costs and higher range.

Last year, Tesla Inc. (NASDAQ:TSLA) introduced LFP batteries in its standard range Model 3s in China and dropped the starting price from 309,900 yuan ($48,080) to 249,900 yuan ($38,773).

CEO Elon Musk has revealed that the improving energy density of LFP batteries now makes it possible to use the cheaper, cobalt-free batteries in its lower-end vehicles so as to free up more battery supply of lithium-ion chemistry cells for Tesla’s other models.

For years, China has dominated the lithium-ion battery space thanks to an abundance of cheap labor, more lithium reserves, and greater lithium production than most countries. For instance, in 2018, Chinese lithium production clocked in at 7,500 metric tons, more than 8x U.S. lithium production.

However, some of the deals announced in 2020 point to a buildout of a robust battery industry outside the Middle Kingdom.

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