A handful of battery makers could force an industry showdown this year by taking a long-term bet on market dominance and lowering prices. And if they do not, there is a good chance automakers may force price reductions anyway. Industry watchers believe the battery market is reaching a tipping point similar to that seen a few years ago in the photovoltaic (PV) solar sector, where one or two players could trigger a wave of consolidation by launching cut-price products.
The issue is which manufacturers will be willing to sacrifice their short-term profits in exchange for market share, believes Hans Streng, senior vice president and general manager of the electric vehicle charging infrastructure product group at ABB. “Right now the prices set the volumes in the battery market, not the other way around,” he says.
“It’s a strategic choice for battery manufacturers whether they want to open up the market for themselves or wait for change to happen for them.”
For products above 1-2kWh, battery prices are still too high to encourage mainstream adoption in areas such as electric vehicles and residential energy storage, he observes. But market pressure from the automotive and residential storage domains will change this situation rapidly.
Batteries without subsidies
ABB forecasts that by the end of the year it could be feasible to deploy battery storage in the 2-5kWh range without needing subsidies. What remains to be seen is who will lead the way in bringing down prices and opening up the market. “Technology is no issue,” Streng says. “It’s the business model. These guys have to make profitable businesses with certain margins.
“The question is, when do you say: ‘It’s not about next year’s profit, it’s about the profit for the next 10 years’? It’s a choice.”
According to this view, at any point a battery maker could break the status quo with a low-cost product, sacrifice some short-term profit, but mop up in the longer term by tapping demand for cost-effective energy storage. Not all manufacturers can do this, of course.
A strategic play of this nature would require enough financial muscle to take a short-term hit plus enough courage to disrupt the current market. One company that could pull it off is the Korean behemoth Samsung, which has profits roughly equal to 17% of South Korea’s entire gross domestic product and a leadership that has demonstrated plenty of ambition in entering new markets.
The business is already a major battery supplier to the automotive industry and was reported last year to be in talks with Tesla Motors. The Tesla connection could prove relevant because if no battery manufacturer is willing to cut its prices voluntarily then an automaker might force the industry’s hand.
Lowering battery prices
Traditional car manufacturers have less incentive to do this, since they make plenty of money from standard vehicle sales, but as an ambitious electric-only player Tesla would certainly do all in its hand to lower the price of its batteries (and therefore its cars). On the battery side, furthermore, Samsung is not the only business that could lead a market shakeup.
Panasonic, too, could be a contender given its existing links to the automotive and solar markets. Other examples might not be hard to find. The point here is that battery manufacturers are teetering on the brink of an order-of-magnitude price drop and are being inched closer to the edge as demand for mid-size batteries grows.
What is likely to happen next can be guessed at from situations where this sort of thing has happened before. The most obvious example is PV, which has seen tremendous consolidation following Chinese moves to dominate the market. One of the more popular posts on the Greentech Solar website lists known casualties in the battle for PV market dominance.
A similar wave of extinctions could hit the battery industry once a few players make a play for market dominance. In a year’s time, who is to say there won’t be another list detailing dead and dying battery companies? And if you are a battery manufacturer boss right now, how long will you dare to outstare your competitors before making a move?
Written by Jason Deign