About a 10 minute walk from my home in Oxford can be found the University of Oxford’s Inorganic Chemistry Laboratory. From my photo below, you can see that the building sports a series of blue plaques commemorating the laboratory’s greatest achievements.
The bottom one reads as follows:
Here in 1980, John B. Goodenough with Yoichi Mizushima, Philip C. Jones and Philip J. Wiseman identified the cathode material that enabled the development of the rechargeable lithium-ion battery. The breakthrough ushered in the age of portable electronic devices.
Goodenough, now aged 95, is still actively researching battery technology to this day. An affectionate review of Goodenough’s extraordinary career by the journalist Steve LeVine can be found here and an article on a controversial new claim by Goodenough here.
What Goodenough and his team managed to do was create a battery cathode stable enough to act as a source of lithium ions without collapsing in upon itself. This allowed a battery to be charged and discharged, yet hold its energy in-between. The team did this through experimenting with a variety of metal oxides until they came across a lithium-cobalt-oxide combination that provided power with stability. To complement this great leap forward in the cathode, progress was required in the anode, and that came in the mid-1980s through the work of Akira Yoshino in Japan.
Yoshino’s genius was to match graphite in the anode with Goodenough’s lithium-cobalt-oxide in the cathode. On top of the basic battery chemistry, Yoshino also pioneered a number of fabrication techniques that eventually took the lithium-ion battery out of the laboratory and into commercial production by the Sony Corporation. In short, the Goodenough-Yoshino insights produced a dramatic leap in deliverable power and energy storage.
Although the lithium-ion battery revolution of the 1980s ushered us into a world of ubiquitous mobile electronics, it was initially not sufficient to beget the transport and energy storage revolutions Tony Seba talks about in his presentations. Part of the problem here is that the battery makers face an optimisation problem with 6 variables. They need to look at all of the following:
Safety and maturity on the battery cell level
Power capability and charge/discharge characteristics
Energy contents of the battery cell
Cycling efficiency and self-discharge
Degradation and aging phenomena
Material and battery cell cost
The battery chemistry required is a perpetual trade off between these six. A push for power can compromise safety, and so on it goes. A second problem is that a battery is a multi-component mechanism. You have a cathode, an anode, an electrolyte and a separator. As you tweak the chemistry of one, it will have a tendency to produce unintended consequences in the chemistry of another.
Finally, and perhaps most importantly, a battery is not subject to Moore’s Law: it is subject to Faraday’s First Law of Electrolysis. This states that the amount of current passed through an electrode is directly proportional to the amount of material liberated from it. In other words, there is a linear relationship between electrical current and material. You may be able to increase the amount of material liberated from an electrode through using a different kind of material, but what you can’t do is increase the electrical current with the same amount of material.
This is a very different relationship from that referenced in Moore’s Law (which is really an empirical observation not a physical law). I blogged on this same topic three years ago (here) and at the time referred to the original 1965 article by Gordon Moore that ushered in Moore’s Law entitled “Cramming more components onto integrated circuits.” In the original paper, Moore referred to a doubling of the number of transistors on an integrated circuit board every year, which he later modified to every two years. Either way, the only way you can display that kind of growth on a graph is through using a logarithmic scale as can be seen with what actually happened:
And let’s contrast and compare the Moore’s Law dynamic against battery advances (from here):
Nonetheless, you can see that considerable progress has been made. Note that the progression from Goodenough’s lithium-cobalt-oxide combination to a nickel-magnesium-cobolt-oxide combination is an advancement of the same type of chemistry, not a new technological leap. Interestingly, Goodenough himself is rather dismissive of such incremental moves, feeling that they won’t be sufficient to supplant the internal combustion engine. From the Steve LeVine interview:
The stakes are high, and Goodenough dismisses a lot of the competing approaches he sees—Tesla’s Elon Musk, for instance, who he says is content to “sell his cars to rich people in Hollywood” while waiting for scientists to create a battery that will power a middle-class electric car. That is not precisely fair—Musk is obviously selling his $80,000 to $100,000 cars to an elite niche, but by 2018 he vows to have a roughly $35,000 model for a broader slice of the market. He is getting there through agile engineering that has provided incremental improvements to his battery.
But Goodenough is equally dismissive of such tinkering and its measly 7% or 8% a year in added efficiency. “You need something that will give you a little bit of a step,” he says, “not an increment.”
Tony Seba, Ray Kurzweil and other assorted techno-cornucopians achieve almost instant doublings by assuming growth rates in the high teens or better. Unfortunately, much science progresses in the low to mid single digits, so change is measured in decades–not years.
The distinction is important. Under the Kurzweil logic, we don’t really need to tackle climate change or resource depletion because technology is on the case. Just go about your business as usual, tuck up your kids in bed at night, and scientific innovation will do the rest.
But unless Argonne Laboratory‘s battery guys and their peers step up the pace (which looks exceedingly difficult), electric vehicles will not replace conventional internal combustion engines for a couple of decades or more. That translates into no natural near-term carbon emission mitigation in the field of motor transport. And unless we get very lucky with climate sensitivity to CO2, that also means we will get a lot closer to exceedingly dangerous climate change.
It now appears that I (and Goodenough) could have been wrong: “such tinkering” has managed to deliver double-digit efficiency gains. These gains have, in turn, allowed Telsa to start tipping the market toward EVs at the luxury end with the Model S. And Elon Musk now appears to be doing the same with respect to more compact cars with the Model 3.
If Tesla keeps going into more and more segments (and drags the entire auto industry along with it), then through mitigating (but perhaps not eliminating) the risk of dangerous climate change, Musk, along with Goodenough and Yoshino, will have had more impact on the planet than any human being who has ever lived. We define the Anthropocene as the geological period over which human activity has had an appreciable impact on the environment and climate. Should Tony Seba’s transport and energy revolutions come to pass, it is extraordinary to think that the actions of Goodenough-Yoshino-Musk will have shaped how the Anthropocene unfolds.
I believe that Goodenough and Yoshino certainly deserve to be awarded the Nobel prize for chemistry. Further, should battery efficiency continue to progress at its current pace such that fossil fuels are removed from the transport and energy storage equation, then the role of all three in preventing dangerous climate change will have been immense. Indeed, I can’t think of any three more fitting recipients of the Nobel Peace Prize in such a situation.
Nonetheless, I have got a little ahead of myself in handing out Nobel prizes. While I am far more confident than three years ago that we are close to an EV tipping point, we are not quite there yet. So in my next post we need to dig still deeper into battery efficiency and cost to see whether battery technology can advance just that little bit further to push ICE technology to one side.
In my last post, I set the conditions that determine whether the auto market tips from internal combustion engine (ICE) vehicles to electric vehicles (EVs). EVs need to either match or exceed ICE vehicles with respect to every car ‘attribute’ at an equivalent cost. Then it’s game over for ICE vehicles.
The attributes of a car give a consumer happiness. That utility comes from a) the mobility a car provides, b) the aesthetic of the car (the pleasure the owner gets in owning the car that is not related to other people) and c) status-signally through displaying ownership of the car to other people (such status signalling is not restricted to investment bankers and their Ferraris; it also covers hippies in their Citroen 2CVs and Green Party members in their Nissan Leafs).
The purchase decisions of consumers are based on their current budgets and future budgets. Current budgets determines how much they are able to pay for cars and future budgets determine how much they can afford to run their cars (fuel, maintenance, depreciation).
If EVs are better with respect to some of these aspects of the purchase decision but worse in others, then taking market share from ICE vehicles will be an uphill slog. That is what Exxon Mobile believes as illustrated in this chart from its latest “Outlook for Energy: 2018”:
If such a projection is correct, around 50 million EVs will be on the road (which includes pure battery and plug-in hybrids) in 2030. That compares with the Tony Seba S curve view of 130 million EV sales alone in that year.
To tease out who is likely to be right, let us think of the physical limits auto makers have to work with. Basically, a car is a three dimensional irregular cuboid shape constrained by such external factors as lane width and parking space size. Certain things are then put into this irregular cuboid shape to provide the mobility, aesthetic and status-signalling attributes we identified before.
Lots of car ‘stuff’ is not a function of whether it is an ICE vehicle or EV. For example, the headlights, wing mirrors, windscreen wipers and so on. We can exclude such items from our analysis since an EV can match the ICE vehicle in these domains. Moreover, there is no reason why an EV can’t match an ICE in terms of aesthetic or status-signalling should its design be good enough and its ability to fulfil the mobility criteria.
The main differentiator between an EV and ICE vehicle when it comes to mobility relates to the drivetrain. Taken, holistically, we can think of this as encompassing a store of energy and a means of converting that energy into motion. We can now compare EVs against ICE vehicles in respect of this broadly defined drivetrain across a series of factors, most importantly:
Weight
Volume
Efficiency
Flexibility
Given its position as the undoubted pacesetter in cutting edge EV design, performance and production numbers, Tesla’s Model 3 is a worthy champion for the EV camp. The standard Model 3 has a curb weight of 1,610 kg, while the extended range version is 1,730 kg. The crotchety Jack Rickard did a tear down of a wrecked extended-range Tesla Model 3 (warning: it is a long video) and extracted the battery, which weighed 478 kg. So that means the battery weighs roughly 28% of the car.
Let’s choose the BMW 330i Sedan as a typical ICE competitor for Tesla; its specifications taken from BMW’s USA site can be found here. This sedan comes in at 1,610 kg, so the Tesla is 7.5% heavier. Curb weight generally includes a full tank of fuel, which in the BMW’s case is 15.8 gallons or about 45 kg in weight (you can see here the extraordinary energy density of fossil fuels).
So that in a nutshell is the handicap of the battery as an energy source: more than 400 kg of extra weight. On the other side of the ledger is the fact that you wonder where the engine has gone in an EV. Here is the schematic for the Model 3:
First, you notice the radical shrinkage of the actual engine itself. An internal combustion engine is a system of controlled explosions that first translate into lateral movement of the pistons, which in turn has to be translated into circular movement to the wheels. That requires a complex multipart machine.
The video below compares and contrasts the Tesla drivetrain with a traditional ICE (but note it highlights the induction motor in the Model S; the Model 3 motor and electrical motors in other automakers EVs are somewhat different) and emphasises the fact that the electrical engine has radically fewer parts.
And here is a couple of minutes on the Model S engine showing its intrinsic simplicity:
The key differentiator, obviously, is the disappearance of a bunch of ICE components: transmission, exhaust system, fuel pump, fuel injection and spark plugs. An EV does need some kind of cooling system for both the motor and the battery, but this is relatively modest in both weight and volume.
Overall, if we take out the gas tank and the battery from the equation then we get this:
EV drivetrain weight < ICE drivetrain weight
EV drivetrain volume < ICE drivetrain volume
But through adding the battery and gas tank back in, these inequalities reverse:
EV drivetrain weight > ICE drivetrain weight
EV drivetrain volume > ICE drivetrain volume
Now, it’s very difficult to put numbers into these inequalities. But the interesting thing about Tesla’s Model 3 is that it incorporates a large battery in terms of kilowatt hours (kWh) but the car is still in the same ball park weight category as its ICE competitors. Moreover, we are currently going through a period of rapid battery cell shrinkage (weight and volume per kWh). Let’s say Tesla can shrink the 479kg battery that Jack Rickard extracted from the wrecked Model 3 by 25%; that would give a weight saving of 120kg. We are now getting into matching territory. And remember the conditions for tipping. EVs don’t need to exceed ICE vehicles for the market to tip: they just need to match in most areas and excel in a few.
Next we come to flexibility, which really relates to the configuration in our irregular cuboid. So yet again putting the battery to one side, the EV has an instant advantage. The drivetrain units can be arranged more flexibly as they are linked principally by wires, not by a complex transmission mechanism.
Even with the battery, the possibilities of dividing it up and distributing it around the car have yet to be explored. Safety and cooling issues not withstanding, the overall battery is cellular and is just composed of thousands of small batteries. We talk of form factors with mobile phones, and this is ultimately where we will move with cars. With an ICE, you have to design around the drivetrain, with an EV the drivetrain can become subservient to the design.
So then we move to efficiency, with respect to which the EV wins hands down. An electrical motor can deliver instant power and torque. In the US context with imperial units we have this equation.
Which translates into this chart:
As a result of the dynamic in the above chart, Tesla is currently able to deliver supercar type performance at a fraction of the cost of the likes of Porsche, Bugatti or Ferrari (source: here). Note that Tesla’s new Roadster due to be released in 2020 will have a base model that delivers zero to 60 in 1.9 seconds; that will be the first production car ever to break two seconds.
Moreover, such high-end, halo EV performance profiles will trickle down. Ultimately, taking price to price comparisons, the EV will leave the ICE car in the dust when the stop light turns green. For those of a non-macho disposition, you may not care. But to repeat (again) if the EV is equal on all metrics but ahead on just one that you care about (all at an equivalent price), then you will buy the EV.
And yes we still have the constraint of range and price. And yet again this takes us back to the battery. Indeed, the EV battery is like the little Dutch boy Hans Brinker whose finger in the dyke is the only thing stopping the entire neighbourhood being flooded and his family and friends being drowned. But once the battery gets down to a price and efficiency point not far from now, that dike will go and the ICE industry with it. The battery is the subject of my next post.
“What makes us buy a car?” Well something obviously does since global sales of cars and light vehicles reached around 100 million a year in 2017. Moreover, if we can answer that first question then we are in a better position to answer this question: “What makes us choose an electric vehicle rather than an internal combustion engine (ICE) vehicle?”.
These questions come from the demand side. Up to now, all my posts have basically been dealing with the supply side. That is asking questions such as “Who will sell EVs?, “Who is investing in EV production?”, “Will there be enough lithium?”. My answers to those types of question leads me to believe that the supply side can keep us on Tony Seba’s EV penetration S-Curve through to at least the mid-2020s. But will anyone buy these EVs even if the auto makers build them?
Hoping to shed some light on that question, I have been toiling over reports by companies and organisations that forecast how many vehicles will be sold in the future and what percentage of those vehicles will be EVs. In September 2017, David Roberts at Vox wrote a nice piece pulling all those forecasts together:
A reminder: I have taken Tony Seba’s death of ICE vehicles by 2030 forecast to mean 95% market penetration (130 million EV sales). From the middle chart above we can see what everybody else thinks:
Exxon Mobil: 10% by 2040
British Petroleum: 10% by 2023
Norway’s Statoil: 40% by 2040
Goldman Sachs: 9% by 2040
OPEC: 12% by 2040
Total SA: 22% by 2030
Bloomberg New Energy Finance (BNEF): 55% by 2030
So they don’t agree with Tony. But my interest with them is less in the forecasts themselves (a topic for a future post), but rather how they were arrived at. Keep in mind that what I did in the chart below is not make a forecast but rather fit a few data points into a logistic function to produce an S curve:
To repeat, this is a data fitting exercise. I’ve just taken Tony Seba’s point forecast of 95% penetration by 2030, the current penetration and sales of EVs, and added an S curve that looks reasonably sensible. But it is not a true forecast.
There are a couple of ways to forecast: 1) you can create a model which is purely empirical and takes an historical time series and then projects it forward, or 2) you can build a microeconomic model in which your forecast variable is a function of variety of other variables. Hoping to learn what methods and methodologies these esteemed organisations and companies have been using to arrive at their EV penetration rates, I trawled through the back pages of their reports looking for references and helpful appendices, but there were none to be found (at least as far as I could find; I am still working my way through these reports).
I get the distinct impression that the forecasts drop down like manna from heaven. It’s basically a game of pick a number that looks roughly right based on your organisation’s attitude toward EVs and then construct a vague argument surrounding that forecast number. You could argue, perhaps, that it is impossible to do anything more rigorous given the profusion of variables that come into the purchase decision, stretching from GDP growth rates and the oil price at the macro level to eco fashion and periodic EV safety scares at the micro level. But I still think we can do better than that, by adopting a somewhat different approach.
From the existing academic literature based around ICE purchase decisions, we know that consumers have a fixed budget and are presented with a basket of goods that they can spend the budget on (or save). You can consider that basket of goods as consisting of cars and non-car goods. A consumer will buy a car rather than the alternative of non-car goods if the car gives him or her a higher degree of utility (happiness or pleasure). The sources of utility derived from a car can be thought of as threefold:
Mobility
Aesthetic
Status signalling
So cars aren’t just a means of transport: they are also like large pieces of jewellery which give one pleasure through personal contemplation of them and through displaying them to other people.
Finally, the budget constraint is temporal: it stretches from the present to the future. So the purchase decision is not just bounded by the current available budget but also budgets through time. Accordingly, the purchase decision takes into account future costs captured by
Fuel
Maintenance
Depreciation and replacement
This is all pretty much common sense even if I have used economic terms, which may be unfamiliar for some. But I hope we can pull out some insights that will impact on EV adoption rates. The next bit is important: I don’t have to build a complicated multivariable model and input millions of data points into a computer to derive some insights. From basic theory, I know how the model will act in certain conditions. Let’s look at one such set of conditions.
First, we start with a budget constraint existing now in an ICE dominated world. Consumers have allotted to spend an amount of money now and in the future on a means of mobility whether EVs exist or not. This is where it gets interesting and why I feel the adoption forecasts by the likes of Exxon Mobile and the International Energy Agency make no sense whatsoever.
If any individual consumer is faced with an EV that is a) cheaper than an ICE, b) has lower ongoing costs than the ICE, c) has better mobility characteristics than the ICE, d) is prettier than the ICE and e) signals status better than the ICE, then that consumer will always choose the EV. That is because the consumer will get a higher level of utility from the EV purchase. (Alternatively, the consumer will spend less money buying an EV yet get the same amount of utility as buying the ICE, so then having extra money to spend on non-car goods.)
In fact, I can even relax these conditions a bit. Let all the factors be equal except one where the EV is better. That market will also flip 100% EV too. Don’t believe a market can do that? Look what happened with film and digital cameras.
I admit to some brakes on the transition: the consumer has to be aware of how the variables have changed in EV’s favour. That requires active information searches or exposure to information through advertising and marketing. The psychology and marketing literature covers that aspect of decision-making well.
Moreover, a more important reason why markets don’t flip overnight (ignoring the supply side) is because they go through an intermediate phase where some of the factors differentiating between products are positive and some negative. And given that consumers derive different utilities from each factor, the market will move in phases from one state to another as each individual faces a different decision-making process.
For example, purchasers of the first Tesla model S were deriving most of their utility through signalling that they a) were an early adopter of new technology and so were hip, b) had superior eco credentials and c) had immense wealth since they could afford the car. The rest of the population didn’t have the budget to buy the car and/or was less interested in the status signalling or, maybe, just didn’t like the look of the car. So the market didn’t tip the first day the Model S went on sale.
This brings me to why I think consensus forecasts for EV penetration are barking mad. As of 2018, EVs have already exceeded ICE vehicles with respect to a number of the variables. They pose less of a future budget constraint because they a) are cheaper to run, b) have lower maintenance costs and c) have a longer potential road life as they have fewer parts to wear out.
So we are left with the upfront price of an EV versus an ICE (which is the current budget constraint), the mobility functions, aesthetic and status signalling.
For EVs, nearly all of these factors relate to the size and cost of the battery pack. If the battery pack price can come down enough, the drive mechanism of an EV will be cheaper than an ICE, which means the overall vehicle will be cheaper. Note that engine power delivered by a battery is already better for an EV than an ICE. If the energy density of batteries improves enough, then the mobility characteristics such as range of the EV will be able to at least match the ICE. If the battery pack shrinks enough, this will improve mobility characteristics such a storage and opens up a range of new form factor possibilities that impact aesthetics.
There is one aspect of the aesthetic that I think an EV can’t match; that is, the joy brought to some people through owning a piece of precision engineering. A high end ICE is a marvel of engineering and an ICE engine has an aesthetic all of its own. The residual ICE market for me will be cars as luxury watches. Rolex, Tag Heuer, IWC, Breitling and Breguet of Switzerland still sell mechanical time pieces, but their market share is tiny. That to me is the fate of the ICE due to the cold, hard logic of the EV surpassing the ICE on every other variable that goes into a consumer decision-making process.
So the battery holds the key. That will be the subject of a future post.
In my last post, I suggested that we “follow the money” and see how much money is pouring into lithium mining projects. That post concentrated on the Big Three incumbent lithium miners whose operations are centred around extracting lithium brine from the salt flats and lakes of Chile and Argentina.
In this post, I want to look at the new entrants to the lithium mining market. Through doing so, I believe you can get a sense of the fever pitch activity in this space. And the lithium production ramp-up will need to stay at a fever pitch for the next decade for Tony Seba‘s predictions to come true. To repeat, he states that electric vehicles (EVs) will make internal combustion engine (ICE) vehicles near extinct by the year 2030 (and, in so doing, this will trigger an extraordinary social and geopolitical transformation).
But before so doing, I want to again provide context. A web article headline saying that company X aims to produce Y amount of lithium has no meaning if we can’t translate that into EVs on the road. Hence, let us repeat this chart from my last post by one of the Big Three incumbent lithium miners FMC:
I’m going to pluck out three very useful numbers from this presentation. First, total demand for lithium carbonate equivalent (see my post here for how that differs from lithium metal) was 215,000 tonnes in 2017. Second, FMC and most observers believe that the average EV sold in 2025 will have a battery size of 50 kilowatt hours (kWh). Third, around 1 kilogram (kg) of lithium is required per 1 kWh of battery cell. Since there are 1,000 kgs in a tonne, 215,000 tonnes of LCE translates into 21.5 million kgs of LCE. If each EV uses 50 kgs of LCE, then by dividing our 21.5 million kgs by 50 gives us 4.3 million EVs.
Now we have some context: if we allocated all our current lithium production capacity to EVs, we could produce 4.3 million of them. But to stay on Tony Seba‘s S curve we need to produce 22 million EVs in 2023 in order to have a chance of hitting 130 million EVs in 2030. So we need to find a lot more lithium.
Tougher still, the majority of existing production is being accounted for by uses that don’t relate to batteries:
And of the battery usage, the vast majority of lithium goes into consumer electronics rather than EVs (from a paper by Sun et al).
That chart is based on 2016 numbers, so in terms of lithium-ion batteries alone, we likely were around one third lithium for EVs, one third for phones and one third for portable computers in 2017. Accordingly, since lithium-ion batteries make up 45% of overall lithium demand, and EVs make up one third of lithium-ion battery demand, then EVs account for around 15% of overall lithium demand at the current time.
Given LCE production of 215,000 tonnes in 2017, this suggests 32,250 tonnes ended up in EVs. Dividing that by 50kg per car would get us on 645,000 EVs compared with actual sales of around 1.3 million. However, the EV market is still dominated by plug-in hybrid vehicles (PHEVs) and city EVs, both with very small batteries. The best selling 2017 EV in China, for example, was the BAIC EC80 with a 22kWh battery pack. So the numbers look about right.
To put 22 million new EVs on the road in 2023 with 50 kWh of battery per vehicle, however, would require 1,100,000 tonnes of LCE going into EVs as compared with 32,250 tonnes today. Is that possible?
In my last post, I stated that the Big Three incumbent lithium producers (SQM, Albemarle and FMC) were intending to increase LCE production from 125,000 tonnes to 485,000 tonnes over a timescale toward 2023. That’s an increase of 360,000 tonnes of LCE. Add on existing LCE production earmarked for EVs (32,500) and that gives us a total of 392,500 tonnes of LCE. But our need is north of 1,000,000. Can we get there?
Hard Rock Drives Lithium Growth
The mining of hard rock spodumene ore is where the real action is taking place in terms of capacity expansion, with Australian miners at the front of the pack. Nonetheless, tucked in behind the Aussies and a couple of years behind are a plethora of projects being advanced across the globe.
Generally, the investment community has been behind the curve in terms of forecasting lithium production hikes, but each new report pushes projections higher. The Canadian broker Canaccord Genuity in a report released in April 2018 sees a ramp up to over 900,000 tonnes of LCE in 2023. And given we are seeing funding announcements every day for new mines, I think it will be relatively easy to push that number above the 1 million tonnes mark. From the chart below you can see that the big gains are coming from hard rock, not brine operations.
The increase in hard rock supply is coming from both the expansion of existing mines and the introduction of new ones:
In the chart below, the production jumps for hard rock are broken down by mine. Importantly, of the mines listed, Greenbushes, Mt Marion, Mt Cattlin, Bald Hill and the two Pigangoora mines are all located in Australia and now in production. Further, Mt Holland and Wodgina, also in Australia, are fully funded and in the development stage. Let’s look at them more closely.
Talison Lithium (Greenbushes Mine, Australia): Talisan Lithium has been the role model for other Australian hard rock lithium projects due to the success of its Greenbrushes mine. The company is a joint venture between Tianqi Lithium of China and the US firm Albemarle. The current capacity of the mine is 80,000 tonnes of LCE, making it the largest single source of lithium in the world, but the firm has announced plans to double its capacity to 160,000 tonnes.
Neometals/Mineral Resources/Ganfeng Lithium (Mount Marion Mine, Australia): Mount Marion is a joint venture between the three partners: Neometals (13.8%), Mineral Resources (43.1%) and Ganfeng Lithium (43.1%). Stage 1 of the mine plan was complied in 2017, with the ability to produced 25,000 tonnes of LCE a year. After further ramp-ups, the joint venture is targeting production of 450,000 tonnes of 6% spodumene, which translates into 145,000 tonnes of LCE.
Galaxy Resources (Mount Cattlin, Australia): The Mount Cattlin hard rock lithium mine ramped up smoothly in 2017 to reach a run-rate of 19,500 tonnes of LCE by year end. In May 2018, the Korean steel company POSCO, which is also a leader in battery materials, paid Galaxy $280 million for rights to the Salar de Hombre Muerto brine concessions in Argentina. Galaxy will, in turn, use the capital to fast track another new brine project Sal de Vida in Argentina and a hard rock project James Bay in Quebec.
Pilbara Minerals (Pilgangoora):Pilbara’s mine will commence producing concentrate from June 2018. In Stage 1, the company is targeting 43,000 tonnes of LCE, rising to 100,000 tonnes after Stage 2 is completed. It has already signed off-take agreements with General Lithium, Ganfeng, Great Wall Motors and POSCO of Korea,
Altura Mining (Pilgangoora):Altura is just commencing operations and aims in Stage 1 to reach production of 30,000 tonnes of LCE. Stage 2 will double the LCE output. Off-take partners are Optimum Nano and Lion Energy.
Tawana/Alliance Mineral Assets (Bald Hill): The mine went into commercial production in April 2018 and is targeting around 20,000 tonnes of LCE with a stage 2 and 3 ramp-up also planned.
Mineral Resources (Wodgina Mine, Australia): The Wodgina project is the world’s largest hard rock lithium deposit. Mineral Resources (MRC) aims to produce 750,000 tonnes of spodumene 6% once the mine reaches full production in future, which is 240,000 LCE, or equivalent to the world’s current production. MRC is looking to sell off a 49% minority stake in Wodgina. It will be fascinating to see who will step up to buy this stake, one of the largest, highest quality lithium assets in the world up for auction..
Kidman Resources/SQM (Mount Holland Australia): The Earl Grey Project at Mount Holland is a 50:50 joint venture between Kidman Resources and one of the Big Three lithium miners SQM, with a resource of 7 million tonnes of LCE and an eventual annual production of 40,000 tonnes of LCE and is planned to come on stream in 2021.The JV is planning to be an integrated operation, with the principal end project being lithium hydroxide. Tesla has already entered into an off-take agreement to take a large part of the plant’s output.
Outside of Australia, the pace of development had been slower, but then in the first few months of 2018 activity suddenly accelerated, with important announcements surrounding two large Canadian mining projects.
North American Lithium (Abititi, Quebec, Canada):In March 2018, the Chinese battery manufacturing CATL took a 90% controlling stake in North American Lithium. CATL‘s battery factory expansion plans will make it into the largest battery manufacturer in the world and it wants to nail down guaranteed lithium supply. The first stage of the Abitibi project will see production of 23,000 tonnes of lithium. Prior to the CATL takeover, the company was hoping to raise $425 million with a tentative production of 25,000 tonnes of LCE scheduled for 2020. Given the delays prior to CATL’s move, that date for commercial production would appear to be a stretch goal, but the financing now appears in the bag.
Nemaska Lithium (Whabouchi, Quebec, Canada): The Whabouchi project, like the one at Abititi, appeared to be stuck at the financing stage for the last few years, but then everything changed with three quick-step developments. First, the company announced a US$350 million bond offering in April 2018 that was fully subscribed. Almost simultaneously, the Japanese tech giant Softbank bought a 10% stake in Nemaska for C$100 million. Then in May 2018, Nemaska came back to the market with a C$360 million stock offering, which again was placed easily. These moves, together with a $150 million streaming agreement with Orion (under which it sells a future stream of its lithium production for an upfront lump sum payment), mean Nemaska secured a C$1.1 billion financing package in the space of a few months. The company is now looking to reach commercial production in the second half of 2020, with an initial aim of producing 32,000 tonnes of LCE a year. It has already secured agreements to sell the lithium it produces to a large new battery manufacturer starting up in Europe: Northvolt.
If you think hard rock activity is restricted to Australia and Canada, here is a list of other projects that are progressing, albeit a little behind the Aussies and the Canadians:
Rio Tinto (Jadar, Serbia)
Birimian (Goulamina, Mali)
AMG (Mibra, Brazil)
Bacanora (Sonora, Mexico)
Prospect (Arcadia, Zimbabwe)
Piedmont (North Carolina, USA)
Lepidico (Alvarroes, Portugal)
Novo Litio (Lucidakota, Portugal)
There are a lot more projects out there, but that’s enough for now on lithium projects.
Finally, some thoughts on the scale of the ramp-up in lithium mine production. Projects either recently put in place, starting up now, or planned are raising total global lithium production capacity five fold from a little over 200,000 tonnes of LCE in 2017 to likely over one million tonnes in the early 2020s.
That kind of production hike costs an awful lot of money, but the money has been secured. In other words, a lot of smart people believe the market will be able to absorb over one million tonnes of LCE within five years. If they are wrong, the price of lithium will collapse and these projects will founder and those same people will lose an awful lot of money.
Bottom line: to not lose money those financiers are betting the market can absorb a five-fold hike in lithium production. And the only way that will happen is if EV production and sales rise almost 20-fold from their current levels. And a 20-fold rise in EV sales will keep us broadly in line with Tony Seba‘s S curve through to the early 2020s. So a lot of big money believes in Tony‘s vision (even though most players don’t realize they do).
Of course, to get to Tony Seba‘s ultimate forecast of 130 million EV sales in 2030 would require lithium production to not only jump five-fold between now and say 2022, but also then jump six fold again through to 2030. Five times six equals 30. That is a lot of lithium! But a thirty-fold jump in lithium demand also means an awful lot of money to be made. In sum, Tony Seba‘s vision rests on a mountain of lithium. To grasp whether that mountain will grow big enough, just listen to Deep Throat‘s advice:
We’ve spent a good few posts looking at the down-stream situation with respect to potential EV manufacture by the major auto makers. Now let’s climb all the way back upstream to the beginning of the supply chain in order to look at the battery metal miners.
I will start right off by saying that in a lot of my blog posts over the years I have been sympathetic to those who worry about resource constraints. Techno optimists and Dr Pangloss libertarians point to the explosion in material wealth over the last 200 odds years with not a serious, prolonged resource constraint in sight. Yes, we have had temporary issues with oil around the Arab oil embargo in 1973 and the fall of the Shah of Iran in 1979, but they have been short lived.
Part of my argument against such unconstrained optimism is that just because we have a 200-year data set with no resource constraints, that doesn’t mean you should be overconfident projecting that situation into the future. A centenarian can boast of an empirical record of having lived for 36,500 days. If we forecast that record forward, does that give him or her a better future life expectancy than a 10-year old?
If I were to volunteer to bat for ‘Team Resource Constraint’ against “Team Techno Optimists’, however, it would not be on the availability of lithium.
The first person to get major media attention over the potential for a lithium deficit was William Tahil when he posted a paper online in 2006 called “The Trouble with Lithium“, with a follow-up in early 2007 here. In the Executive Summary, he argued the following:
“Analysis of Lithium’s geological resource base shows that there is insufficient Lithium available in the Earth’s crust to sustain Electric Vehicle manufacture in the volumes required (my note: he means to replace internal combustion engine vehicles), based solely on LiIon batteries. Depletion rates would exceed current oil depletion rates and switch dependency from one diminishing resource to another. Concentration of supply would create new geopolitical tensions, not reduce them.”
Tahil’s analysis started where any such work would start today: by looking at the reserves and resources for lithium as reported by the authoritative US-government agency the United States Geological Survey (USGS). Every year, the USGS publishes a report titled “Mineral Commodity Summaries”, which looks at the reserve and resource availability of 84 minerals and metals (from abrasives, aluminium and antimony to zeolites, zinc and zirconium) across more than 180 countries. The latest edition dated January 2018 is available here. You can also find the 2006 edition on the internet, which reports lithium reserves, reserve base and resources as of 2005. So this is the table Tahil would have had in front of him when he wrote his report:
According to USGS, 4.1 million tonnes of lithium reserves were available worldwide in 2005, 11 million tonnes of reserve base and 13 million tonnes of resources. The terms ‘reserve’, ‘reserve base’ and ‘resource’ are very important to understand. The term ‘resource’ is the widest and is defined by USGS this way:
“A concentration of naturally occurring solid, liquid, or gaseous material in or on the Earth’s crust in such form and amount that economic extraction of a commodity from the concentration is currently or potentially feasible.”
Note the wording “potentially feasible”. The reason why it is “potentially feasible” rather than “currently feasible” could be for three main reasons:
The technology is currently not available to extract the metal or mineral but feasible technology is in existance.
It is too expensive to extract the metal or mineral.
The metal or mineral price is too low to allow a profit to be made extracting the metal or mineral.
Nonetheless, the word “potential” requires a judgement call. It does not include minerals or metals that could be extracted with a technology that is from the realm of science fiction. Similarly, the future price may be taken to be higher than the current price, but not significantly higher. Thus, no metal from mining on the moon makes it into the USGS’s resource or reserve base, even though it is feasible that at some distant day in the future we could put a mine up there. The definition of “reserve” is a lot narrower:
“That part of the reserve base which could be economically extracted or produced at the time of determination. The term reserves need not signify that extraction facilities are in place and operative.”
So here we are talking about metal or minerals that we know about and could be extracted profitably now; that is, at the current metal or mineral price, with the current mine and milling cost structure, and with current technology. Resources are a very slightly wider definition of the reserve base.
To get a sense of how these definitions mesh together, the USGS puts out this helpful table:
The table is particularly interesting in that it shows us what doesn’t make it into the resource base. First, the bottom row labelled “other occurrences”. This includes “unconventional” reserves, which relates to reserves that can’t be extracted with any current technology that we aware of, although new technology could emerge (think of fracking of natural gas and oil). It also includes “low grade” resources. Many metals and minerals are found in minute quantities over vast areas but are impossible to extract economically.
Second, we have “undiscovered” resources in the right-hand column. Despite major advances in satellite, gravimetric, magnetic and seismic mapping, the majority of exploration is still old school. That means looking at the nature of surface geological formations and river sediments, or employing geochemistry techniques and soil sampling. From there, you move on to targeted exploration drilling. All this requires boots on the ground and costs money. So when the price of a metal goes up, more boots hit the ground and you get a migration of resources from “undiscovered” to “identified”.
Now let’s go back to Tahil’s report. His firm, Meridian International Resources (MIR), came up with lithium reserves of 6.8 million tonnes and a reserve base of 15 million tonnes, somewhat larger than those of the USGS. This is because they identified reserves that USGS had not included.
Note also the wording “contained metal”. Since lithium can exist in nature in different metal compounds and ores, both the USGS and Tahil keep count of lithium reserves via contained lithium metal so as to compare apples with apples, not apples with pears.
Using ‘contained metal’ as the unit of account, however, is just one approach. Another, is to use the unit ‘lithium carbonate equivalent’, or LCE for short. Lithium carbonate is used in a range of applications, particularly the manufacture of lithium-ion batteries. In general, pure lithium is of little use by itself since it is so inflammable as you can see here:
One tonne of the widely traded lithium carbonate only contains 0.188 tonnes of lithium metal. Likewise, if you had one tonne of lithium metal, you could theotetically produce 5.323 tonnes of lithium carbonate. To make things more complicated, there are other useful compounds of lithium on the market, such as lithium hydroxide, that contain more or less lithium metal. Moreover, the most common form of hard rock lithium, spodumene, contains a different amount still. A useful conversion table for the most common forms of lithium is given below:
Experts in lithium are at ease switching between these different forms, and Tahil changes from talking about contained lithium metal when referencing reserves to talking about lithium carbonate when assessing the needed supply for battery production. Journalists? Not so good at doing this. Consequently, you frequently see a journalistic treatment of lithium availability becoming hopelessly confused, since the writer in question has got into a complete muddle with respect to his or her unit of lithium account. This detour into lithium convertibility is important otherwise we wouldn’t be able to follow the rest of Tahil’s argument, which goes like this.
Tahil starts with a lithium reserve base figure of 15 million tonnes. However, he goes on to state that only part of that can be used in the production of lithium-ion batteries.
Only Lithium from the Brine Lakes and Salt Pans will ever be usable to manufacture batteries: the Spodumene deposits can play no part in this….
….Looking back at the table, we can optimistically estimate the Global Lithium Salt Reserve Base as 2MT for Argentina, 3MT for Chile, 5MT for Bolivia and 1MT for China – 11MT contained Lithium in total or about 58MT of potential Li2CO3. The US salt deposits are in decline. The relatively small hard rock mineral deposits can be discounted when considering their availability for batteries.
Note he gets to 58 million tonnes of lithium carbonate by multiplying his contained metal reserve base target of 11 billion tonnes by 5.323. Next, he reduces that number further by postulating that only a certain amount of lithium can be extracted in the recovery process. This reduces his total lithium carbonate reserve base further from 58 million tonnes to 33 million tonnes.
Finally, Tahil tries to estimate the total lithium carbonate requirement should we electrify the world’s entire fleet of cars:
The World Automobile Parc currently stands at about 900M vehicles. If they all used a 5kWh LiIon battery, they would contain 6.3M tonnes of Lithium Carbonate – and the fleet is growing all the time. 6.3M tonnes is in the region of at least 18% of economically viable Li2CO3 Reserves, including Bolivia. With a more realistic projection of at least an average 10kWh battery per vehicle, 36% of the world’s recoverable Lithium Carbonate Reserves would be consumed. 10KWh is still a small battery – even if 20kWh was achieved with the same Lithium utilisation, Lithium consumption will be at unsustainable levels.
So this is the core of his thesis. We have 35 million tonnes of economically viable lithium carbonate and 6.3 million tonnes is required to equip 900 million cars with 5 kilowatt hour (kWh) batteries; that is 18% of total reserve base of lithium. And with a 10 kWh battery that goes up to 36% and with a 20 kWh it goes up to 72%. And that is excluding all the other uses of lithium and the fact that the world’s population keeps growth, economies keep expanding and people keep buying more cars. So we run out of lithium.
Note that the kWh is the basic measure of energy storage for an EV. The energy stored in an internal combustion engine (ICE) vehicle is the number of gallons/litres of gasoline/petrol held in its tank.
Before we start poking Tahil’s thesis with a pointy stick, let’s just tease a very useful metric out of it. If we need 6.3 million tonnes of lithium carbonate to equip 900 million vehicles each with a 5 kWh battery, that means that we need 1.4 kg of lithium carbonate per kilowatt hour of battery cells.
Now let’s take his methodology and apply it to the present day situation. We currently have a fleet of 950 million cars and 350 million commercial vehicles (OICA here), the latter requiring even bigger batteries. To make range anxiety a thing of the past, many auto experts believe each passenger car will need a 75 kWh battery. And let’s give our trucks and vans a 200 kWh battery on average each. That adds up to roughly 141 billion kWh’s worth of batteries. Multiply that by 1.4 kg of lithium carbonate per kWh and it’s about 200 billion kgs of lithium carbonate or 200 million tonnes. “Houston we have a problem: Tahil says we only have 35 million tonnes of lithium carbonate!”
In his report, Tahil was not a shrill for the oil industry: he was still arguing for a big battery push away from fossil fuels, but just thought the auto industry was backing the wrong horse, and he proposed other chemical configurations as being much more sustainable. Nonetheless, his article had sufficient hooks to appeal to editorial desks across the world: ‘Bolivia as the New Saudi Arabia’ or ‘World Jumps Out of the Energy Frying Pan into the Fire’; the headlines wrote themselves.
The media’s love of Tahil’s take on lithium has one worrying aspect: Tahil had already demonstrated a certain lack of analytical objectively by writing a nut-job piece of analysis suggesting that the Twin Towers destroyed in the 911 terrorist attack in New York came down due to two controlled nuclear explosions. In short, Tahil is a bit of a loony conspiracy theorist.
Once Tahil’s views on lithium gained mainstream distribution, it was not long before Newton’s third law kicked into play: “For every action there is an equal and opposite reaction”. So as Tahil become the media ‘go to’ man on peak lithium, a retired geologist named Keith Evans came out of retirement to be tapped by the media as the ‘go to’ man for the counter argument; basically, Evans said Talil was talking a load of old rubbish. In a simple piece of symmetry Evans wrote a riposte to Tahil titled “An Abundance of Lithium“.
As background, Evans was a specialist in lithium and had worked on a US government National Research Council report back in 1976 whose remit was much wider than the USGS. Their aim was to see how much lithium would be available worldwide in an era of rapidly expanding demand due to not only battery storage demand but also for fusion energy. A key point in his report, and one I would agree with, is that a rising price begets supply.
Nonetheless, most of the report takes issue with Tahil from the perspective of a static analysis. In other words, Evans believed that Tahil had got his numbers wrong just by incorrectly knocking out a whole bunch of potential lithium carbonate sources from hard rock spodumene, pegmatites and certain brine deposits. After he had crunched his numbers, Evans came up with these figures for reserves and resources:
So now we have nearly 30 million tonnes of contained lithium metal compared with Tahil’s figure of 11 million. That translates into about 160 million tonnes of lithium carbonate, not enough to supply my back-of-the-envelope 200 million tonnes necessary to electrify the world’s car fleet (let alone the storage energy needs). In other words, while Evans analysis was far more optimistic than that of Tahil’s, it basically leads us to the same conclusion: not enough lithium.
But wait a minute, I trained as an economist and I don’t like such static approaches to analysis. Let’s go back to the USGS reserve and resources chart and remember that the right-hand column refers to “undiscovered resources”.
And how does the market decide to turn “undiscovered resources” into “identified” ones when you have a limited existing supply but a very large potential demand? Through price.
Has the price signal had any effect? You bet! Let’s jump to the latest Mineral Commodity Summaries report published by USGS in January 2018. On page 99, we get this table for lithium:
Reserves are now at 16 million tonnes and resources at 53 million tonnes. Back in 2005, those numbers were 4.1 million tonnes and 13 million tonnes, respectively. So in 10 years we have found a shed load of lithium. Moreover, 53 million tonnes of lithium translates into 282 million tonnes of lithium carbonate, the kind of quantity we need to support an EV transition.
Now at this stage I need to introduce some caveats:
Moving from contained metal in ore or brine to lithium carbonate results in losses
Not all resources will easily migrate to reserves.
Many of the resources are in geopolitically unstable areas of the world.
Battery grade lithium carbonate and lithium hydroxide require exceptional purity. Many sources of lithium contain contaminants or impurities that are difficult to remove.
Putting in mine infrastructure costs a lot of time and money. Ditto scaling up ore and brine processing capability.
Nonetheless, while I am not some kind of libertarian free market Ayn Rand acolyte, I think markets do a pretty good job of discovering scarce but needed resources through the mechanism of price (even if they don’t do a good job of dealing with externalities like climate change).
As an example, in Appendix C of the USGS Mineral Commodities Summary 2018 the case of copper is highlighted:
“Reserves data are dynamic. They may be reduced as ore is mined and (or) the feasibility of extraction diminishes, or more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed, or currently exploited deposits are more thoroughly explored and (or) new technology or economic variables improve their economic feasibility. Reserves may be considered a working inventory of mining companies’ supplies of an economically extractable mineral commodity. As such, the magnitude of that inventory is necessarily limited by many considerations, including cost of drilling, taxes, price of the mineral commodity being mined, and the demand for it. Reserves will be developed to the point of business needs and geologic limitations of economic ore grade and tonnage.
For example, in 1970, identified and undiscovered world copper resources were estimated to contain 1.6 billion metric tons of copper, with reserves of about 280 million tons of copper. Since then, almost 520 million tons of copper have been produced worldwide, but world copper reserves in 2017 were estimated to be 790 million tons of copper, more than double those of 1970, despite the depletion by mining of more than the original estimated reserves.
Future supplies of minerals will come from reserves and other identified resources, currently undiscovered resources in deposits that will be discovered in the future, and material that will be recycled from current in-use stocks of minerals or from minerals in waste disposal sites. Undiscovered deposits of minerals constitute an important consideration in assessing future supplies.”
So we started with X amount of copper in 1970, since then we have consumed 2X amount of copper and now we are left with 3X amount of copper. That is the magic of the market dragging ‘undiscovered resources’ into the ‘identified’ category.
Now for this post, we did some wild back of the envelope forecasting of demand requirements for lithium based on Tahil’s assumption of 1.4kg of lithium carbonate being needed for 1 kWh of battery energy storage. Tahil’s numbers, however, look a bit dodgy and I think we could do better, so in my next post we will go full battery nerd and look at lithium content of different types of battery chemistry. In the process, we will start to build up a picture of how different battery chemistry leads to different performance and cost outcomes for different auto makers. Trust me, to make a call on whether Tony Seba will get 95% EV penetration and 130 million EV sales in 2030 you really need to know this stuff.
When following the EV story in the Western press, you would be forgiven for thinking that it is solely a story about Tesla. Having such a flamboyant and charismatic head in Elon Musk obviously helps the narrative. Another reason for the neglect of the Chinese EV market is that it is just bloody difficult to discern what is going on there.
The ownership structure of Chinese automakers is complicated, with public-private partnerships, joint ventures with foreign makers, and cross- and subsidiary-holdings galore. Moreover, new entrants into the EV market are announced almost every day, fresh alliances are formed, units are spun out or merged and foreign parters are brought in or dropped.
The fragmented and somewhat chaotic nature of the Chinese auto-manufacturing marketplace was viewed as a disadvantage in the Harvard-Kennedy study I referred to in a previous post. Yet out of this chaos has grown increasing Chinese market share: 10 of the top 25 best-selling EV models globally in Q1 of 2018 were Chinese brands (Chart from EVvolumes.com).
The situation contrasts markedly with what is going on in the overall Chinese market where ICE vehicles still dominate. There, Volkswagen sits supreme at the top, with only 1 Chinese maker in the top five. I’ve marked in red those Chinese producers who have EV models featuring in the table above (note Zhi Dou is a subsidiary of Geely).
Moreover, there appears to be a distinct difference in strategy between foreign and Chinese makers with respect to EVs. The few foreign firms that have invested heavily in EVs (Tesla excepted) have just promoted one or two EV models to champion in this space: think GM’s Chevrolet Volt and Bolt, Nissan’s Leaf, BMW’s i3 and Mitsubishi’s Outlander (although as I posted on here, over the last six months that has changed radically).
Many Chinese makers, by contrast, have been setting up or spinning out dedicated EV subsidies whose aim is to launch a range of models and who are less worried about cannibalising successful and profitable existing ICE lines. The Chinese makers also have the advantage of access to risk capital through multiple public-private channels under China’s unique form of Wild West capitalism. So the Chinese majors a) have large equity stakes from state-owned enterprises, b) are able to borrow from state-owned banks, and c) are also accessing global capital markets through listing on stock exchanges in China and Hong Kong.
Let’s dig a little deeper into those Chinese names who have had initial success in the Chinese EV marketplace, and some of the larger auto makers who are yet to show up in the EV rankings. We should note, however, that at this early stage of the S curve, rankings are very fluid and names can suddenly appear at the top of the sales charts from out of nowhere, or, for that matter, drop off.
Geely
In the US, most observers would nominate Elon Musk of Tesla, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook and Larry Page and Sergey Brin of Google as visionary leaders. Jack Ma of Alibaba has also made it into the Western consciousness but not so Li Shufu of Geely. A hybrid oligarch entrepreneur, Li has personally bought a 9% stake in Daimler and a 6% stake in Volvo Trucks. That comes after Geely (Li is chairman) bought Volvo cars outright in 2010. More recently, Geely took a controlling stake in supercar maker Lotus in January 2018.
With the announcement that Volvo will only sell EVs or hybrids from 2019, Geely has a dedicated EV brand at the top of the market and also one at the bottom of the market with Zhi Dou. It is also rapidly electrifying its mid-market offerings that it sells in its own name, with a major announcement of a new plug-in version of its flagship Bao Rui Sedan at the Beijing Motor Show in April 2018. The company’s intention is clear: it wants to extend the Volvo EV commitment across all its offerings at breakneck speed as spelled out by its CEO and President An Conghui:
“China will ultimately become the global centre of a new energy revolution that will reinvent the car as we know it, hence making its automotive industry stronger and more resilient. As a leading Chinese automotive brand, we’ve realised that competition in this new era will come in the form of a technology war and that we must lead through technological innovation to become the vanguard of this new age.”
Changan Motors
While none of Changan Motors models are present in the top 25 table above, the company already is marketing a range of EVs in the SUV, mid-market sedan and compact car segments of the market.
The company also launched its “Shangri-La Plan” in September 2017, which includes a $15 billion investment in EVs, and 33 EV models to be added to its existing line-up of 4 EV models,by 2025; at that time, all its models will be offered as EVs. An interesting part of the plan was the announcement of strategic partnerships with the German parts maker Bosch, the dominant Chinese search engine Baidu, the ride-hailing company Didi Chuxing and the lithium-ion battery producer CALT (the largest lithium-ion battery maker in the world).
Again, I am not sure how many observers of the EV market realise the type of technology and capital Changan is accessing through these alliances. Didi is the largest ride-sharing company in the world, far outpacing Uber and Lift. It has a market capitalisation of $50 billion, larger than Tesla. Baidu is the largest search engine the world after Google and one of the leading companies in artificial intelligence (AI). Its market cap at $75 billion is larger then any car maker in the world except for Toyota and Volkswagen.
Not surprisingly, Changan Motors wants to lever these relationships with Didi and Baidu so as to become a leader in autonomous driving technology.
SAIC (Shanghai Automotive Industry Corporation ) Motor
As is typical in the Chinese auto industry, the state-owned (and thus deep-pocketed) SAIC pops up in my top 50 sales ranking of the Chinese auto market in a number of different places. In seventh place is its Baojun marque, which is a joint venture between SAIC and General Motors at the budget end of the market competing against Geely and Chery. It does have EV aspirations and a dedicated EV plant was established in 2017.
For more high-end vehicles, however, we need to turn to SAIC Roewe, SAIC’s luxury marque. In my last post, I quoted Ken Brinsden of Australian lithium-mining company Pilbara Minerals. Ken said this at a presentation to the Melbourne Mining Club:
“For those of you who have a picture in your mind that the Chinese cannot build a quality outcome, I’m telling you they are already there.”
If you don’t believe him then check out SAIC Roewe’s EV SUV the eRX5 and their i6 saloon, which feature in the Chinese sales table above at ranks 16 and 18. Even more impressive is that SAIC have teamed up with Jack Ma of Alibaba to incorporate every aspect of digital technology into future car production (quote from here):
“In July 2016, Alibaba Group and SAIC (Shanghai Automotive Industry Corporation), one of the largest auto manufacturers in China, teamed up to launch the Roewe RX5, a brand new SUV that incorporated Alibaba’s ALIOS operating system and that was dubbed “The world’s first mass-produced internet car.” Just one year later, in July 2017, the Roewe RX5 was already the 6th best-selling SUV in its category in China.
And, most importantly, when asked about their buying decision 75% of customers said they purchased the RX5 because of its connectivity. In other words, what they valued most of all was not the car’s design or its comfort, its engine performance, or its safety standards, but the fact that it gave them the connected mobility that would integrate them seamlessly with the rest of Alibaba’s ecosystem, where smartphones, shopping sites, payment systems, video services, IOT-enabled home appliances, wearable devices, and – yes – cars, are all linked together as part of one comprehensive digital immersion experience.”
Dongfeng Motor Corporation
Another state-owned enterprise like SAIC, Dongfeng has been somewhat of a laggard in the EV space. Currently, it main avenue to incorporating more EVs into its line-up is through its joint venture with Nissan, the Dongfeng-Renault Automotive Company (DRAC). Yet don’t count Dongfeng out due to its access to huge amounts of capital.
FAW Group
The FAW Group is another state-owned enterprise; along with Changan Motors, SAIC and Dongfeng, FAW is part of what are called the ‘Big Four’ in Chinese automotive circles. In FAW’s case, its joint venture with Volkswagen Group has made it one of the largest players in the Chinese automotive market.
In December 2017, recognising that the Chinese automotive market was entering a new era centred around EVs, FAW entered an agreement with two other of the Big 4 state-supported enterprise Changan and Dongfeng to pool resources. The agreement had the following goals:
Establishment of a national innovation centre for intelligent connected vehicles.
Creation of an advanced technology innovation centre that will develop in the fields of new energy, internet connectivity and lightweight materials.
Joint investment and development of core technologies and shared platforms.
I would expect a number of well-financed new EV initiatives to come out of this alliance.
Great Wall Motor Company
In number eight in the overall (ICE plus EV) sales chart is Haval, which is a marque of Great Wall Motor Company specialising in SUVs. In my last post, I mentioned that Great Wall has also set up an EV specialist operation under the Wey marque.
A hiring spree for top European auto talent resulted in Jens Streingrabber, who was responsible for SUV development at Audi, coming to the group as CEO for the Wey brand. He was later joined by the chief designer from BMW. Great Wall’s aspirations are evidenced by initiatives to incorporate Level 5 autonomous driving capability and contactless charging in future Wey models.
Beijing Automotive Holdings (BAIC)
BAIC is 60% owned by the Chinese government and 12% by Daimler of Germany. In January, 2018, Beijing Electric Vehicle Company (BJEV) was spun out of BAIC as a pure play EV company and currently boasts the top-selling EV in China, the BJEV EC180/200.
In March 2018, BAIC opened a brand new dedicated EV factory in Changzhou, Jiangsu province, which at full production will be capable of making 300,000 vehicles per year. BAIC has promised to end the sale of all fossil fuel cars by 2025.
The parent company BAIC, together with other state-entities, own a majority share of BAIC Motors, which is an auto company listed in Hong Kong (the listed piece of BAIC whose market cap I have included in the chart above; but don’t confuse it with the valuation of the wider group). The principal business of BAIC Motors are joint venture operations with Daimler (Beijing Benz brand) and Hyundai (Beijing Hyundai brand), as well as its own-brand vehicles (Beijing Brand).
BYD (Build Your Dreams)
Considered the closest Chinese equivalent to Tesla, BYD is a pure EV player, built out of a battery business rather than an ICE business. Its model the Song ranked fourth by sales in China in the first quarter of 2018. Warren Buffet and Charlie Munger’s investment in BYD way back in 2009, so the company has had some publicity overseas. Listen to Charlie Munger talk about BYD’s CEO Wang Chuanfu:
BYD remains just as much an electronics company as an automotive company as can be see from its latest annual report:
Wang Chuanfu, visionary CEO, started the company as a specialist in lithium-ion batteries for cell phones and has expanded from there. A major difference between BYD and Tesla, however, is that BYD’s core competence has been in lithium-iron phosphate battery chemistry. Such battery cells are very stable but lack the specific energy (energy stored per unit of volume) of batteries (like Tesla’s) that make use of cobalt compounds. This is an important topic, but I will return to it as a post in its own right down the road.
The company also has a strategic alliance with Daimler, and in September 2017 Daimler announced a large expansion of both battery production and EV sales in China working with BYD.
JAC (Anhui Jianghuai Automobile) Motors
Another state-owned company though with a stock market listing. JAC also has an alliance with Volkswagen (along with FAW and SAIC) and in 2017 they announced a joint project to build 100,000 pure EVs per year. The JV will see $12 billion invested over the next 7 years through to 2025, with the aim of producing 40 EV models locally.
To date, its EV offerings in China, such as the iEV6e have been at the compact end of the spectrum like those of Geely and Chery.
Chery Motors
Chery is an independent non-state company like Geely. It is the only Chinese company that, to date, has had some success marketing its products abroad, with over one million units exported.
Simultaneous with the Frankfurt motor show, Chery announced its intention to start selling all-electric models in Europe in 2017. While the Chery eQ EV is a SMART-type city compact car, the new offerings being promoted and unveiled at recent motor shows are are at higher sticker price tags including the compact SUV Exeed TX. They incorporate high-end electronic systems similar to Tesla, such as a 10-inch touch screen.
Jiangling Motors (JMC)
In the past, JMC was mostly associated with a joint venture with Isuzu of Japan, selling compact cars. More recently, however, it has been expanding its EV offerings in larger model sizes. In addition, Ford has been negotiating with JMC to set up an EV operation in China aimed at producing commercial vehicles. This is in addition to Ford’s EV joint venture with another Chinese auto maker Anhui Zotye.
I could go on with this blog post since I have yet to cover the EV aspirations of a whole host of other Chinese EV makers, both incumbents and brand new entrants. The above, however, gives you a sense of the fever pitch activity going on in the Chinese market. Out of this rather complex mess of car-maker acronyms and complicated holding structures, I will, nonetheless, pull out some key points:
The Chinese market hosts a vibrant ecosystem of disruptors who wish to leapfrog western dominance of auto markets through jumping directly into high spec advanced EVs. These include BYD, Changan Motors, SAIC Roewe, BJEVs and Wey.
Like the US, China has access to leading edge digital technologies like AI through its huge tech firms such as Baidu and Alibaba. These deep-pocketed tech firms are forming alliances across the board with auto makers and in the process changing cars into consumer electronics items as much as a means of transport.
You shouldn’t count out the large laggards like FAW and Dongfeng. They have what a company like Chrysler doesn’t: massive state support. The support consists of a) vast pools of capital composed of both state-originated equity and loans and b) the means to transfer in technology through the state’s control of overseas makers access to the Chinese market (in effect limiting access to joint ventures only).
Lastly, take a looks at this video (which has a rather annoying computer-generated interpreting system from Chinese into English, but bear with it) You will get to see BYD’s 4 wheel drive EV the SEED, with a 600km range on one charge and an acceleration of zero to 100 km in 3.9 seconds. Tesla: eat your heart out.
Let’s have a recap of where we need to be on Tony Seba’s S curve in 5 years’ time. For starters, out comes this chart again:
From my last post, we saw that China’s State Council is targeting 2 million EV sales by 2020, and through the use of a series of central-, provincial- and city-government level carrots and sticks should get there with ease.
On Tony’s S curve, we need to register 5.6 million global EV sales to keep on track for 130 million sales by 2030; that is the logic of an S curve. This is where we stood in 2017:
So if China is doing 2 million EVs in 2020, we need to find 3.6 million EV sales from the rest of the world. Given we are estimated to hit 800,000 EV sales outside China in 2018, a jump to 3.6 million in 2020 is a more than three fold increase.
But we should remember that we are at the very foothills of the S curve. If we go out a bit further to 2023, we need to see global EV sales of 22.2 million units to keep Tony’s dream alive. Now while the Chinese state has gone full Tony, we have limited evidence that it’s citizens are all completely on board with the programme.
Currently, there is a high degree of force feeding of EVs going on via state-owned enterprise procurement, the EV subsidy system and city level non-EV car registration caps. Moreover, next year the “New Energy Vehicle (NEV)” 10% incentive scheme will, in effect, force all auto makers down the EV route.
Indeed, China, as an authoritarian state, could just ban internal combustion engine (ICE) vehicle sales just as many other countries have promised to do. The following table from Wikipedia shows the expressed intentions of a swathe of states and cities to ban ICE vehicles.
Such actions, however, will not in and of themselves get us to an EV sales penetration rate of 95% by 2030, since there are a host of countries, most obviously the United States, whose political systems are not very good at pushing their citizens to do things they don’t want to do.
Nonetheless, if the Chinese consumer chooses voluntarily to buy an EV over an ICE car– rather than be forced to buy and EV over an ICE car–then this will be a far better catalyst for the wholesale global adoption of EVs. So the question then is whether Chinese auto makers can make cars that Chinese consumers want without subsidies, NEV credits, city ICE bans or whatever.
For me, the wake-up call that Chinese manufacturers were actually far further along the road toward making attractive and desirable EVs came to me, strangely, while watching a presentation by the CEO of the lithium mining company Pilbara Minerals (ticker PLS listed on the Australian Stock Exchange). in April 2018, Pilbara Minerals CEO Ken Brinsden got a coveted spot to present at the prestigious (in resource circles) Melbourne Mining Club.
The beginning of the video consists of Ken being very smug about the fact that Aussie miners can now rebrand themselves as eco warriors rather than rapists of the planet. From 11:45 into the presentation, however, Ken switches to talking about China. Given that he has been negotiating and partnering with the Chinese battery material makers for some years now, he has a unique insight into what is going on there.
His general overview of how fast China is moving in EVs is something I am familiar with, but 21 minutes into the presentation I got rather a shock when Ken started to talk about a particular car: the luxury SUV called the Wey made by Great Wall Motors. Now I had vaguely heard of Great Wall, but I was completely unaware that a domestic Chinese manufacturer was capable of making a prestigious EV SUV that in time will compete directly with Tesla’s Model X. In Ken’s words:
“For those of you who have a picture in your mind that the Chinese cannot build a quality outcome, I’m telling you they are already there. And as a result, they are in a very short period of time going to become the dominant global car supplier because they have got the technology right, they’ve locked up the lithium-ion supply chain, and especially the raw materials, and they are also producing the quality product.”
I would echo Ken’s remarks about looking down on the ability of any developing Asian nation to go up the value chain. I am old enough to remember as a child Japanese cars being termed “Jap crap”, just as the UK car industry was going into terminal decline. Then in the 1980s and 1990s while working in Japan I took countless meetings with senior Japanese executives who had a similar attitude towards Korean products. Panasonic telling me that Samsung products were crap, Toyota same with Hyundai, and then Nippon Steel with POSCO. Then in the 2000s, I had a ringside seat as China’s Baoshan Iron and Steel made its meteoric rise both in terms of tonnes of steel produced and the quality of the products.
The brand CEO for the Wey is Jens Streingrabber, who was responsible for SUV development at Audi, and the chief designer of the Wey hales from BMW. So build quality is something Great Wall understands. True, the first low-end Great Wall cars that have arrived upon European shores have got poor reviews (for example see here), but I would not take that as indicative of where they will remain on the quality ladder. Great Wall’s aspirations are evidenced by initiatives to incorporate Level 5 autonomous driving capability and contactless charging in future Wey models. You can see a pure high-end Wey X EV at the April 2018 Beijing motor show here.
True, the Wey X on display at Beijing was a concept car, but full production versions of EV versions of Wey SUVs and Great Wall’s new pure EV brand ORA are on their way. And these are just part of a wave of EV disruption that is set to come out of China. I’ll spend one more post looking at the Chinese EV auto maker ecosystem across all the major makers, and the potential for Chinese EV makers to act as the mega disruptors, then it will be time to talk about Tesla.
In 2012, China’s State Council (China’s central government policy-making body) issued a plan with the snappy title “Energy-saving and new energy vehicles industry development planning (2012- 2020)”. It reiterated the target of having 5 million new energy vehicles (NEVs, which includes fuel cells and EVs) on China’s roads by 2020, but backed the mission statement up with a swathe of incentives. The table below is taken from a report by the International Council on Clean Transportation (ICCT).
So let’s annotate the above table a bit. BEV stands for battery electric vehicles, PHEV for plus-in hybrid electric vehicles. BD refers to the minimum battery-energy density measured in watt/hours per kilogram and ER relates to the minimum electric range of a vehicle in kilometres. At the current exchange rate of roughly 6.4 Chinese yuan to a US dollar, a subsidy of CNY10,000 is approximately US$1,500. So if a maker sells an EV with a minimum range of between 100k and 150k, the Chinese government will give that maker a subsidy of $3,900. Note that unlike many other such subsidy schemes worldwide, the subsidy goes to the manufacturer not the end purchaser.
Another point to note is that since the subsidy scheme was introduced, the minimum BD and ER criteria have been gradually raised, so forcing auto makers to constantly upgrade their EV product if they want to remain beneficiaries of the subsidies.
Two years after the original plan was unveiled, the Harvard Kennedy School of Government came out with a very damning report on China’s EV strategy. If you have ever sat down in a bar or pub next to a petrol head who believes that the height of sexual satisfaction is watching an old episode of Top Gear with Jeremy Clarkson you would get the gist:
Cars too expensive as battery costs too high
Range anxiety will kill demand
Can’t drive cross country as no charging infrastructure
If EVs succeed, utilities will need to burn more dirty coal to generate electricity so worsening air quality and CO2 emissions
The report also pointed out two China specific issues:
China car industry far too fragmented to support EV push
Trade and direct investment barriers to foreign entrants prevents major global auto makers (with better technology) supporting the plan
The Harvard report basically poured a bucket of cold sick over the “Energy-saving and new energy vehicles industry development planning (2012- 2020)” initiative:
“In mid-2013, China had only about 40,000 EVs on the road, more than 80% of which were public fleet vehicles (e.g. taxis and buses). China EV incentives face the same challenges as the rest of the world: high battery costs, long charging times, and no obvious business model for charging infrastructure. But domestic barriers loom even larger. The country has a weak domestic auto sector, counterproductive trade barrier, a balkanized subsidy and infrastructure program, and uncertainty over standards and technology.”
The author was also happy to take a pop at the New York Times journalist Thomas Friedman along the way (since Friedman has got the Tony Seba religion):
“The idea that electric vehicles for private and public use could allow China to leapfrog the internal combustion engine (ICE) and build a clean, high-tech transpiration system was a compelling vision. In 2010, New York Times columnist Thomas Friedman wrote: “It will be a moon shot for them, a hobby for us, and you’ll import your new electric car from China just like you’re now importing your oil from Saudi Arabia.” Despite Friedman’s forecast, China remains a long way from meeting its ambitious goals.”
Time to repeat a chart from yesterday’s post:
So China has gone from 44,000 EVs on the road in mid 2013 to an estimate of around 2.5 million at the end of 2018. To reach 5 million EV sales at the end of 2020 would require sales growth of less than 50% in 2019 and 2020. It really doesn’t look that difficult. Against the backdrop of these numbers, the Harvard-Kennedy study conclusion looks, well, embarrassing:
“In addition to the unexpectedly difficult infrastructure challenge, it seems the Chinese government was over-optimistic about the technological capacity of China’s domestic automakers. It overestimated the amount of technology transfer that foreign firms had imparted on their domestic JV partners. An absence of data in the Chinese policy making process helps explain why basic driver in the Chinese vehicle market, as well as more tangible issues such as battery costs, were poorly understood.”
Well they must have done something right to have already become the most vibrant and dominant EV market in the world.
On top of this, the Chinese state has recently added a very nasty stick to its tasty subsidy carrot in the form of a zero-emission vehicle credit system for auto manufacturers. The details of this scheme can be found here. It’s certainly complicated, but basically the idea is that every auto maker in China must sell a certain percentage of its vehicles that meet a range of EV standards. Auto makers get credits for those vehicles they sell that meet the necessary EV standards. But if they don’t get enough “New Energy Vehicle” (NEV) credits they can then buy them in from other companies who are more fully committed to the EV programme (and as such have surplus credits).
Imagine a race where all the contestants are forced to run with weights. Subsidies allow the EV contestants to run with lighter weights. Conversely, an NEV credit system means that that non EV internal combustion engine contestants have additional weights attached to their legs.
Moreover, the scheme is quite clever in that it forces Chinese ICE reliant makers to, in effect, subsidise and support aggressive EV makers.
Such positive and negative incentives have consequences; and the Chinese auto makers have responded accordingly. That is the topic of my next post.
In my last post we looked at the Big 6 automakers and their somewhat panicky strategy decisions over the last 6 months to fast forward EV capital expenditure and model roll-outs.
Teasing out the causation behind this step change in attitudes to EVs is not easy. Could it be the FoMO (fear of missing out) response to Volkswagen’s decision to go full EV via its “Roadmap E” plan (which sees VW’s entire model line-up available as EVs by 2030)? And was VW’s action, in turn, founded on the realisation that Tesla was moving down the food chain into the mass-market saloon segment with the Model 3? Personally, I don’t think either factor is the key catalyst in causing the attitudinal shift. For me it is China. And what is going in China is posing an existential threat to all the Western based auto makers. So what’s so special about China? Well:
China is the largest auto market in the world, 60% bigger than the US at number 2.
The Chinese auto market is growing faster than any developed nation’s auto market.
The Chinese government has made the shift to EVs a national strategic priority.
China’s EV market is the largest in the world, more than the rest of the world put together.
The Chinese EV market is dominated by local producers; Tesla, Nissan, VW and GM are nowhere to be seen.
China has a suite of new entrant disruptors with no ICE legacy business to protect.
The large incumbents with strong ICE sales are pivoting toward EVs at breakneck speed helped by access to almost unlimited pools of financial capital under China’s public-private system of capital allocation.
A couple of charts to illustrate these point (Source: here):
Then there is the fact that China has become the world’s battery behemoth. Batteries will get a number of posts dedicated to them in due course, but until then here is a taste of China’s positioning in the battery ecosystem:
China is buying up battery metal resources across the globe (or locking major battery metal miners into long-term supply contracts).
China dominates the production of electrode powders that are fabricated into cathode and anode components.
China has a web of component manufacturers covering cathode, anode, separator and electrolyte production.
China has the largest battery cell maker in the world, CATL, plus another 4 in the top 10: BYD, Guoxuan High-Tech, Tianjin Lishen and Optimum Battery.
CATL is also the world’s largest producer of lithium-ion battery modules, with BYD and Lishen also in the top 10.
Critically, the strength and depth of the Chinese battery food chain has resulted in every major non-Chinese battery overseas manufacturer getting involved in battery fabrication operations in China as well. This includes Tesla, LG Chem, Samsung and Panasonic.
The slides below are from the an investor presentation by the Australian lithium miner Kidman Resources. The aggregate numbers show battery production growing 6-fold between 2016 and 2020, and China dominates the market:
If Tony Seba is right and internal combustion engine fabrication will be an irrelevance by 2030, it will be a story made in China. Next post the Chinese government’s EV strategy and the Chinese auto makers’ response.
Let’s start with a chart from my last post. I’ve relabelled it to read ‘sales capacity’ adds rather than ‘production capacity’ adds just because we can then tack the time series on to the existing EV sales numbers we have for the last few years as reported by EVvolumes.com. In reality, there is a lag between leaving the factory and delivery to the customer, but given this is less than a year, I think it can be safely ignored.
In the chart below I add a bit of texture so you can see some numbers (rounded to the nearest 100k) for total sales and sales additions both historically and projected into the future based upon my Tony Seba central scenario S curve:
I’ve gone only as far as 2023 since we should be able to see evidence of action being taken now in order to obtain outcomes then.
To give you a sense of the development process, below is a fascinating presentation by Alex Patterson of Nissan showing you how to get from sketch to production for a new version of the Qashqai. What jumps out at me from this video is that the whole complex process only took three and a half years!
Now let’s do some bottom-up work. I’m going to do this by looking at the EV strategic intentions with respect to two main categories of auto maker:
The major motor manufacturers (VW, GM, Toyota, Hyundai, etc)
The disruptors (Tesla, BYD, SAIC, Geely, etc)
The Major Motor Manufacturers
A good starting point to this analysis is to take a look at the latest global market share of auto sales by maker to identify the big guys. The International Organisation of Motor Vehicle Manufacturers (OICA) publishes just such data, albeit with a lag. The latest release is for market share as of 2016 as can be seen here (2017 numbers are not out yet):
And because we are also interested in how many cars were actually sold, here is the same chart looking at those unit numbers.
So from my top charts, we were looking for 14 million EV sales in 2023 for Tony’s S curve, which also translates into 5 million units in additional capacity that year. Those numbers compare with Big 6 sales of between 5 and 10 million units per annum.
Next, let’s look at the declared intentions of the top six global auto manufacturers.
Toyota
Toyota has been sparring with Volkswagen for the title as world’s number one motor manufacturer for the past few years. When it comes to sustainability, it is well know for its investment in hybrid technology via the Prius and also for pioneering hydrogen fuel cells through the Mirai, but the company has been a laggard when it comes to pure battery electric vehicles (BEVs). Indeed, the company previously pushed the benefits of hybrids far more than pure EVs.
On 18 December 2018, however, the company announced a dramatic change of direction (press release here) when it stated that it was targeting 5.5 million EV sales by 2030, of which 1 million would be pure BEVs (not hybrids).
The shift away from ICE to EVs was made stark by this statement:
“Additionally, by around 2025, every model in the Toyota and Lexus line-up around the world will be available either as a dedicated electrified model or have an electrified option. This will be achieved by increasing the number of dedicated HEV, PHEV, BEV, and FCEV models and by generalizing the availability of HEV, PHEV and/or BEV options to all its models.
As a result, the number of models developed without an electrified version will be zero.”
And the R&D commitment to battery technology was unequivocal:
“Batteries are a core technology of electrified vehicles and generally present limitations relating to energy density, weight/packaging, and cost. Toyota has been actively developing next-generation solid-state batteries and aims to commercialize the technology by the early 2020s. In addition, Toyota and Panasonic will start a feasibility study on a joint automotive prismatic battery business in order to achieve the best automotive prismatic battery in the industry and to ultimately contribute to the popularization of Toyota’s and other automakers’ electrified vehicles.”
The commitments by Toyota don’t get us anywhere close to Tony Seba’s 95% EV penetration target in 2030, nor do they accelerate us up the S curve near term. But the central core of Seba’s analysis is that incumbents find it exceedingly difficult to counter disruptive technology since they are loath to junk past sunk costs in the old technology (in Toyota’s case also a bridge technology in hybrids). Indeed, every single one of Tony’s presentations has Kodak’s death at the hands of digital photography at the front of the slide deck pushing this point.
In this light, Toyota’s press release can perhaps be seen as reactive rather than proactive. And while Toyota has admitted that there exists a threat from pure EV, their response is measured when compared with arch-rival Volkswagen.
Volkswagen
Wind back two months from Toyota’s press release and you come to Volkswagen’s unveiling of “Roadmap E” on 17 September 2017 (press release here). It leads off with this:
“The Volkswagen Group is launching the most comprehensive electrification initiative in the global automotive industry with its “Roadmap E”: Volkswagen will have electrified its entire model portfolio by 2030 at the latest. This means that, by then, there will be at least one electrified version of each of the 300 or so Group models across all brands and markets.”
And this was written by Matthias Muller, Chairman of the VW Board (not by Tony Seba):
“The transformation in our industry is unstoppable.”
Unlike with Toyota, we have a nice big solid number to stick on Tony’s S curve:
“The Company estimates that around one in four new Group vehicles – up to three million units a year depending on how the market develops – could already be purely battery-powered in 2025.”
In my former industry finance it was always a good idea to follow the money to find incipient trends. In this regard, VW’s press release gives us a lot of money to follow:
$20 billion in direct investments in industrialisation of e-mobility
$50 billion of battery procurement tenders
Setting up of in-house battery production lines
Gearing up for next generation solid state batteries
It seems VW has decided to go ‘all-in’ with the EV game. Is this an incumbent showing enough flexibility to survive? We shall see.
Hyundai
Like Honda and Toyota, Hyundai (and it’s subsidiary Kia Motors) has been somewhat lagging on the electrification of its line-up due to an ongoing commitment to hydrogen fuel cell vehicles. Responding to the aggressive plans announced by Toyota and VW, however, Hyundai announced a $22 billion investment in electric cars in January 2018 and that a new line-up of 31 models by 2020 and 38 models by 2025 . There doesn’t appear to be a specific press release related to their “Clean Mobility” strategy plan, but you can find details in one of Hyundai’s investor presentations here.
No EV sales targets have been announced as of this time.
General Motors
The three emblems of the rebirth of the EV have been Tesla’s Model S, the Nissan Leaf and G.M.’s Chevrolet Volt. Yet until October 2nd, 2017, G.M.’s commitment to the EV space appeared half-hearted due to its meagre model line-up. That all changed with this press release.
“General Motors announced today how it is executing on a major element of its vision of a world with zero crashes, zero emissions and zero congestion, recently announced by GM Chairman and CEO Mary Barra.
“General Motors believes in an all-electric future,” said Mark Reuss, General Motors executive vice president of Product Development, Purchasing and Supply Chain. “Although that future won’t happen overnight, GM is committed to driving increased usage and acceptance of electric vehicles through no-compromise solutions that meet our customers’ needs.”
In the next 18 months, GM will introduce two new all-electric vehicles based off learnings from the Chevrolet Bolt EV. They will be the first of at least 20 new all-electric vehicles that will launch by 2023.”
Like VW, GM appears to have got the EV religion.
Ford
In May 2017 Ford got a new CEO Jim Hackett whose brief was to prepare the company for a completely reconfigured marketplace. The incoming CEO’s first strategy announcement in October 2017 was short on detail apart from a commitment to aggressive cost cutting. The forward-looking ideas vaguely centred around a smart car agenda, with the China market playing a key role. The most detail we got on EVs was this:
“The company recently announced a dedicated electrification team within Ford focused exclusively on creating an ecosystem for products and services for electric vehicles and the unique opportunities they provide. “
In January 2018, however, we got more meat when Ford’s Chairman Bill Ford announced the following measures:
16 fully electric vehicles to be added to line-up by 2022
40 fully or partially electrified vehicles to launch over that time frame
Investment in EVs to rise from $4.5 billion to $11 billion
In an important move necessary to increase EV penetration, Ford also explained how electrification of existing SUVs and pick-up was to take place, making this comment to Reuters.
“If we want to be successful with electrification, we have to do it with vehicles that are already popular.”
Nissan
Rather than a standalone company, Nissan can best be thought of as part of the Nissan-Renault-Mitsubishi Motors alliance. As such the group taken together could be viewed as the largest auto maker in the world.
Rather like GM with the Volt, however, Nissan has been somewhat slow to take the technology from its breakout product the Leaf and apply it across its product range. Again I can hear Tony’s voice talking about the lack of ability of incumbents to disrupt their own businesses even when they are leaders in the technology driving the disruption.
But completing our orgy of announcements from the Big 6, Nissan has suddenly decided to aggressively play catch-up with a commitment to sell 1 million EV cars a year by 2022. The March 23rd press release is here and the “M.O.V.E. to 2022 Plan” has these goals:
Develop eight new pure electric vehicles, building on the success of the new Nissan LEAF
Launch an electric car offensive in China under different brands
Introduce an electric “kei” mini-vehicle in Japan
Offer a global crossover electric vehicle, inspired by the Nissan IMx Concept
Electrify new INFINITI models from fiscal year 2021
Equip 20 models in 20 markets with autonomous driving technology
Reach 100% connectivity for all new Nissan, Infiniti and Datsun cars sold in key markets by the end of the plan
Conclusion
The strategy announcements are different in texture and difficult to to compare, but they have elements in common:
A broadening of electrification across the product range
The acceleration of EV model roll outs to the early 2020s
A tidal wave of money going into the EV space
A massive recommitment to EV R&D, particularly with respect to batteries
Not one mention of any new initiative with respect to ICE technology
Lots of FoMO (fear of missing out)
And lots of plain FEAR (It seems that VW’s September 2017 strategy announcement has scared the crap out of VW’s competitors, and their strategic ripostes have been tumbling out one after another since then.)
Moreover, if we assume that the battery materials, battery cells and battery modules will be available to make the cars (I’ll come back to those issues in later posts), the Big 6 makers have the intention to try to sell EVs across every model segment. Thus, on the supply side of Tony Seba’s forecast, the big guys intend to play a major part. Of course, just because you can make an EV, it doesn’t mean anyone will buy it. But that is the demand side, which I also want to leave for later.
Rather, for my next post I want to look at the disruptors. How much money can they raise, how many factories can they build, how many EVs can they sell. To date, Tesla sales are really just a rounding error in terms of total global auto sales. Will that change? And, then there are the Chinese.
Risk and Well-Being 