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Li-Ion-Batteries_Bubble_final_E.pptx Stuttgart, October 2012 Lithium-ion batteries The bubble bursts

Roland Berger Li Ion Batteries Bubble Bursts 20121019

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Page 1: Roland Berger Li Ion Batteries Bubble Bursts 20121019

1 Li-Ion-Batteries_Bubble_final_E.pptx

Stuttgart, October 2012

Lithium-ion batteries – The bubble bursts

Page 2: Roland Berger Li Ion Batteries Bubble Bursts 20121019

2 Li-Ion-Batteries_Bubble_final_E.pptx

Consolidation in the lithium-ion battery (LiB) market is inevitable – Stakeholders need to revise their strategies

Source: Roland Berger

SUMMARY

The large-format lithium-ion cell market will face overcapacity and price wars: - Demand is lower than expected - A lot of capacity has been built up – but new equipment to be installed will be more efficient - Prices are down to 180 and 200 EUR/kWH in 2014/2015

Bottom-up calculations show that with an expected EBIT margin at or below 5%, "early movers" in particular cannot generate enough EBIT to finance their cost of capital

New developments on the material side (mainly cathodes, electrolytes/separators) as well as in production technologies will lead to further cost reductions – but require more cash for introduction and industrialization

Therefore only the already large players or companies will survive the shakeout, as their parent companies might be willing to provide the business with sufficient capital

That's why cell manufacturers as well as their customers – the OEMs – need to rethink their strategies

A

B

C

Page 3: Roland Berger Li Ion Batteries Bubble Bursts 20121019

3 Li-Ion-Batteries_Bubble_final_E.pptx

OEMs will increase xEVs sales significantly in the short term – Toyota will remain the main player

Hybrid light HEV1) BEV

A

2015

0.8

2011

0.3

2015

2.6

1.3

1.3

2011

1.1

0.7

0.3

2015

0.6

2011

0.1

Comments

1) FHEV, PHEV

Source: Roland Berger

OEMs xEV sales plans by xEV type [m units]

• Figures are a summary of OEMs' sales targets for their xEV programs

• They do not include sub-A-segment vehicles (vehicles not classified as "passenger cars")

• Sales targets tend to be on the optimistic side – but were not adjusted by Roland Berger

38%

17%

25% 80%

OEMs excl. Toyota Toyota xx CAGR 2011-2015

DEMAND

Page 4: Roland Berger Li Ion Batteries Bubble Bursts 20121019

4 Li-Ion-Batteries_Bubble_final_E.pptx

However, in one 2020 scenario, xEVs will represent only a minor share of powertrains in EU, US and China – Introduction delayed

Base scenario: xEV market share in the EU, US and China, 2020 [%]

COMMENTS

• Market share calculated based on an assessment of push (legislation-driven) and pull (customer-driven) factors for xEVs in the EU, US and China

• The market shares shown represent the minimum required xEV share to meet push and pull in each region – Higher xEV market shares are possible and even likely

• The EU's xEV market share achieves the level required to meet EU CO2 emissions targets in an aggressive scenario regarding ICE optimization and driving resistance reduction

• The US's and China's xEV market shares are primarily required to fulfill pull factors for xEVs

• Further legislative action might increase share

• Japanese/Korean figures expected to fall between the US and EU

1% 1% 1%

97%

0% 2%

2% 0%

95%

1% 2%

0%

26%

70%

BEV/RE

PHEV

FHEV

Hybrid Light

Conventional incl. Start-Stop

Source: Roland Berger

A DEMAND

Page 5: Roland Berger Li Ion Batteries Bubble Bursts 20121019

5 Li-Ion-Batteries_Bubble_final_E.pptx

5

The EU's xEV market is primarily legislation-driven – The US and China are driven primarily by customer pull

EU 1 USA 2

PU

SH

• Even under optimistic assumptions regarding ICE improvements and light- weight measures, all OEMs will need xEVs to comply with 2020 CO2 emissions targets

• In terms of costs, hybrid light and PHEVs are most favorable

• CAFE emissions targets can be met by utilizing ICE improvements and some weight reduction technology – OEMs also have no cost incentive to apply xEV technologies on a large scale

• However, the ZEV mandate and the ability to earn credits will lead OEMs to build at least some PHEVs and EVs

• Technology penetration is driven only by government targets for PHEVs and EVs

• Fuel consumption targets can be met by optimizing ICE in all segments

• Fleet emissions are possible, but there is no clear indication yet

• If fleet emissions will be set, high xEV penetration expected

China 3

PU

LL

• No TCO advantage for FHEV, PHEV or BEV powertrains

• Hybrid lights will become neutral as regards TCO, but will provide additional functions

• In larger-car segments, customers will be willing to pay more for higher performing hybrids

• Only niche demand for BEVs

• No TCO advantage for xEV powertrains due to low fuel costs

• However, some customers are willing to pay for xEVs for environmental image reasons

• Almost no customer pull for xEVs – except in luxury segment

• Light and full hybrids would offer significant consumption advantages, but TCO advantage is limited due to low cost of fuel

• No willingness to pay for "green" image – in luxury segment, innovativeness of xEVs is an important purchase criteria

Summary of push and pull factors for xEVs

Source: Interviews; Roland Berger

A DEMAND

Page 6: Roland Berger Li Ion Batteries Bubble Bursts 20121019

6 Li-Ion-Batteries_Bubble_final_E.pptx

To meet CO2 emission targets, OEMs will mostly introduce xEV only according to the cost of CO2 emission reductions in their fleet

1) Based on interviews, validation with TCO calculations 2) Assessment is based on a calculation of xEV CO2 emission reduction potential, customer willingness to pay and cost (components and other cost)

Gap between CO2 fleet emissions and CO2 targets Usage of xEVs types to close the gap at OEMs1)

Cost of cutting CO2 emissions2)

OEM will offer xEVs in segments to fulfill customer requirement and skim willingness to pay – Hybrid light in large/luxury cars and minor share in medium size cars, PHEVs in large/luxury cars, BEVs in mini/small cars

0

Intensify usage of hybrid light in medium size and small cars and PHEV usage in larger cars

1

Expand PHEV usage to medium size cars 2

Increase EV penetration in smaller cars and expand usage to medium size cars

3

OEM

108

2020 CO2 emission target

101

Assumption for xEV usage at OEMs to comply with EU CO2 emission regulation

2020 CO2 emission

0 High

Source: Interviews; Roland Berger

A DEMAND

Page 7: Roland Berger Li Ion Batteries Bubble Bursts 20121019

7 Li-Ion-Batteries_Bubble_final_E.pptx

Hybrid light will become at least TCO neutral – Buyers of large/ luxury vehicles will be willing to pay for full hybrids and PHEVs

COMMENTS

• Assessment of TCO is based on a detailed calculation – taking into account necessary uplift of 200% on material cost for OEMs to maintain EBIT margin per vehicle

• Willingness to pay in large and luxury segment is driven by social pressure to be environ-mental compliant and additional functions enabled by xEV power-trains (e.g. comfort start-stop, idle AC)

Pull factors for xEVs Europe, 2020

Vehicle size

xEV type

Luxury

Large

Medium

Small

Mini

Light Full PHEV EV

TCO neutral/advantage to best ICE-technology Willingness to pay Other reason

Esp. sport cars

CO2 emissions limits in company car fleets

Source: Interviews; Roland Berger

A DEMAND

Page 8: Roland Berger Li Ion Batteries Bubble Bursts 20121019

8 Li-Ion-Batteries_Bubble_final_E.pptx

A significant share of powertrain electrification are stop-start and micro-hybrid systems – but here, LiB are not competitive

Source: Roland Berger

• Conventional starter batteries cannot be used effectively in start-stop and

micro-hybrid applications due to poor cycle life and poor charge acceptance

• Initially, most of the start-stop systems used a 2 battery approach in order to fulfill

the requirements: 1 conventional starter battery (for starting only) plus 1 AGM

battery for power supply. Problems are cost for 2 batteries and limited life of the

AGM battery – Lithium Ion cell makers did expect a chance here

• Recent developments in Lead-acid batteries (called Enhanced Flooded Battery )

have now be presented and are likely to become a viable and cost effective

solution for start-stop and micro-hybrid applications

• Companies like JCI, Exide, Banner, Moll, Shin Kobe, GS-Yuasa and others will

probably be able to offer Lead-based products that will meet start-stop and

micro-hybrid requirements exceeding 200,000 km or 6 to 8 years of operation

at lower system costs than lithium-ion batteries.

Source: Roland Berger

A DEMAND

Page 9: Roland Berger Li Ion Batteries Bubble Bursts 20121019

9 Li-Ion-Batteries_Bubble_final_E.pptx

Price levels around 200 EUR/kwH (approx USD 250) in 2015 do not provide sufficient EBIT to finance cost of capital

Source: Roland Berger LiB Value Chain Cost model 2011

Cell P&L breakdown, 2015 Cell material cost split, 2015

6%

10%

18%

EBIT

5% SG&A

Overheads

1% Labour

Energy/Utilities 0%

D&A Equipment

D&A Building

0%

Quality / Evironmental

2%

Raw material 58%

Total cost: approximately USD 22.1/cell (~ 237 USD/kWh)

18%

39%

Separator

Housing and feed-througs

Anode

Electrolyte

11%

Cathode

13%

19%

Material cost breakdown

USD 13.4/cell

~24% of total cell

costs)

B CELL ECONOMICS & TARGET PRICES

1) Including carbon black content, foil and binder cost

Typical 96 Wh PHEV cell – Cell cost structure 2015

Page 10: Roland Berger Li Ion Batteries Bubble Bursts 20121019

10 Li-Ion-Batteries_Bubble_final_E.pptx

Our calculation takes into account declining material prices– Driven by strong competition to capture market shares

Impact on the cell manufacturing material prices (mid-term - 2015)

1) Investment, energy, labor 2) Process cost reduction potential for LFP available

Increasing the price Limited impact Decreasing the price

Input materials

Raw material cost

Process cost1)

Standardization Competition/ capacities

Overall impact

IMPACT FACTORS ON PRICES

SEPARATOR

ANODE

ELECTROLYTE

CATHODE 2)

Overall strong price decrease

Source: Roland Berger "Battery material cost study V.2.4 / Q1 2011"

• NMC 25 $

• LMO 15 $

• NCA 35 $

Price per kg 2015

• 18 $

(50-50 mix)

• Solution:

20 $ (LiPF6:25-30$)

B CELL ECONOMICS & TARGET PRICES

Page 11: Roland Berger Li Ion Batteries Bubble Bursts 20121019

11 Li-Ion-Batteries_Bubble_final_E.pptx

Material manufacturer need to improve their materials to drive down costs – resulting in additional R&D demand on cell level

Comment

• According to latest analyst reports the prices of Nickel, Cobalt and Manganese will decline through 2015

• Largely as a result thereof CAM material costs will decrease by between 7% and 22% between 2011 and 2015

• The costs of LFP will increase largely as a function of higher energy and utility costs which account for 30% of total cost

• If high-capacity materials (HCMA) is ready by 2015, this will offer a significant cost advantage over other CAMs due to higher energy density compounded by lower material cost

Manufacturing cost calculation 2015 [USD/kg]

~56.49 ~34.49 ~37.8 ~36.54 ~35.27 ~34.12 ~27.3 ~20.4 ~27.46 [USD/

kWh]

2%

66%

14%

4%

NCM

523

63%

13%

13%

NCM

111

64%

2%

13%

13%

14%

4%

NCA

12%

12%

4%

LCO

73%

10%

10%

HV

spinel4)

54%

2%

16%

17%

5% 5%

HCMA3)

57%

2%

15%

16%

5%

LMO

49%

3%

5%

20%

15%

8%

LFP -

FePO4

40%

2%

22%

21%

7%

7%

NCM

424

62%

Raw materials Labor Energy/Utilities D&A Equipment D&A Other Maintenance Quality/Environment

~32.5 ~25.5 ~24.5 ~23.7 ~22.8 ~17.5 ~12.8 ~20.2 ~19

TM

C1

)

1) Total manufacturing costs 2) High quality differences 3) not available until >2015 4) not available until 2020

2)

B CELL ECONOMICS & TARGET PRICES

Source: Roland Berger LiB Value Chain Cost model 2011

Page 12: Roland Berger Li Ion Batteries Bubble Bursts 20121019

12 Li-Ion-Batteries_Bubble_final_E.pptx

Declining cell prices will result in massive pressure on cell and CAM manufacturer margins - not enough to finance costs of capital

22.023.3

22.1

13.4

8.2

2.3

2.1

4.3

4.6

Market

price

Market

price

1.3

Cell

Price

Cell

margin

1.2

Cell

cost

Cell

SG&A

Labor/

utilities

Cell

D&A

Cell

material

cost

CAM

margin

0.3

CAM

SG&A

0.4

Cathode

material

cost

Other

Comment

• For a typical CAM manufacturer

– Raw materials account for up to 55% of total cost

– D&A and utilities account for up to 25% of total cost

• For a typical cell manufacturer

– Raw materials account for up to 58% of total cost

– D&A and utilities account for up to 19% of total cost

CAM

margin CAM cost Cell cost Cell

margin Other

materials1)

Cell price

• Any price decrease beyond 24 USD / cell (lower than EUR 200 / kWh) will have direct impact on CAM and cell manufacturer margins

Margin pressure

Typical 96 Wh PHEV cell – Cell price breakdown 2015 [US $ / cell]

1) Anode, separator, electrolyte, housing 2) Expected market price based on expert interviews

• In view of their limited ability to offset sales price declines, CAM and cell manufacturers will compete over a shrinking profit pool

Market price2)

Delta

7.5% 6.0 %

B CELL ECONOMICS & TARGET PRICES

Source: Roland Berger LiB Value Chain Cost model 2011

Page 13: Roland Berger Li Ion Batteries Bubble Bursts 20121019

13 Li-Ion-Batteries_Bubble_final_E.pptx

To significantly reduce cell costs beyond 2015, major innovations in CAM technology and introduction of new CAMs are necessary

13

Comment

• Const. cell energy (at 96 Wh) assumed

• In 2016 introduction of higher density NCM CAM, resulting in:specific cell energy increase to141 Wh/kg and concurrent reduction in NCM usage to 113 g

• In 2018 introduction of high-density HCMA CAM: further increases specific cell energy to 144 Wh/kg with HCMA usage to 100 g

• HCMA price includes a license fee of 2%

• No changes in anode, separator and electrolyte cost assumed in figure: add. potential 10..20$ /kWh

• Add. cell manufacturing process improvement: potential ca. 10..15$ / kWh

• Cell price forecast 2018..2020: 200$ / kWh (incl. approx. 15% margin for both CAM and cell manuf.)

Typical 96 Wh PHEV cell – Impact of material improvements on cell prices (cost for Auto. customers)

CAM cost share

-10% -6%

HCMA

cell cost

2020

19.9

16.5

0.9

NMC

cell cost

2020

20.8

16.5

3.4 4.3

Labor

0.1

Energy

density1)

1.0

Manu-

facturing

0.4

NMC

cell cost

2015

22.1

16.9

5.2

HCMA

• Unless HCMA material is introduced, further price reduction potential of CAM materials is limited and margins remain at unacceptable level

• Also cell manufacturer need (and will) improve processes and yield rate

Innovation pressure

Cost reduction NCM cell 2015 – 2020 NCM cell

2015 NCM cell

2020 HCMA cell

2020 Potential cost

reduction HCMA

Source: Industry reports, experts interview, Roland Berger analysis

(230 USD/kWh

204 USD/kWh

1) Based on a high-density 50-50 mixture of NCM 111 and LiNiO2

B CELL ECONOMICS & TARGET PRICES

Page 14: Roland Berger Li Ion Batteries Bubble Bursts 20121019

14 Li-Ion-Batteries_Bubble_final_E.pptx

The value chain is therefore expected to further consolidate (1/2)

Source: Roland Berger

CHANGES BY 2020 TODAY (2012)

Raw materials Lithium mining

> Some selected new players

> New recycling companies

> Business models integrating recycling

> Oligopoly

> New players (from specialty chemical sector ) especially for Automotive and ESS

> More integration of precursor manufacturer

> Cathode manufacturing by cell manufacturer only for top 2..3 with large chemical business

> Dominated by Asian (Jap.) players

> Partially specialized precursors sourced

> Some cathode materials manufactured by cell manufacturer

Anodes, Cathodes, Separators, Electrolytes and Precursors

C IMPLICATIONS

Page 15: Roland Berger Li Ion Batteries Bubble Bursts 20121019

15 Li-Ion-Batteries_Bubble_final_E.pptx

The value chain is expected to further consolidate (2/2)

Source: Roland Berger

Battery cells / stacks ("LiB manuf.")

> Massive consolidation (cost pressure, innovation)

> Auto-Cell manuf. JV's as exemption

> Some JVs disintegrating

> Established players gaining share, research spin-offs with public & IPO funding leaving the market

> Increased outsourcing, but still dominated by in-house assembly

> Some cell manufacturers try to deliver larger part of system (incl. electronics) as Tier-1

> Mainly by OEMs (JVs LiB) inhouse

> Selected supplier – LiB JVs

> Limited LiB alone

Battery assembly

CHANGES BY 2020 TODAY (2012)

C IMPLICATIONS

Page 16: Roland Berger Li Ion Batteries Bubble Bursts 20121019

16 Li-Ion-Batteries_Bubble_final_E.pptx