According to a report from gigaom earlier this week, the electric auto industry will soon be producing battery packs at a rate far greater than the number of electric cars being built.
Caused in part by a slower uptake of electric cars by consumers than was initially hoped, the article warned that the upcoming battery glut would force some battery firms to go out of business unless they could forge partnerships with electric automakers currently producing vehicles or find alternative uses for the battery packs.
The recent financial crisis hasn’t helped either. With automakers like Think declaring bankruptcy, battery packs which had been built for the compact city car are currently surplus to requirements.
2012 Honda Civic Hybrid - cutaway of lithium-ion battery pack
Also contributing to the glut of battery packs was the way in which governments incentivized the electric car industry, according to Oliver Hazimeh, partner and head of the global e-Mobility practice at global management consulting firm PRTM.
“Manufacturers rushed to build out capacity ahead of demand to (a) capture stimulus funding and (b) try to drive scale to reduce cost,” explained Hazimeh. “In the near term, we can expect to see some consolidation in the battery industry, with a few leaders taking the lead. We expect that some battery makers will be targets of acquisition or bankruptcy.”
But while the short term future is bleak, the growing number of hybrid electric and plug-in electric cars being made means that the surplus of batteries will be short-lived.
2011 Coda Sedan electric car, lithium-ion battery pack, 2010 Los Angeles Auto Show
“While EV growth has been a little slower to ramp up than expected, adding to over-capacity issues, PRTM estimates that by 2020 we will see a 9%-10% adoption rate of PHEV/EVs and a 15%-20% adoption of HEVs,” Hazimeh predicted. “This means that we will need 3x more battery capacity investments to meet 2020 EV demand.”
What does the future hold for battery firms?
That depends. According to Hazimeh, the smart firms are producing batteries for more than one market, meaning that they can continue to survive even if demand for electric vehicle battery packs fluctuates dramatically.