The technology surrounding lithium-ion batteries has been under intense scrutiny for almost a month now. On Sept. 19, Toshiba (TOSBF) became the latest company to recall laptops powered by Li-ion cells supplied by Sony (SNE). Toshiba says it is recalling 340,000 computers over concerns that they run out of power prematurely or don't recharge properly.
This follows recalls by Apple Computer (AAPL), Dell (DELL), and Matsushita Electric (MC) over worries about these high-powered batteries are prone to overheating and could represent a fire hazard.
All of this has been supremely bad news for battery makers such as Sony, which faces a financial hit of up to $258 million to cover the costs of recalls by Apple and Dell—and probably more now that Toshiba has joined the ranks.
INVESTMENT QUESTIONS. Yet Li-ion cell safety concerns also raise questions about the investment plans by automakers that are keen to replace nickel metal hydride (NiMH) batteries used in hybrid gas-electric autos, one of the hottest segments of the global car industry (see BusinessWeek.com, 1/24/06, "Hybrids with Li-Ion in Their Tank").
At the moment though there are few signs that automakers are scaling back their interest in Li-ion batteries. On Aug.14, the same day that Dell made its recall, GM (GM), Ford (F), Daimler Chrysler (DCX), and the U.S. Energy Dept. handed Johnson Controls and Paris-based Saft Advanced Power Solutions a two-year contract to develop lithium ion batteries.
Japan's auto giants also are also keen to shift to the Li-ion battery technology, which offers better-performance batteries that are lighter than traditional NiMH ones. In April, the Nihon Keizai, Japan's biggest business daily, reported that hybrid leader Toyota (TM) would begin offering hybrid version of all models selling over 100,000 units, and aims to quadruple hybrid sales to 1 million by 2012.
LI-ION CRUCIAL. Key to that ramp-up, say analysts, will be the adoption of Li-ion cells. Toyota hopes to cut costs on hybrid engine production by more than 30%, the paper reported. Toyota hasn't commented on the speculation, but the next generation gas-electric Toyota Prius, slated for introduction in 2008 or 2009, will likely include Li-ions (see BusinessWeek.com, 4/3/06, "Toyota Winning the Hybrid Race"). In October, 2005, Toyota also increased its stake in Panasonic EV Energy, a NiMH battery maker which is also developing Li-ions, to 60%.
Honda (HMC), which like Ford uses Sanyo Electric (SANYY) NiMH batteries in its hybrids, is also expected to follow suit, although the company says it has no plans at the moment to use the technology. Sanyo, a leading Li-ion supplier, started a test production line for Li-ion cells for hybrids in March in Tokushima, western Japan, and plans to begin mass producing the cells in 2008. The company expects the first Li-ion hybrids to start appearing in 2008 or 2009.
Meanwhile, on Sept. 18, Murata, a Japanese electronics parts maker, announced it would also begin producing Li-ions in 2008. The company will initially focus on power tools and motor-assisted bicycles but aims eventually to also supply batteries for hybrid vehicles.
OUTSIDE FACTORS. One exception, of sorts, is Fuji Heavy Industries (FUJHY), owner of the Subaru brand. It had been planning the first introduction of a Li-ion powered hybrid passenger car in 2007 using cells developed in collaboration with NEC. That would have been an industry first for passenger cars, but the company now says those plans may be put on ice. "We're reviewing the plan to launch a Li-ion powered hybrid in 2007—the details aren't yet decided," says Shinichi Murata, a company spokesman.
The recent scare over laptop batteries isn't the primary reason. It has more to do with Fuji Heavy's relationship with Toyota. In October, Toyota bought an 8.7% stake in Fuji Heavy from GM. As part of the hook-up, Fuji Heavy will produce Camrys for Toyota in Indiana while the two will consider the development of a Fuji Heavy hybrid based on Toyota's hybrid system. That, say analysts, will leave Fuji Heavy to divert more of its own resources for developing diesel engines, which it needs for the European market.
It's easy to see why automakers are upbeat about Li-ion cells. In short, a Li-ion powered hybrid system would take up less space, weigh less, and boost fuel efficiency. Sanyo has already produced Li-ion cells with power densities of 3,500 watts per kilogram—more than double today's NiMH batteries. And while NiMH cells produce 1.2 volts, Sanyo's Li-ion models pump out 3.7 volts, so a car would need only one-third the number of cells.
COMPATIBILITY QUESTION. What's more, the increased performance derived from using Li-ions should be a key driver of hybrid sales and in turn help bring down the cost of making hybrids. By 2010, Sanyo execs expect Li-ions to be the dominant batteries used in hybrids. By that time, Sanyo estimates that automakers will sell some 3 million hybrid cars a year globally, and the hybrid premium, the additional cost of producing a hybrid over a standard gasoline engine, could fall to less than $2,000 from around $4,000 today.
But should concern over the safety of Li-ions, highlighted by the recent laptop recalls, give automakers cold feet? Not necessarily. Analysts point out that some of the recent problems aren't necessarily a problem with Li-ion technology per se.
For example, following the recent Dell/Sony recalls, David Gibson, an analyst at Macquarie Securities in Tokyo, noted that the problem stemmed not just from Sony's cells but from the interaction between Sony's cells and Dell's notebooks. "The Sony battery cells were defective but it's the combination with Dell power management in the notebook that has increased the fire risk," Gibson noted in a research report. "Other users of the cells believe they do not have an issue."
HIGHER STANDARDS. Others add that from a carmaker perspective, Li-ions with suitable housing and cooling systems need not be any more dangerous than NiMH-powered vehicles or traditional gas-powered cars. After all, gasoline is hardly the most stable of energy sources.
Brian Barnett, a battery expert at Tiax, a technology research firm based in Cambridge, Mass., says that while recent safety concerns are valid, they should be put into perspective. He notes that there are millions of Li-ion cells in use but only a small proportion of mishaps. In other areas of everyday life, such reliability would be welcome. "There are thousands of car accidents annually but no one talks about banning cars," he says.
Barnett adds, though, that automakers may require higher levels of cell reliability than electronics companies before they can press ahead with Li-ion plans. One reason is that the potential impact of car battery packs catching fire is greater than that of a rogue laptop. Unlike laptops, cars travel at high speeds and contain passengers. Another factor is the number of cells needed to power a hybrid system.
THE CASE FOR CAUTION. "You have six cells in a computer, but in a hybrid electric vehicle you might have 100 cells," Barnett says. That means if one Li-ion cell in a million is faulty whether used in laptops or autos, problems will be more commonplace in cars. "The implication is they may have to find even higher levels of safety," Barnett adds.
One other big reason automakers might be wise to tread carefully is to avoid more recalls of their own. That car companies are cramming ever more gadgets and electronic wizardry into autos is one explanation behind the recent jump in recalls. Even Toyota, which has built its reputation around quality, has been feeling the heat this year, making several high-profile recalls (see BusinessWeek.com, 7/20/06, "Troubles Can't Stop Toyota's Growth").
Nissan, meanwhile, booked a $200 million charge for the quarter through June due to recalls in the U.S. That helped send its quarterly profits tumbling by 26%. Switching to Li-ions with undue haste could create more problems. Automakers, wary of the problems at Dell, Apple, and now Toshiba, will have to strike the right balance.