Manufacturers

31Mar 2017

We, that’s all of us on this planet, buy every year 1.6 billion smartphones. It works out to one new smartphone every year for every four living human beings on this planet. Cumulatively, we own and use 4 billion smartphones around the world. Every region of the world, rich or poor, is buying smartphones. Many developing nations in the Middle East, Africa, and Asia are growing their smartphone subscriptions at a fast rate. Ericsson reports that by 2021, there will be 6.3 billion smartphone subscriptions, that’s nearly every man, woman and child around the world. Impressive!

Of course, each and every one of these smartphones has a battery in it. Your first reaction is: “that’s a lot of batteries.” Yes, that is true. Sadly, many of these batteries go to landfills after they are exhausted. The easiest way to gauge the size of the market for batteries is to calculate the entire energy supplied by all of them. Of course, that is a large number. It is measured in billions of watt-hours, abbreviated as GWh. As a reference mark, the battery in a top of the line Tesla S is 100 kWh. One GWh = 1 million kWh = 10,000 Tesla S.

 

Screen Shot 2017-03-31 at 9.48.15 AM

 

In 2016, the battery factories around the world manufactured about 50 GWh worth of batteries for consumer devices. That drives an industry and a market worth in excess of $10 billions annually. Forecasts indicate that the consumer market will use about 65 to 70 GWh worth of batteries in 2020. Our appetite for more batteries is insatiable and the numbers show it.

Now let’s look at batteries in electrified vehicles, including both hybrid plug-in cars and pure electric cars (xEVs). This is a relatively new market. The Tesla S first came in 2012. The Nissan Leaf came a little earlier in 2011. Many states in the US or countries around the world haven’t yet experienced or experimented with such vehicles. In 2016, all of these vehicles accounted for a mere 0.9% of all car sales. In total, they amounted to less than 1 m vehicles in 2016.

 

GWh

 

However, in battery lingo, these cars accounted for an increasingly large number of GWh. The year 2016 was the first year that the battery capacity used in xEVs equalled that of all consumer devices, about 50 GWh. By 2020, xEVs will account for ⅔ of all battery production in the world. No wonder Elon Musk and the major car makers pay a lot of attention to their supply chain, including building these Gigafactories.

 

17Mar 2017

History recalls how great the fall can be

While everybody’s sleeping, the boats put out to sea

Borne on the wings of time

It seemed the answers were so easy to find

Roger Hodgson, Supertramp, from Fool’s Overture, 1977

MWC 2017 is over. The crowds came and saw ideas and innovations. The media covered and reviewed. Awards were made. Yet a sense of public amnesia seemed to hover over the battery safety problems that the Samsung Note 7 brought to surface in 2016. Yes, Samsung shows the deep scars of these fateful days. Yes, there is a real fear among the device manufacturers. And yet, the fear and concerns are also accompanied with a sense of paralysis, a sense of a rudderless ship when it comes to safety, and a sense of wishful thinking that the Note 7 fires were an aberration in time that the industry will put behind it.

I will spend today’s post to discuss how Samsung’s SDI, the primary battery supplier of the Samsung Note 7, is trying to lead its way through the choppy waters of the battery industry. Jun Young-Hyun, an executive who ran Samsung’s memory business, became in late February of this year SDI’s newest CEO, the company’s third in only five years. The information here is specific to Samsung SDI but the intent is to provide an insight into how the incumbents are redefining themselves in the presence of aggressive competition from Chinese battery suppliers.

SDI_OPM

A Goldman Sachs’ report charts the decline in operating margin for SDI’s lithium-ion battery product lines. Driven primarily by rising competition and decreasing productivity in their cylindrical and polymer batteries, the operating margin dropped by nearly half over the last ten years with little hope of recovery. Samsung SDI’s revenues, like many of the incumbents, came primarily from consumer devices including laptops, tablets and smartphones, totaling nearly $2.5 billion in 2016. But these revenues have been flat and are forecasted to stagnate despite rising unit volumes, reflecting the aggressive pricing competition from China.

Panasonic, through its successful relationship with Tesla, was the first to demonstrate that it can shift its revenue base from consumer batteries to automotive batteries. SDI and LG Chem seek to replicate the story.

SDI’s growing revenues in the past years in both xEV (encompassing both electrical vehicles and plug-in hybrids) as well as energy storage systems (ESS) reflect that strategy. Samsung SDI forecasts revenues from xEV to exceed $1.5 billion in 2018. The company reports that their ESS line is near breakeven, but that their xEV product line will lose nearly $200 million in 2017.

SDI_Revenues

As LG Chem and SDI increasingly focus their attention on growing their share in xEV and ESS batteries, their Chinese competitors are busy winning market share in consumer devices, and more specifically, in smartphones. Samsung SDI, LG Chem, Panasonic and Sony Energy constituted the vast majority of battery units shipped into consumer devices. In 2016, China-based ATL garnered nearly a third of that market and has become a major supplier to several device OEMs including Samsung Electronics, the maker of the Samsung Galaxy smartphones. Such a scenario was unthinkable only a few years back. Samsung SDI was in effect a sole supplier to Samsung Electronics.

These shifting tectonics in the supply chain carry severe implications to the device OEMs. On the positive scale, more competition means savings to them. But in the process, these device OEMs are losing what once was a comfortable relationship with their battery sister companies. Samsung Electronics’ relationship with Samsung SDI allowed it to influence its technology and product roadmap. Samsung SDI provided its sister company with exceptional support. The same can be said of LG and its relationship with LG Chem, and Sony’s relationship with Sony Energy. Many pillars of this comfort zone will at least change if not vanish, and that will only cause the device OEMs a lot more anxiety about their battery supply chain. The poor quality and safety record of Chinese battery suppliers is very real. The safety problems of the Note 7 will only amplify these anxieties, even if not publicly displayed.

History recalls how great the fall can beIt seemed the answers were so easy to find.”   Timeless words.

24Jan 2017

Samsung announced this week the results of their investigations regarding the Galaxy Note 7 fires. Samsung hired three independent test laboratories, Exponent, TUV Rheinland and UL to perform the analyses. The result was three full reports and presentations with technical details, mostly written by engineers for engineers. Vlad Savov at The Verge called the reports “humble and nerdy.” I can hear many in the audience screaming: “Translation, please!” I will try in this post to simplify and summarize the findings.

Of the three reports, the one written by Exponent is the one that offers the most useful pointers into what went wrong with the Note 7 batteries.  Here’s what it said, in simple terms.

First, Samsung Electronics (the maker of the Note 7) used batteries from two battery manufacturers: Manufacturer A is Samsung’s sister company, Samsung SDI; Manufacturer B is China-based Amperex Technology Limited, also known as ATL. In the sequence of events, the batteries made by Samsung SDI were the first to catch fires. Samsung Electronics decided to replace all SDI batteries with those made by ATL, but these too caught fire. Two different battery designs made by two different manufacturers, both catching fires..ouch! If you are a gambler, this is equivalent to winning the jackpot! But as we will see next, the published reports pointed instead to sloppy designs and poor manufacturing.

Let’s start with the Samsung SDI cells and what went wrong with them. I have shared in past posts the basic structure of a lithium-ion battery. It is made of alternating layers of conducting electrodes separated by an insulating layer called the separator. The #1 edict of battery safety is that the two electrodes, the anode and cathode, cannot touch. If they do, they form an electric short and cause a fire. It is common practice among battery experts that the root cause of most battery fires is an electric short. So what caused the electric short in the batteries from Samsung SDI?

The Samsung reports (as well as our own internal investigations) show that there was sufficient force on the edge of the battery during the manufacturing process that damaged the battery, effectively damaging the insulating separator or the graphite anode. When the separator gets damaged, it can no longer hold the anode and cathode physically apart; the two electrodes touch resulting in an electric short.

The second failure mode is more subtle but equally deadly. If you recall from previous posts, I have spoken about the need of a “balance” between the anode and cathode to prevent the formation of metallic lithium, also known as lithium plating. The presence of physical damage in the graphite layer breaks this balance creating the seeds for lithium metal. With use, lithium metal dendrites begin to form and ultimately grow to form a direct electric short inside the battery. The Exponent report illustrates this effect well in the following diagram. In other words, lithium plating is a dangerous culprit in the Note 7 fires.

I cannot over-emphasize the dangers of lithium metal plating! It is a lurking hazard that leads to unexpected fires. It is a risk that develops without visible manifestation. No amount of X-Ray inspection at the manufacturing site will detect the presence of lithium metal plating. And when these dendrites grow slowly in time, your battery will catch fire. In this particular case, the physical damage to the battery edge was the catalyst that led to lithium metal plating. But as I have mentioned repeatedly, many other reasons including aggressive battery designs can lead to lithium metal plating.

exponent

Now let’s talk about what went wrong with the ATL cells. The batteries made by ATL did not suffer from physical damage. Instead, the reports point to defects during the welding process of the electrical tabs (where one makes a connection to the battery). As the battery swelled and contracted during charging/discharging, these weld defects came apart and caused an electric short. In other words, this was pure and simple sloppy manufacturing by ATL in their rush to manufacture millions of batteries for Samsung.

Is there any hidden good news here or is it all bad news? The good news is that Samsung came clean. The Exponent report is credible and matches our own internal findings on the SDI battery. The good news is that the manufacturing defects during welding of the ATL batteries are relatively easy to address. I am reasonably certain that ATL and Samsung have now implemented proper procedures to eliminate welding defects. I am also reasonably certain that Samsung and SDI have implemented procedures to minimize physical damage to the battery edges.

But the bad news is that none of the new procedures address the elephant in the room: Lithium metal plating! We applaud all the additional inspection steps that Samsung is implementing, but the sad reality is that none of them will detect or prevent the formation of lithium metal plating. As I have observed in several prior posts, lithium metal plating can occur for many different reasons. Eliminating physical damage during manufacturing is good but is not sufficient and is not addressing a root cause of safety failures. Be prepared to see more battery fires in the industry!

17Jan 2017

It was the best of times, it was the worst of times. It was the age of innovation, it was the age of imitation. It was the epoch of the battery, it was the epoch of lithium. It was the season of Japan, it became the season of China. It was the spring of hope for batteries, it was the winter of despair from safety. Charles Dickens will forgive me for contorting his famous novel into a Tale of Two Geographies: China vs. the world, that is in lithium-ion batteries, of course.

The credit goes to Sony for being the first to commercialize the lithium-ion battery in 1991 for use in their handheld video cameras. Twenty five years later, Sony Energy Devices (or SEND), as the business came to be known, was sold to Murata Manufacturing Co. Ltd., epitomizing the massive changes that swept through the lithium-ion battery industry. An icon and a giant in the evolution of lithium-ion batteries, SEND had estimated revenues in 2016 of $1.2B, and its rumored sale price was approximately $150m. What happened?

Several factors came into play as the lithium-ion battery industry grew and matured. As our society turned mobile and demanded portable power sources, demand for rechargeable batteries grew from 3 GWh in 1990 to 58 GWh in 2015, with a forecast exceeding 400 GWh in 2025. Initial demand came from laptop PCs which was soon surpassed with smartphone use. The forecasted demand from electric vehicles is already eclipsing that of consumer devices.

Growth invites competition and increasing pricing pressures. The first to compete with the early Japanese manufacturers were the large Korean conglomerates LG Chem and Samsung SDI. By the early 2000s, the quality of the Korean batteries improved significantly and came to match that of the Japanese makers. Consumer device OEMs began to switch their supply chain from Japanese to Korean manufacturers. Sanyo, once a dominant supplier to laptop PCs, saw its market share dwindle. Panasonic suffered the same fate in consumer devices, and ultimately bet its future on Tesla Motors.

By 2010, China was rising to compete with LG Chem and Samsung SDI….but competing with these giants was no small feat. The quality of Chinese batteries was no match to their Korean or Japanese counterparts. Samsung SDI was effectively a sole supplier to Samsung Electronics. LG Chem offered great quality and supplied Samsung’s nemesis, Apple’s iPhones. Life was Good!

China is big. China is patient. China is focused…and China can be ruthless to foreign suppliers. As the smartphone industry grew competitive and Android opened up swathes of new customers in developing countries for inexpensive mobile devices, OEMs began to seriously consider lower cost batteries from lower tier Chinese suppliers…but only for smartphones aimed for China or developing countries in Asia, Africa or South America. The high-end market was still off-limits to Chinese battery suppliers, which meant LG Chem and Samsung SDI continued to enjoy dominance and profits.

Then Apple disrupted the landscape! Early in the current decade, Apple began to cultivate a little known Chinese battery manufacturer. This company’s name is Amperex Technology Limited, often abbreviated as ATL. It came to compete with LG Chem, Sony Energy and Samsung SDI for Apple’s iconic and fast growing iPhone business. TDK of Japan had acquired ATL a few years earlier in 2005. ATL was the opening salvo for Chinese manufacturers to take direct aim at the incumbents, namely LG Chem, Samsung SDI, Sony Energy, and to a lesser extent Hitachi Maxell of Japan. It is not known what fraction of the iPhone batteries are sourced from ATL but it is considered to be quite substantial judging from TDK’s public financial disclosures over the past years. ATL became a growth engine for TDK and a model for Chinese battery suppliers to expand outside of China.

August of 2016 was another aha moment. The batteries in the Samsung Galaxy Note 7 came into focus revealing that Samsung Electronics was now sourcing batteries from both Samsung SDI and ATL. Not only ATL was aggressively chasing its usual competitors, it was also going after Samsung SDI’s stronghold: the Samsung Galaxy series. ATL, by now, was making quality batteries at a substantial discount over LG Chem, Samsung SDI and Sony Energy. ATL was winning market share at a fast rate and enjoyed a very special position: no other Chinese battery manufacturer was yet able to break into the smartphone market outside of China.

With raging price wars in consumer batteries, LG Chem and Samsung SDI began to turn their sight to more profitable applications. Their financials for 2016 were far from exemplary. Guided by Panasonic’s successful model with Tesla Motors, they increasingly focused their resources and investments into the growing xEV market (including both hybrid and pure electric vehicles). LG Chem became the supplier of choice for the Chevy Volt and the Bolt. Samsung SDI supplies many of the German-built xEVs.

China map

In 2017, we see rising competitive pressures from additional Chinese battery suppliers that until recently were household names only in remote Chinese towns. Tianjin Lishen has grown to be a large player in China and increasing willing to supply top-tier OEMs around the world. Small players including Coslight, BAK and SCUD are emerging with prices attractive for the low-end and mid-tier smartphone market segments. It is estimated that there are nearly 100 such battery vendors throughout China….but for now, their questionable quality will keep many of them out of the race.

It takes very little in this historical examination to recognize that China is on its way to become a dominant supplier of lithium-ion batteries, at the very least for consumer electronic devices including smartphones. Quality is still not at par with batteries from Korea or Japan, but their aggressive pricing strategies will surely maintain momentum as they continue to improve their manufacturing. Barring unforeseen safety disasters that are uniquely attributed to Chinese manufacturers, this trend will continue if not accelerate. Chinese vendors will increase their market share in consumer devices as the large traditional vendors, in particular LG Chem, SDI, and Panasonic continue to shift their positions to xEVs.

From the view of the smartphone OEMs, this increasing shift in the supply chain disrupts the historic relationships between them and the battery vendors. Samsung Electronics’ cozy relationship with Samsung SDI cannot and will not be replicated with ATL. Same goes with LG Electronics and LG Chem. If you are an OEM, it is becoming imperative to take ownership of your “battery destiny.” Failing to do so will carry serious safety implications with disastrous financial consequences. Samsung Electronics is sufficiently large to weather the Note 7 fiasco, but other small OEMs may not have this luxury.

21Dec 2016

This year has been one of heightened awareness regarding battery safety. Smartphone manufacturers now realize that battery fires are real and recalls from the field are enormously expensive. Along with this education comes a deeper realization that battery quality and the presence of hidden defects are very serious matters.

Today’s post sheds light onto the challenges of battery manufacturing and ensuing defects. These discussions are not useless academic conversations. We see manufacturing defects in batteries especially those sourced from Chinese manufacturers. We observe them more frequently in batteries with high energy density where manufacturing tolerances are challenging.

We analyzed recently a family of batteries from a China-based manufacturer that shall remain unnamed. The battery in question is in serious consideration for a possible release in a smartphone in 2017. Our analysis revealed that the battery was potentially unsafe exhibiting an elevated risk of lithium metal plating; this can lead to electrical shorts. A post-mortem dissection showed regular horizontal bands of lithium metal deposited on the surface of the graphite anode. The scary part was that this battery was quite new….it had only been used for a few days with less than 10 charge-discharge cycles. So what’s happening?

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Let’s go back to basics. This previous post recaps the basic structure of a lithium-ion battery. There are two electrodes that face each other with a porous insulating layer in between meant to keep these two electrodes apart. The anode has a coating of carbon (in the form of graphite) on top of a copper layer. The cathode has a coating of a specialized metal oxide, often lithium cobalt oxide abbreviated as LCO.

The design of the battery dictates that the amount of graphite compared to the amount of LCO must be balanced. This balance, which in technical jargon is called the A to C ratio, requires that there is a small amount of excess graphite relative to LCO. Usually, in a good design, there is about 5% more graphite material than LCO.

If, for some reason, there is less graphite than there is LCO, then this creates a condition where excess lithium ions cannot be absorbed by the anode, leading to lithium metal forming on the surface of the graphite….this is called lithium metal plating. As I said before and I will say again, lithium metal is a NO NO. It is a risk for electrical shorts and it is highly flammable in the presence of water vapor or oxygen; both are precursors for poor safety.

In a good manufacturing environment, the graphite anode layer is uniform in thickness and density. In other words, anywhere along the large anode surface, the graphite maintains the proper balance with the cathode layer that sits on the opposite side.

But now imagine a scenario where the manufacturing is not well controlled such that regions of the anode (or the cathode) are not uniform — for example the thickness or the density of graphite particles vary. Now remember that this need not be a huge variation: only a mere 5% change in particle density is sufficient to create an imbalance between the two electrodes. That is precisely what happened in this Chinese battery. The figure below illustrates how these bands are related to the defects in the electrode layer.

scalloping

When the manufacturer coated the anode and cathode layers, their machines created small ripples in the density and/or thickness. So when the battery was first powered, lithium metal began to form…and that was what we observed in our laboratory.

So now you will say, “Well, that was a cheap Chinese factory. Surely the more reputable incumbents do not have this problem.” True, but that is not good enough. The economics are not in their favor. I will explain.

The tolerances of manufacturing high-energy-density batteries are becoming very tight. This drives the need for newer state-of-the-art manufacturing equipment, such as machines that can coat the electrodes more uniformly. The cost of equipping new manufacturing facilities therefore increases, driving up the cost of manufacturing these batteries.

Compare this to manufacturing silicon integrated circuits. Moore’s Law makes it possible to spend billions of dollars on manufacturing facilities and yet amortize this cost over a rapidly increasing number of electronic chips. The result is the amortized cost per chip actually goes down.  Sadly, there is no equivalent of Moore’s Law in batteries. More expensive manufacturing means more expensive batteries, and consequently, a loss of market share to the low-cost Chinese battery manufacturers. It is no surprise therefore that the reputable incumbents in lithium-ion batteries like LG Chem and Samsung SDI have their sights set on the electric vehicle market where they get to build the power train, not just a battery. This is a big invitation to low-cost  and low-quality battery makers in China to continue expanding.

The combination of increasing energy density along with the enormous pricing pressures from second-tier battery manufacturers in China are invariably leading to increased incidence of manufacturing defects — and that is something smartphone and device OEMs ought to be thinking about very seriously.