LIARS, LIARS AND BATTERY SUPPLIERS
Several years back, as we were doing our initial fundraising round for Qnovo, lithium-ion batteries were the craze! A123 had just gone public at an insane valuation. Gas prices were through the roof and GM announced the all-exciting electric Chevy Volt. Tesla Motors had their Roadster and was promising the then new Model S. Promises of innovations that can make electric vehicles part of the mainstream were abound. Apple introduced the iPhone which for the first time in history had an embedded battery (one where the user could not remove). These were exciting times! With this background, you can then appreciate our surprise when one investor with ample experience in this space uttered a deep skepticism of the battery ecosystem. There seem to have been plenty of broken promises and certainly, as I learned later, opaque specifications that seemed difficult to verify. “There were liars, damned liars and battery suppliers,” continues to resonate in my head, and after several years, seems to be more often true than not.
This blog is not meant to bash battery manufacturers. They do provide an immensely useful product and underlying technology that has proved very central to a mobile society. Not many of you remember the first mobile phones (not even smartphones) some 15 or 20 years ago when the battery, back then made of NiCd or NiMH, was the size of a brick….and it lasted too little. Rather, I want to use this blog to clarify who are the main manufacturers and what challenges they are facing.
There are over 6 billion lithium-ion batteries that are manufactured every year. Big numbers! Mobile devices account for nearly 75% of this volume. The rest go into electric vehicle and bicycles, camcorders, cameras and other items such as power tools. Less than 10 companies account for this worldwide volume. They tend to be large chemical conglomerates based in South Korea, Japan and China. Samsung SDI and LG Chemical are based in South Korea and are subsidiaries of Samsung and LG, respectively. In Japan, Panasonic, Sony Energy and Hitachi Maxell are the prominent ones. Panasonic is well known as the primary supplier of batteries to Tesla Motors. Then there are a number of fast-growing manufacturers out of China, primarily, Lishen, ATL, BAK and BYD. Lithium-ion batteries made in China tend to be of lower quality. They are widely used in China but mobile device manufacturers outside of China have generally preferred to use batteries manufactured by South Korean or Japanese companies.
The US has a few small battery manufacturers that tend to be specialized, say for medical or aerospace applications. There are also several innovative and promising startup companies in the US that are pushing the envelope in terms of new materials, new designs and cost-effective ways to build batteries.
Battery manufacturers face a slew of challenges, both technical and economical. First and foremost, batteries including lithium-ion batteries tend to be inexpensive. A battery in a typical smartphone costs in the neighborhood of $1 to $2. Profit margins in batteries tend to be very thin. Battery manufacturing is a very capital-intensive business. Safety concerns also plagued the industry in the past decade. Yet, it is a very competitive space, and the new Chinese manufacturers are only adding increasing economic pressure on the established players.
Technically, the primary challenge is that battery manufacturers are not keeping up with the insatiable demand by the mobile and electronics industries. We hear of Moore’s Law in electronics; it is driving the mobile industry. Moore’s Law is the observation made by Gordon Moore at Intel in 1965 that electronics double in capacity every approximately 2 years. In contrast, batteries have doubled in capacity every 15 years! This is a serious gap and growing problem.
Additionally, there is immense knowledge around electronics. High-tech companies have great talent around designing and manufacturing electronics with superb quality. In contrast, battery talent is limited. Companies that build mobile devices also have a great ability to understand electronic components and designs, yet surprisingly, many of them fall far behind in their knowledge of batteries. The result is that batteries and their specifications tend to be an obscure topic, and innovation in general has lagged. And to make matters worse, electronic and software engineers, the backbone of the mobile industry, simply don’t like to deal with chemistry!
That is changing, gradually. It has to change. Batteries, their manufactures and the entire ecosystem needs to catch up to the operating standards and levels of innovation that the electronics and mobile industries have set forth.