[ad#post_ad]There has been much discussion over the past three years about the battery of the Chevrolet Volt. We watched LG Chem and A123 compete for almost two years to win the affections of GM to supply them with cells; a battle eventually won by LG in January of 2009. Then the discussion switched to the actual cost of the cells inside the battery pack that would be built by GM themselves in Michigan.
For a time, the number thrown about was $1,000 per kWh, until Jon Lauckner (GM Vice President) was asked about this price point estimate, to which he responded that GM was paying “many hundreds of dollars less” than a thousand.
Then a study put out by Deutsche Bank in early March of this year seemed to pinpoint exactly what that ‘many hundreds’ less worked out to be, citing the average cell price per kWh in 2009 was $650. It also put out forward looking estimates of a 25% reduction in that cost over 5 years, and 50% over 10 ($325 per kWh in 2020), with some companies seeing bids at around $450 for 2012.
Adding to GM’s cost of the cells is the fabrication of the pack itself, along with the advanced temperature management system, which GM is doing themselves at a assembly plant in Brownstown Township in Michigan.
What had been forgotten over time was whether or not the initial decision to purchase 3rd party cells over producing them themselves was a good one. It has long been GM’s stance to produce a very small quantity of cars at first, then bring on new production (and eventually models) as demand is validated. Obviously, by consciously making a decision to limit your exposure to this new segment in case of failure, buying 3rd party cells seemed like the prudent way to go.
In a recent interview by the Times of London, Nissan senior vice president, Andy Palmer (who is responsible for the company’s global EV strategy), dropped a bomb on the rest of the industry, by being the first to put a dollar figure on the cost of the battery, by saying the Leaf’s battery costs £6,000 ($8,950 USD) to produce right now.
At 24 kWh per pack, that comes to around $370 per kWh, out the door, finished product. This is quite simply a stunning revelation, and Mr. Palmer was not done there, he continues by saying that “our battery is good for 100 miles and will soon be good for 200 miles,” alluding to the next generation which is reportedly due out in 2013. Just for fun he adds that Nissan will make money on the Leaf from day 1, saying, “We not going to lose money on this. I don’t have a boss who would endure that.”
It would seem that Nissan’s decision to partner with NEC to form AESC – Automotive Energy Supply Corporation (of which Nissan owns 51%) back in April of 2007 to produce their own batteries was the right way to go and is delivering a huge competitive advantage.
None of the domestic auto makers followed Nissan’s move to invest in producing the batteries themselves, with Chrysler tying up with A123, and Ford forming a strategic alliance with Magna to produce EVs, with packs supplied by Johnson Controls-Saft.
The only other company to strongly commit to prduction of a complete battery is Mitsubishi, and like Nissan, has a joint venture of their own, with GS Yuasa Corp to produce cells under the name Lithium Energy Japan.
It is thought Mitsu’s pricing position is not nearly as strong as Nissan’s, because they have the minority ownership stake in the company, which is also much smaller than AESC, with a capacity of around 18,000 packs for 2011, and up to 68,000 for 2012 when their main plant comes online in Ritto City, Japan.
While no estimates on the cost of the 16 kWh pack that sits inside Mitsu’s i-MiEV has been given, under pressure from Nissan to be competitive, Mitsubishi spokesperson Maurice Durand at the New York auto show last month confirmed that not only would the i-MiEV be on sale in the US in April of 2011, but also that they “we’re targeting sub $30,000 (msrp) for the U.S. when it launches” before rebates.
GM now finds itself in a bit of a problem dealing with two companies that not only have in-house battery production, but also huge amounts of scale to bring costs down, while GM themselves are left to deal with the problem of a existing contract being in place, and the markup of a 3rd party supplier.
To GM’s credit, the Volt extended range concept may insulate them for a time against the cost advantages of the two other competitors on the market in 2011, as the limited range and lack of recharging infrastructure behind BEVs hurts adoption. But as companies like Nissan bring 200+ mile ranges to market in three or four years, they could be in some real trouble.
And what if demand is strong for the Volt when they announce pricing and start taking deposits this summer? GM is not bringing full production online until 2012…what is to stop Nissan from developing their own extended range vehicle over those same 18 months to compete with GM if the Volt is met with a strong order book?
As Bob Lutz put it in his exit interview with GM-Volt, “I think what we all (at GM) want to do is to let us see how this works…let’s see how customers react” before we move forward.
With Nissan being as aggressive and optimistic as they are, and if GM’s attitude is still wait and see at this point, why get into the business at all? Regardless of the Volt’s reception, it seems like it is turning into a lose-lose scenario when you look into the future.
If I can steal part of one of Bob Lutz’s last quotes at GM to us here, hopefully his “successors at GM would (will) say ‘hey maybe its time to expand’” the program right now, while the opportunity still presents itself.
This entry was posted on Saturday, May 8th, 2010 at 7:15 am and is filed under Battery, Financial, Op-ed. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.