Electric vehicles

31May 2016

Every so often, I hear at a dinner gathering the question: “Is there enough lithium?” I have already covered this question in a previous post. The answer is YES. However, an abundance of a resource in the earth’s crust does not mean that its economics will always be favorable. These depend on several factors, in particular the balance or lack thereof between supply and demand.

We know demand is rising. Batteries in consumer devices, electric vehicles, energy storage….But what about the supply? how is lithium mined? where is it mined? which countries or corporations control this supply chain? …etc. Let’s explore.

Let’s start with some basics. Lithium is a metal. With an atomic number of 3, it sits right below hydrogen in the first column of the periodic table. That means it is a very light metal. Also, it means it is an alkali metal, and as such, it is highly reactive and flammable. Lithium is not found in nature in its purest metal form. Instead, it is found in various types of deposits; the most common lithium ores are spodumene and petalite minerals (mined as pegmatite rocks), as well as lithium brine deposits that are essentially underground saline water enriched with dissolved lithium.

Gemstones

Spodumene is a lithium aluminum silicate, with the chemical formula LiAlSi2O6. In its simplest form, it is a yellow or brownish crystal but spodumene includes two gem varieties that are more precious: the pink Kunzite and the rarer green Hiddenite. Petalite, with the chemical formula LiAlSi4O10, often occurs alongside spodumene, though the latter has a higher Li2O content and is considered the more important ore.

Spodumene is found in low concentrations in pegmatite rock deposits (these are rocks, like granite, that formed millions of years ago in the final stages of the crystallization of magma as it cooled down). Spodumene mines follow traditional drill-and-blast methods that expose unweathered zones of the pegmatite rock ore. The spodumene ores containing about 3 to 5% Li2O  are then processed in neighboring plants into high-grade lithium sludge-like concentrates that are then crated for shipment. This is what a refinement or a conversion plant receives for further processing into the final product, either lithium carbonate or lithium hydroxide. The latter is typically used in the manufacture of batteries using NCA or NCM cathodes (like the ones used in the Tesla electric vehicles) whereas lithium carbonate is the preferred material for batteries with LFP cathodes (widely used in China) or LCO cathodes (the typical cathode material in consumer applications). This older post reviews the different types of common cathode materials used in lithium-ion batteries.

Lithium brine deposits are processed in different and far less expensive ways. Much like salt ponds used to make table salt, the brine, often holding a concentration of 200 to 1,400 mg per liter of lithium, is pumped to the surface and stored in a succession of ponds where evaporation results in a higher concentration of lithium salt. This drying process can last 9 to 12 months and yields the required 1 to 2% concentrate of lithium. This is then further refined at chemical plants into the final product, again lithium carbonate or lithium hydroxide. A lithium brine field might require $150-$300 million in capital expenditures, whereas a spodumene mine could easily require 5 to 10 times that amount. But as we will see below, there are advantages to spodumene mines.

The primary mines for spodumene are in Western Australia with the Greenbushes mine being one of the largest. Africa also boasts of additional mines with the Manono-Kitolo mine in the Democratic Republic of Congo being a notable one. There are also known deposits in the US, Canada, Europe (e.g., Austria, Serbia, Russia) either still unmined or in small mining operations. In contrast, brine deposits are largely concentrated in South America, with the Uyuni field in Bolivia and the Atacama field in Chile containing enormous reserves. The provinces of Catamarca, Salta and Jujuy in Argentina also hold significant reserves. The USGS reports that Australian and Chilean mines each produced in 2015 a total of 13,400 and 11,700 metric tons, respectively, accounting for 77% of the world’s production of lithium. An interesting tidbit: The United States government, through its Defense Logistics Agency Strategic Material, held in 2015 a strategic reserve of 150 kg of LCO and 540 kg of NCA battery cathode materials.

GB2-2

The Greenbushes mine as seen from space (Google Earth). The opening of the mine on the right is about 2000 ft (or 600 m).

Known world’s deposits of spodumene tend to be smaller than those of brine deposits, around 10 million tons of lithium for spodumene vs. over 25 million tons of lithium for brine. However, the diverse geographical distribution of spodumene deposits makes pegmatite mining less susceptible to supply chain disruption and a more reliable source of lithium.

Companies mining for lithium have seen their fortunes rise in the past 10 years. In Chile, anecdotally called the Saudi Arabia of lithium, Sociedad Quimica y Minera (SQM) is the largest lithium mining company in the world. It just formed a new joint venture with Western Lithium and Lithium Americas, two smaller US operations. In the US, FMC Corp. and Abermale  Corp. (through its acquisition of Rockwood Lithium) are two large players. In Australia, Talison Lithium is very prominent. These four companies account for about 55% of the world market of lithium, with Chinese chemical companies, such as Ganfeng Lithium and Tianqi,  accounting for an additional 45%.

Given the rising demand for lithium, it is not surprising that the four major Western suppliers all announced significant expansions in their production of lithium carbonate and hydroxide. But as supply tries to keep up with demand, spot prices of lithium ore have hit a near high price in excess of $600 per tonne, up from a long term average near $400 per tonne. Goldman Sachs estimates that these prices translate to a spot-market product price of $20 per kg for lithium hydroxide up from the average $9 per kg that Korean and Japanese battery makers were typically paying. As supply and demand balance out in the coming years, lithium hydroxide pricing will return to more normal levels, but these normal levels could easily be above $10 per kg. In other words, lithium is getting more expensive — but one thing is very likely, as lithium gets more expensive, batteries continue to get commoditized placing serious financial pressures on battery manufacturers.

If you are an investor, however, looking for a pure lithium play, you are a little out of luck. That is because many of the mining companies tend to be diversified chemical conglomerates, and lithium, as a commodity, still does not have futures contracts or swaps, leaving equities as the only play.

29Apr 2016

Tesla Motors presold over 400,000 Model 3 electric vehicles (EVs) in the course of a couple of weeks. Should the traditional carmakers with conventional internal combustion engines (ICE) be concerned? …the answer is probably not before 2025 or beyond.

In one of my earlier posts from 6 March of this year, I explained how gasoline prices had to rise substantially before they become economically competitive with ICE cars. Goldman Sachs just published a report this week predicting that EVs will not be a threat to conventional cars before 2025. Based on their models of GDP growth, gasoline prices and other factors, they predict that EVs will reach, in a best case scenario, no more than 10% of all new cars sold in the US, itself about 1/4 of all global car sales. Their more reasonable base model calls for only 381,000 EVs sold in the US in 2025, or 3% of all US car sales, hardly a threat to ICE carmakers. The chart below predicts instead an increasing penetration of hybrid vehicles beginning in the 2018-2019 timeframe.

Global-sales

Neglecting the issues of driving range and charging infrastructure, I will examine here 3 key assumptions that impact the decision of consumers as they ponder EVs vs. ICE cars: i) the gradual decline of the cost of EVs over the coming years, ii) the price of gasoline, and iii) the price of electricity over this time period. Collectively, these 3 points impact whether EVs will be cost competitive taking into consideration the upfront cost differential between EVs and ICE cars, as well as the cost of operating these vehicles.

The cost of buying an EV is primarily driven by the cost of the lithium ion battery. Standing today near $150/kWh, it is projected to decline to $100/kWh by 2021. For a 200-mile range car using a 60-kWh battery, that translates to a present battery cost (excluding the electronics) of $9,000 dropping to $6,000 over the next 5 years. This is a significant reduction but an EV will most likely remain more expensive than an equivalent ICE car by $5,000 to $10,000.

Gasoline prices are primarily impacted by crude oil. The next chart shows that, based on past historical records from 1990 to 2015, crude oil needs to reach $110 per barrel before gasoline hits an average US national  price of $4.00 per gallon. In March 2016, North Sea Brent crude oil stood at an average price of $38 per barrel; the US Energy Information Administration is forecasting that it will rise to $41 per barrel in 2017. That is certain to keep average US gasoline prices near $2.00 per gallon for the foreseeable future.

oil-vs-gas

What about the price of electricity? Will it rise? and what has impacted it? It turns out that the real (i.e. adjusted for inflation) average price of residential electricity in the US has remained rather constant over the past decades, hovering near $0.12 /kWh in today’s dollars. The oscillations in electricity pricing are due to seasonality.

electricity

At $4.00 per gallon and near constant electricity prices, the cost of operating an ICE car is $0.16 per mile vs. $0.03 per mile for an EV. If the EV’s price tag is $10,000 higher than the comparable ICE car, then it will take on average $10,000/$0.13 = 77,000 miles, or about 6.5 years to breakeven. This is naturally an oversimplified analysis but provides sufficient insight to appreciate the hurdles.  Clearly, the industry has to continue chipping away at the battery expense; governments will continue to provide incentives; oil prices will fluctuate as they have in the past…put altogether, it will take several years before EVs become a threat to the carmakers, possibly 2025 or beyond. The silver lining is that the discussion is no longer whether EVs will make it as mainstream cars, but rather its timing.

02Apr 2016

For a seemingly simple device with only two electrical connections to it, a battery is deceivingly misunderstood by the broad population, especially as batteries are now a common fixture in our technology-laden daily lives. I will highlight in this post five common misconceptions about the lithium-ion battery:

1. STAND ON ONE LEG, EXTEND YOUR ARM, THEN PLUG YOUR CHARGER INTO YOUR DEVICE:

Well, not literally, but the acrobatic move captures the perceived hypersensitivity of the average consumer about past or secret special recipes that can help your battery. One of the silliest one I ever heard was to store the battery in the freezer to extend its life. PLEASE, DO NOT EVER DO THIS! Another silly is to charge the battery once it drops below 50%, or 40% or 30%….Let me be clear, you can use your phone down to zero and recharge it, and it will be just fine.

It is also now common to find apps that will “optimize” your battery. The reality is they do nada! Don’t bother.  Don’t also bother with task managers; no they don’t extend your battery life. Both Android and iOS are fairly sophisticated about managing apps in the background.

Turning off WiFi, GPS and Bluetooth will not extend your battery life, at least not meaningfully. These radios use such little power that turning them off will not give you any noticeable advantage. The fact is that your cellular radio signal (e.g., LTE) and your display (specifically when the screen is on) are the two primary consumers of battery life — and turning these off render your mobile device somewhat useless.

Lastly is the question of “should I charge the battery to 100%?” Well, yes! but you don’t have to if you don’t want to or can’t. In other words, stop thinking about it. The battery is fine whether you charge it to 100% or to 80% or anything else. Sure, for those of you who are battery geeks, yes, you will get more cycle life if the battery is not charged to 100%. But to the average population, you can do whatever you like — your usage is not wrong. These are design specifications that the device manufacturer is thinking about on your behalf.

2. LITHIUM BATTERIES HAVE LONG MEMORIES:

Yes, as long as the memory of a 95-year old suffering from Alzheimers!! Sarcasm aside, lithium ion batteries have zero memory effects. Now, if you are a techie intent on confusing your smartphone or mobile device, here’s a little trick. Keep your device’s battery between 30% and 70% always….this will confuse the “fuel gauge,” that little battery monitor that tells you how much juice you have left. The battery will be just fine but the fuel gauge will not report accurately. Every so often, the fuel gauge needs to hit close to zero and 100% to know what these levels truly are, otherwise the fuel gauge will not accurately report the amount of battery percentage. This is like your gas gauge in your car going kaput…it does not mean that the battery has memory or other deficiencies. Should you suspect that your fuel gauge is confused, charge your phone to 100% and discharge it down to 10% a few times. That is sufficient to recalibrate the gauge.

3. WE NEED NEW BATTERY CHEMISTRIES — THE PRESENT ONES ARE NO GOOD:

This one garners a lot of media interest. Every time a research lab makes a new discovery, it is headline news and makes prime time TV. The reality is that the path from discovery in the lab to commercial deployment is extremely rocky. There have been dozens such discoveries in the past 5 – 10 years, yet virtually none have made it into wide commercial deployment. History tells us it takes over $1 billion and about 10 years for a new material to begin its slow commercial adoption cycle….and for now, the pipeline is rather thin. Additionally, present lithium ion batteries continue to improve. Granted, it is not very fast progress, but there is progress that is sufficient to make great products….just think that current battery technology is powering some great electric vehicles.

Let me be more specific. Present-day lithium ion batteries are achieving over 600 Wh/l in energy density — that is nearly 10x what lead acid batteries can deliver. This is enough to put 3,000 mAh in your smartphone (sufficient for a full day of use), and 60  kWh in your electrical car (enough for 200 – 250 miles of driving range). With the proper control systems and intelligence, a mobile device battery can last 2 years or more, and an electric vehicle battery can last 10 years. Does it mean we stop here? of course not, but this sense of urgency to develop new materials or chemistries is rather misplaced. Instead, we need to keep optimizing the present batteries materials and chemistries. Just reflect on how silicon as a semiconductor material was challenged by other candidate materials in the 1980s and 1990s (do you remember Gallium Arsenide), only for it to continue its steady progress and become an amazing material platform for modern computation and communication.

4. LITHIUM-ION BATTERIES ARE EXPENSIVE:

What made silicon the king of semiconductor materials is its amazing cost curve, i.e., decreasing cost per performance, aka Moore’s law. Now, lithium ion batteries don’t have an equivalent to Moore’s law, but, the cost of making lithium ion batteries is dropping fast to the point they are rapidly becoming commoditized. A battery for a smartphone costs the device OEM somewhere between $1.50 and $3.00, hardly a limiting factor for making great mobile devices. GM and Tesla Motors have widely advertised that their battery manufacturing costs are approaching $100 /kWh. In other words, a battery with sufficient capacity to drive 200 miles (i.e., 50 to 60 kWh) has a manufacturing cost of $5,000 to $6,000 (excluding the electronics)…with continued room for further cost reduction. It’s not yet ready to compete with inexpensive cars with gas engines, but it sure is very competitive with mid-range luxury vehicles. If you are in the market for a BMW 3-series or equivalent, I bet you are keeping an eye on the new Tesla Model 3. Tesla Motors pre-sold nearly 200,000 Model 3 electric vehicles in the 24 hours after its announcement.  This performance at a competitive price is what makes the present lithium ion batteries (with their present materials) attractive and dominant especially vis-a-vis potentially promising or threatening new chemistries or new materials.

5. LITHIUM-ION BATTERIES ARE UNSAFE:

Why do we not worry about the immense flammability of gasoline in our vehicles? Isn’t combustion the most essential mechanism of gas-driven cars? Yet, we feel very safe in these cars. Car fires are seldom headline news. That’s because the safety of traditional combustion engine cars has evolved immensely in the past decades. For example, gas tanks are insulated and protected in the event of a car crash.

Yes, lithium is flammable under certain but well known conditions. But the safety of lithium ion batteries can be observed as religiously as car makers observe the safety of combustion engines. It is quite likely that some isolated accidents or battery recalls may occur in the future as lithium ion batteries are deployed even wider than they are today. In mobile devices, the track record on safety has been very good, certainly since the battery industry had to manage the safety recalls at the turn of the century. Is there room for progress and can we achieve an exceptional safety record with lithium ion batteries? Absolutely yes. There are no inherent reasons why it cannot be achieved, albeit it will take time, just like the automotive and airline industries have continuously improved the safety of their products.

06Mar 2016

General Motors announced in January the all new Chevy Bolt, and Tesla Motors followed recently in pre-announcing the long anticipated Model 3. Both cars are new and novel, the first electric vehicles ever to boast of a driving range of 200 miles at a price before incentives between $35,000 and $40,000.  My 2013 Ford Focus Electric with its now degraded 70-mile range feels all too aged. It only goes to speak of the rapid transformational pace of the automotive industry, and it is only the beginning.

But even as an enthusiastic advocate and proponent of pure electric vehicles, also known as battery electric vehicles (BEV), I cannot ignore the incredible evolution that hybrid vehicles (HEV) have witnessed since the introduction of the first Toyota Prius in 1997. New plug-in hybrid models now span nearly every major auto manufacturer and include the Toyota Prius, the Chevy Volt, and other models such as the BMW X5 xDrive plug-in. Hybrids are no longer considered cars from the future….their sale volumes rocketed when gasoline prices soared a few years ago, but the presently low gas prices are making average consumers pause and ask whether being green also means keeping green in your wallet.

So let’s do a simple exercise in this post and compare the actual cost of maintaining three types of vehicles. The first is a conventional car with an internal combustion engine (ICE), assuming it has an average efficiency of 25 mpg (9.4 L/100km). The second is a hybrid vehicle (HEV) similar to the Prius. I assume an average efficiency of 50 mpg (4.7 L/100km). The last type is a pure electric (BEV). Based on my driving experience and other published data, I assume an average efficiency of 270 Wh/mi, or using the US EPA unit for energy consumption, it works out to 106 MPGe (equivalent mpg). I further assume that the average cost of electricity is $0.10 /kWh — that’s roughly what I pay when I charge my car at night, recognizing that in some geographies outside of our home state of California, that cost may be quite lower. Finally, for the benefit of this exercise, I ignore traditional maintenance costs such as oil change — I am happy to confirm that I have spent zero on oil changes for my Ford Focus Electric, precisely as the Ford dealership claimed !

I will spare you the math, but the cost of driving your vehicles (in $ per mile driven) depends largely on the prevailing price of gasoline.

HEV-vs-BEV

When gas peaked at $5.00 per gallon several years back, HEV and BEVs provided a significant improvement over conventional cars when it came to cost per mile (again, I am giving ICE a benefit of zero maintenance cost which is not true in real life). But at today’s gas prices hovering near $2.00 per gallon, the financial advantage of HEVs and BEVs shrinks substantially. Furthermore, the advantage of BEVs diminishes substantially when compared to HEVs. At $2.00/gal, HEVs are only a mere additional penny per mile to operate…so now one can understand why cabbies prefer their HEVs over the old Ford Victorias. Additionally, given that HEVs don’t suffer from “range anxiety,” more cars like the Chevy Bolt and the Tesla Model 3 need to hit the showrooms before they can be seriously considered as primary household vehicles (as opposed to commuting second cars).

Both limited range and low gas prices remain strikes against the wide adoption of BEVs. So long gasoline prices stay in the foreseeable future near their all-time lows, government incentives and regulations will continue to play an important role in the promotion of BEVs — these incentives include the highly coveted white stickers to use the carpool lane in California. It will take a serious increase in gas prices before incentives for BEVs come into question. This, however, is a chicken-and-egg problem. With the United States well on its way to energy independence, it is difficult to see scenarios in the near future that will catapult the price of gasoline…unless one begins to consider gloom-and-doom war scenarios, which I will leave to others to consider.

11Jan 2016

A lithium-ion battery cell for a smartphone costs the device OEM somewhere between $2 to $4 depending on its capacity and other design attributes. It constitutes about 1 to 2% of the entire cost of the mobile device. In contrast, a lithium-ion battery for an electric vehicle can range between $7,000 and $20,000, making it by far the most expensive item in the cost of the vehicle. So what drives these cost figures?

The primary cost metric of a lithium-ion battery (not including the pack electronics) is dollars per kilowatt-hours, abbreviated as $/kWh. That’s the cost of each unit of energy measured in kWh. A small smartphone lithium-ion battery stores about 10 Wh, or 0.01 kWh. A Nissan Leaf has a battery capacity of 24 kWh; the Tesla Model S can reach up to 85 kWh.

Today’s metric stands near $200 /kWh (or $0.20 /Wh) for consumer-grade batteries, and the cost continues to decline. See this earlier post to learn how these costs declined by 10X from 1995 to 2015, primarily as a result of increasing installed battery manufacturing capacity. Cost of lithium-ion batteries for electric cars is also declining…recent announcements from General Motors suggest a cost of $145 /kWh for their EVs declining to $100 /kWh in 2021. Now that’s GM’s numbers and they don’t necessarily reflect the cost structure for all EV makers — albeit it is highly rumored that Tesla’s figures are in the same vicinity. At $145 /kWh, the estimated cost of the lithium-ion battery of the newly announced Chevy Bolt is $8,700, plus an additional $3,000 for the pack electronics, for a total of nearly $12,000 — not too bad for an electric car that is advertised to go 200 miles and priced at about $40,000 before government incentives.

While the cost structure of manufacturing batteries is usually confidential to the battery makers and their large customers, there is sufficient information from various market reports and intelligence that provide insight into the components that make up the total cost figure. The chart below breaks down the cost for consumer-grade batteries into three basic categories: i) material costs, ii) labor costs and iii) overhead costs and profits.

Cost components of a lithium-ion battery

Cost components of a lithium-ion battery

The material costs are by far the largest contributors — about 60% of the total cost. For lithium-ion batteries made using lithium-cobalt oxide cathodes (LCO, used in consumer devices) or nickel-cobalt-aluminum cathodes (NCA, used in Tesla), the price of raw cobalt is a major component, presently priced at $10.88 per lb. That translates to nearly $10 to $15 /kWh just for the cost of raw material for the cathode — before processing and manufacturing. If you are wondering about cobalt sources, mines in Africa are the largest production sites. The good news are that cobalt pricing is at its lowest since it hit a peak of $50 per lb in 2007, and the US Department of Energy does not deem its supply at risk.

Labor is a relatively minuscule component of the overall cost — battery manufacturing combines significant automation in countries with low labor costs, in particular China. Overhead costs are, however, much more significant at 30% — they include depreciation of the capital, energy costs, R&D, sales and administrative…etc. As I have mentioned in prior posts, profit margins tend to be in the single digit…the financials of a battery manufacturing business are nothing to write home about.

This situation and increasing dominance of China in battery manufacturing has led many companies to be material suppliers. For example, the cathode material market is nearly $2.5B dominated by large conglomerates such as Tanaka and Mitsubishi in Japan and 3M in the US. Another example is the electrolyte market: at nearly $1B, it is dominated by the Japanese companies Stella Chemifa and Kanto Denka Kogyo.

Looking at the chart above gives an idea on where future cost-reduction measures are likely to be. First, reducing overhead costs…one can think of Tesla’s Gigafactory in Nevada as an example. Second, reducing the material costs. This is a longer term process with larger players, e.g., the large automotive manufacturers and to some extent the large consumer manufacturers such as Apple, exerting influence on their supply chain to improve efficiencies and reduce costs. The result: A goal of $100 /kWh by or before 2020 is within reach. This is widely accepted as the cost point where EVs can become affordable to larger segments of society and compete effectively against traditional combustion-engine vehicles.

However, at these cost levels, it becomes really hard to justify amortizing large R&D costs that may be necessary for major future battery breakthroughs. Instead, what is more likely to happen is a gradual evolution of battery materials and designs funded by modest R&D investments, and consequently continued commoditization of the lithium ion battery. This is not a bad thing to happen.