Remember when Tesla's Gigafactory was going to be the world's biggest lithium-ion battery plant? By the time it reaches full capacity in 2020, it will be producing 35 gigawatt hours of cells each year -- more than the whole world manufactured in 2013. Impressive, huh?
Well, as Gadfly pointed out in July, there's a contender for Elon Musk's crown: BYD, the Chinese electric carmaker that already has about 23 percent of the market for large-scale batteries and is planning to ramp up to 34 gigawatt hours in 2019.
But wait, there's more. Contemporary Amperex Technology, another Chinese battery maker, is planning an initial public offering to help fund a 10-fold increase in capacity to reach 26 gigawatt hours by 2020, Bloomberg News reported Friday.
You then have to add in all the other producers that are increasing output. Consultants Taiyou Research put total production capacity by 2020 in the region of 130 gigawatt hours, leaving Tesla with a scant quarter of the market -- and that's probably a low estimate.
But wait! There's more more. All those new batteries powering the first few generations of electric vehicles will begin wearing out around that point, so electric carmakers will start buying them back, recycling the materials and using them to build more lithium-ion batteries.
Five gigawatt hours of pre-loved lithium-ion batteries will come on the market in 2020, according to Bloomberg New Energy Finance analyst Claire Curry, rising to 29 gigawatt hours in 2025.
If you're getting a sense of deja vu, it might be because solar panels went through a similar production spike over the past decade. That's not been great news for the companies that make them, which have seen module prices fall by nearly two-thirds. Analogous business-model problems plague the firms that hope to make money from installing all those cheap panels, as Gadfly's Liam Denning has written.
Lithium-ion batteries appear to show parallel economies of scale. The technology has a learning rate of about 14 percent, according to BNEF's Julia Attwood, meaning prices should fall by that amount every time production doubles. On that basis, the cost of battery packs could drop from $384 per kilowatt hour in 2015 to $182/kWh in 2025 and $126/kWh in a Gigafactory-scale plant by 2030.
Assuming demand holds up, that's probably good news for the likes of Tesla and BYD, which should primarily be consumers of lithium-ion batteries and therefore benefit when prices fall.
Companies such as Samsung SDI, LG Chem and Panasonic that are more focused on making money by supplying cells should be more concerned. A market that's experiencing a gold rush is a great place to make your fortune, but it's prime territory to lose your shirt also.
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