There is good cause for this optimism. Last year GM, Renault and their battery partner, LG Chem, did much to remove one of the biggest hurdles to EV sales – range anxiety. GM says the Opel Ampera-e [sold as the Chevrolet Bolt in the U.S.] can travel more than 500 km on a single charge while Renault says the second-generation Zoe has a range of more than 400 km (range projections are for Europe only). The new lithium-ion pouch cells from LG nearly doubled the Zoe's energy rating to 41 kilowatt hours from 22kWh, but still fit neatly into the existing car. The next big jump in range will come around 2019, executives and analysts predict.
The other great hurdle that has slowed the uptake of EVs is the price of the battery, but that is falling as energy density rises. Financial analysts at Exane BNP Paribas recently published a bullish report on EVs saying that it expects battery pack prices to halve to $215 per kilowatt hour by 2020 from $400/kWh now. It sees the price dipping to as low as $140/kWh in 2025. Daimler’s Zetsche is even more optimistic. "We can see 100 euros per kilowatt-hour on the horizon," he told Automotive News Europe without specifying when the price would fall that low.
Due to the rapid decline in this cost Exane BNP Paribas predicted that by 2025 automakers will generate bigger profit margins from EVs than from cars with internal combustion engines. "We are now within sight of levels that will act as a tipping point for mass adoption of EVs," the firm added.
For that, it estimates the industry would need a global battery production capacity of 600 gigawatt hours, enough to build 8.6 million cars with an average battery size of 70kWh. "One weakness in our EV argument is that it currently requires battery supply that does not exist," Exane BNP Paribas warned.
Installed global capacity for lithium-ion batteries is just 41.57gWh, according to figures from Sweden-based consultancy EV Volumes. Among automakers, Tesla has taken the lead in expanding that capacity by building a 35gWh U.S. factory in Sparks, Nevada, to meet its goal of producing batteries cheap enough and in large enough quantities to build its targeted 500,000 units a year of the Model 3, its entry-level car, by 2018. Tesla also said it is planning a second gigafactory in Europe.
'Light years ahead'
Tesla's desire to make its own batteries is not shared by most other automakers largely because they lack the expertise. "Quite frankly, if we compare ourselves today with Samsung and LG they are light years ahead of us," VW Group's Sedran said.
He estimated the capital expenditure needed to supply all of VW Group's EVs with in-house batteries at 20 billion euros. "We need to check whether [the six suppliers tendering for the cell contract] have the financial means to build the capacity," he added. He wouldn't say whether the contract would be awarded to a single supplier or split.
Currently, the automaker producing sizeable quantities of lithium-ion cells in Europe is Nissan at its plant in Sunderland, northeast England. The battery factory, one of three Nissan has globally, still uses the comparatively low-density LMO lithium chemistry, but that could be updated when Nissan upgrades the plant as part of a promise it made last January.
Nissan might also stop making cells and just build the pack.
Neither of Nissan's alliance partners, Renault and Daimler, believes it makes sense to produce their own EV cells. "We are a carmaker not a chemist," Marianne Bataillon, Renault EV project leader, told Automotive News Europe.
Daimler boss Zetsche shared a similar view with Automotive News Europe when asked if Daimler would restart production of its own cells if the price per kilowatt hours fell sharply enough. "Politicians and unions are asking us to do that, but it would not make sense. Today, the cell is almost a commodity good so the cost is going down fast."
Daimler quit making its own cells in December 2015 when it shut down its Li-Tec unit in Germany, citing costs. Zetsche said that Daimler had the best cell available but that this advantage was worthless because customers couldn’t feel the difference. Today, Daimler "pursues a competitive multiple supplier strategy" for cells and will concentrate instead on building the pack around them at its Accumotive division in Kamenz, Germany, where it is constructing a second plant. "The intelligence of the battery does not lie in the cell but in the complex battery system," Zetsche said.
Christian Mueller, IHS Markit's European manager for automotive component analysis, agrees with Zetsche. The analyst expects that most automakers will focus on making the packs and developing the associated control technology in-house, partly to offset the potential loss of thousands of powertrain assembly jobs, but also to better differentiate vehicles from those of rivals.
Battery suppliers will need to locate close to their customers' factories, VW's Sedran said, because transporting the cells over long distances is both costly and risky. "They are hazardous goods. You won't find insurance for shipping lithium-ion batteries."