Balancing the positives and negatives – The rise of the battery ecosystem
by Michael Kolk, Kurt Baes, Adnan Merhaba, Florence Carlot, Kars van der Steen
Issue 1, 2018

Expanding markets such as electric vehicles, renewable energy storage and consumer electronics are driving enormous interest and investment in the battery sector, from both incumbents and new players. Based on a new ADL study, this article explores the drivers, challenges and likely outcomes in the market, providing key lessons to inform future strategies.

The rise of electric vehicles (EVs), energy storage and increasingly power-hungry electronic devices means battery technology is firmly in the spotlight – even if the average consumer is still not satisfied with the experience they receive, whether this is range anxiety in their EV or constantly needing to recharge their smartphone. Demand has grown dramatically, and battery technology is expected to become a $90 billion-plus sector by 2025. All of this means the traditionally conservative battery industry, with its long development times, is seeing the greatest potential disruption in its 150-plusyear history. The key driver is a massive pull effect from end-user markets.

With rechargeable batteries as essential enablers to key trends such as e-mobility and renewable power, new entrants have joined established players in what can seem like an uncontrolled frenzy as companies aim to build leadership positions in key areas and technologies. There has been over $13.7 billion in battery-related investments and acquisitions in the last two years, patent filings have increased exponentially, and ecosystems are becoming more and more complex as companies partner and expand their reaches. Value chains are consequently becoming intertwined – for example, Eaton is reusing Nissan Leaf lithium-ion (Li-ion) batteries in stationary grid power systems.

As well as capacity increases, innovation is essential, in terms of both process transformation and development of new technologies within battery cells and components. Existing technologies and manufacturing processes alone will not be enough to meet future needs – for example, we estimate that to make EVs competitive with vehicles that have internal combustion engines (ICEs) on an unsubsidized basis, EV battery-pack prices need to fall to $100/kWh. Currently, the lowest cost estimates are $190–$250/kWh. The same is true for energy grids – for regions with high renewable penetration, such as Texas (where wind covers roughly 25 percent of demand), battery prices need to drop by 50 percent in order to switch back-up from gas-fired units to battery storage.

Increasingly, achieving market dominance in a wide range of electrifying industries, from automotive to electronic devices, will require companies to build and defend successful battery technology positions together with hosts of larger and smaller partners. If they lose that battle, they may lose the war. Risks are high and not all players will be successful, in terms of both technology choices and partnering strategies. Some parts of the value chain, such as battery cell manufacturing, have repeatedly seen operating margins fall below zero, driven by a need to build strong positions for the future.

In a fast-changing market, how should companies approach battery technology, and what do they need to do to generate and safeguard long-term value for their businesses? Will investors reap rewards in line with the money they have provided? Will innovation lead to increased consumer satisfaction as battery performances improve?

In this article we examine the current state of the market and future scenarios, and outline the strategic questions and approaches that companies need to understand. In particular, we believe the ultimate winners of this game will be companies that orchestrate the best innovation ecosystems in battery technology. (See also our earlier article on ecosystem innovation1 .) Based on a recently published ADL study, we explore the drivers, challenges and likely outcomes in the market, providing companies and investors with key lessons to inform their future strategies.