The U.S. will soon be awash in lithium-ion batteries for electric cars. But how many are too many?
The other day I observed a rush-hour traffic jam of Toyota Prius’ on a major artery that leads into Washington, DC. The particular stretch of road is restricted to high-occupancy vehicles and hybrids. So Prius-driving commuters have an edge getting to work in the mornings. Seeing hybrid after hybrid, I mused on the likely demand for the first generation of mainstream electric vehicles like GM’s Volt and the Nissan Leaf. Federal and local government incentives and restrictions, like the rush-hour one, really muddy the waters when experts try to forecast how many of these cars will be sold.
One whopping market-muddier is the Federal government’s support of U.S. electric-car battery manufacturers.
Yesterday afternoon, President Obama visited the site of what will be an LG Chem manufacturing facility for lithium-ion car batteries in Holland, MI. The plant has received a $151.4 million Department of Energy grant as part of the Recovery Act of 2009.
The President’s focus was to tout the administration’s efforts to create manufacturing jobs in the U.S., and to promote domestic electric-car battery making as a brave new industry for the nation.
Analysts I talk to say the effort will help get a domestic industry off the ground. And as my colleague Marc Reisch points out, auto makers have a large pipeline of electric cars on the way, which feeds demand for batteries. But on the other hand, many question whether the rush to take advantage of funding may so distort the balance of supply and demand as to create a huge overhang of unused batteries.
There will clearly be an initial demand from auto makers, but at some point, the end consumer has to enthusiastically adopt electric cars in order to move the expected amount of production.
Lux Research senior analyst Jacob Grose estimates that in 2015 global sales of lithium ion batteries for electric car or grid applications will be 11 billion watt hours. That’s the demand side. On the capacity side he predicts manufacturers will make 18.2 billion watt hours worth of batteries. That difference of 7.2 watt hours will be oversupply.
Grose says the over supply will be due to subsidies for the factories, as well as a moderate uptake of electric cars by consumers, mostly due to the high price tag.
“In our best estimates for electric vehicles, unless gas prices unexpectedly spike, car sales won’t scale up at the rate needed to use all these batteries,” he says. A temporary glut could be good news for consumers though. Grose anticipates that the oversupply along with a continuing slow recovery would put downward pressure on prices
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