As the increase of electric vehicles (EVs) increases, the EV battery market presents an avenue for growth and opportunity for players worldwide. McKinsey assesses the potential and looks at factors guiding the location of production capacity.
FREMONT, CA: The increase in electromobility and the Electric Vehicles (EV) production has showcased high growth rates over the past few years in the EV batteries market. For instance, in 2017, the global EV battery producers manufactured more than an estimated 30 gigawatt-hours capacity storage. It accounts for more than 60 percent of the previous year—a trend that is decided to continue from then on.
The EV battery market represents a substantial but untapped potential for the battery makers and car manufacturers and economies in general. The current market is dominated by only three countries worldwide—China, Japan, and Korea. With less than three percent of the global demand is supplied by companies outside the three countries.
The situation of EV battery manufacturers has been paradoxical in the European and American market. While the car manufacturers struggled to secure ample battery supply, investments in battery manufacturing have been piling up in Asia. Of the 70 gigafactories launched worldwide, 46 are based in China, and unlike China, the American and European do not possess a coherent industrial strategy to draw in large scale manufacturing facilities. Many companies have opted to build a manufacturing unit in China, because the infrastructure is better, and it is easier to get the permits granted to build a factory.
Majority of the car manufacturers are opting not to produce the EV batteries themselves and are unsuccessful in securing supplies near the plant. The car manufacturers also have the risk of operating at a distinct disadvantage to competition that is closer to the suppliers. The nearer the producers, the better are the chances to secure battery supply as the demand for EVs grows. Consequently, there may be lucrative opportunities for battery manufacturers that establish facilities in the right places at the correct times.
Opportunity in Transition: Additional Battery Manufacturers are Needed:
The rapid growth of EV economies and a regulatory ignition across different countries has paved the way for increased manufacturing necessities. It is anticipated that by 2040, about 70 percent of all vehicles sold in across different segments worldwide—passenger cars, vans, trucks, and buses – will be electric. The total cost of ownership for a passenger EV will collapse as battery costs result in leveling up to equalize with internal-combustion-engine (ICE) cars by the mid-2020s. In the meanwhile, verification of mat efficiency targets will push car manufacturers to electrify. A larger share of their produced fleets, while the sharing economy, autonomous driving, and transport as a service provide further incentives for electrification by fleet operators.
This dramatic increase in EV manufacturing numbers means that the potential battery market that exists is vast. It is projected that by 2040, battery demand from EVs produced will reach a total of 1,200 GWh per year, which is sufficient for 80 gigafactories with a capacity of 15 GWh per year.
To fulfill the battery demand in the mid-2020s, automotive industry players, their suppliers, and policymakers must start coordinating the required arrangements at presents or find ways to accelerate the timeline. Recent trends show that it takes five to seven years for a production plant to be established. From setting-up of a battery-manufacturing plant to reach a fully operational capacity of several gigawatt-hours per year. The timing of building new battery production capacity is critical. If EV production ramps up before cell manufacturers find local production, EV manufacturers might have already secured battery supply for their first cycle of new product platforms.
The world must realize the significance of the potential for local battery manufacturing, and it’s vital for the transition to EV production. If the industry cannot be established in Europe or America; the future of the EV manufacturing might happen elsewhere. With a good value for creation and jobs following – potentially including current EV and legacy ICE-vehicle production, over time. Establishing battery manufacturing, however, could not only secure EV production and other manufacturing jobs, but also create new posts in areas like cell manufacturing, battery supply chain, and beyond. If the massive opportunity is to be captured, stakeholders must act now, before EV manufacturers close decades-long supplier agreements—and leave latecomers to the EV-battery industry in the dust.