Lithium Ion Batteries

First commercialized by Sony in 1991, lithium ion batteries have rapidly because the most

widely used form of electrochemical energy storage on the planet due to their high energy

density, reliability, and rapidly falling cost. A lithium ion cell consists of 4 main components: the

cathode, anode, separator, and electrolyte. The battery functions by storing energy in the

potential difference between the anode and the cathode. During discharge, lithium ions migrate

from the cell anode through the electrolyte to the cathode, and vice versa during charging. The

cathodes of lithium ion cells have many possible chemistries, such as nickel manganese cobalt

(NMC), nickel cobalt aluminum (NCA), iron phosphate (LFP), lithium manganese oxide (LMO), or

lithum cobalt oxide (LCO). In contrast to the wide variety of possible cathodes, lithium ion anodes

are composed primarily of carbon. The separator prevents a lithium cell from shorting by

stopping direct contact between the anode and the cathode. Once produced, lithium ion cells

are packaged together along with power electronics circuitry and temperature control elements

to produce lithium battery packs that are used in larger applications.

The lithium battery industry is huge and rapidly growing. The largest lithium cell

manufacturers in the world are Panasonic (Japan), CATL (China), LG Chem (South Korea), BYD

(China), and Samsung SDI (South Korea). Do to the fast rate of growth in the lithium cell industry,

accurate numbers are not available for the market sizw of each company. For example,

Panasonic more than doubled its cell production from 8.5 GWh to 20GWh. On the demand side,

lithium ion batteries are used in a myriad of different applications, but their main uses are in

consumer electronics, grid-scale energy storage, and electric vehicles.

 For consumer electronics, lithium ion cells are typically used in laptops, cellular phones,

tablets, and power tools. The dominant chemistries for these areas are LCO for laptops and

phones, and LMO or LFP for power tools. Companies such as Huawei, Apple, Samsung, Google,

Amazon, LG, Toshiba, Hewlett Packard, Dell, and Toshiba are major customers for these types of

cells.

Lithium ion batteries can be used for many different tasks on the electrical grid. A few

possible uses would be frequency regulation, deferring transmission and distribution upgrades,

load following, and energy arbitrage for intermittent power generation. There are many

competitors in the grid scale energy storage market, such as AES, Tesla, ABB, General Electric,

and Lockheed Martin, each using different lithium battery chemistries. Other battery types, such

as vanadium redox flow batteries, lead acid batteries, or sodium sulfur batteries can be used for

grid storage. However, due to their low cost, high energy density, and reliability, lithium ion

batteries currently make up 97% of all of the grid scale storage batteries that have been installed

since 2015.

Electric vehicles are likely to be the largest user of lithium ion batteries in the future. This

can be seen from a back of the envelop calculation. Approximately 100 million cars are sold every

year. If, in the future, each of these vehicles were electric vehicles with 50KWh battery pack,

then the automobile demand would require 5TWh of lithium ion battery production. There are

a few large manufacturers of electric vehicles, such as BYD, Nissan, Tesla, GM, and Jaguar, and

many other automotive companies are entering the space. Volkswagen is making large purchase

agreements for lithium battery raw materials, has invested $100 million in the solid state battery

startup Quantumscape, and plans to introduce a large number of electric vehicles to in lineup,
two of which are the Audi E-tron and Porshe Taycan. Daimler invested $100 million in silicon

anode start up Sila Nanotechnologies. Toyota is the world leader in patents for solid state battery

technology (sulfide solid electrolyte), and recently formed a joint venture with Panasonic to

manufacture lithium ion cells for their automobiles. Ford has plans to invest $11 billion to

introduce 40 new electric vehicles and hybrids by 2022. As lithium battery costs continue to fall,

more automobile companies will enter the space.

Spurred on by burgeoning demand lithium cell manufacturers have massively ramped up

production. Benchmark Materials reports that lithium ion cell production has increased from 19

Gwh (gigawatt-hour) in 2010 to 160 Gwh in 2019. This expansion in lithium cell manufacturing,

combined with continuous technological improvements has caused the price of lithium ion

batteries to fall over 85% in the same time span. Bloomberg New Energy Finance (BNEF) reports

that by 2025, lithium ion demand from power electronics will double from 26GWh in 2015 to

54GWh. Additionally, lithium ion battery demand for grid scale energy storage use is expected

to exponentially rise from 1GWh in 2015 to 200GWh in 2025.

However, electric vehicles are projected to be the largest driver of demand for lithium ion

batteries. Currently, batteries cost around $176/KWh (kilowatt-hour) and make up around half

of the price of an electric vehicle. BNEF forecasts that when the price falls to $100/Kwh (around

2027), electric vehicles will become cost competitive with internal combustion engine vehicles,

and will rapidly take market share. Demand for lithium batteries for electric vehicles is projected

to jump to 408 GWh in 2025 and 1.29 TWh (terawatt-hours) in 2030. Goldman Sachs estimates

that by 2025 25 million hybrid and electric vehicles will be sold, and that by 2030 there will be

$60 billion worth of demand for lithium ion batteries just for electric vehicles.
 Because the lithium ion battery market is so heavily commodified and cost focused, it is

very difficult for start-up companies to penetrate it. Despite this, there are still many start-ups

that are willing to try with varying approaches. Some companies focus on technologies beyond

lithium ion cells, such as solid state batteries. The companies, such as Seeo, Sakti3, Solidpower,

or Quantumscape are developing solid state electrolytes. In theory, these would make lithium

batteries safer by removing the flammable liquid electrolyte. In addition, a solid electrolyte could

enable the use of lithium metal as an anode, which would double the energy density of a lithium

cell. However, these companies have had issues with development. Seeo was purchased by

Bosch in 2016 to develop solid state batteries that Bosch would eventually manufacture.

However, in 2018, Bosch disbanded its lithium cell research and put Seeo up for sale, which

implies that Seeo’s technology was not good enough to disrupt conventional lithium ion cells.

Likewise, Sakti3 was acquired by Dyson for $90 million to develop solid state batteries in 2015.

However, in 2017, Dyson stopped licensing the core patent that the Sakti3 technology was based

on, implying that the technology wasn’t very effective. Quantumscape has garnered a $1 billion

valuation for its solid state technology (likely using Lithium Lanthanum Zirconium Oxide (LLZO)

from looking at its patents) based on Volkswagen’s $100 million investment. However, even if

Quantumscape’s technology is effective, it may not scale. Current lithium ion battery

manufacturing techniques use role to role processing to produce cells. However, LLZO, as a

brittle ceramic, is not compatible with role to role processing techniques (it would fracture). So

even if the technology is effective, it is yet to be seen if the technology can scale enough to be

cost competitive with lithium ion cells.

 The most ideal battery start-up technology would be a new material that improves cell

performance and is easily integrated into existing manufacturing processes. This is the approach

of Sila Nanotechnologies, which is developing a drop in silicon anode material that they claim

increases cell energy density by 20% to 40%. Like Quantumscape, Sila Nanotechnologies is worth

over $1 billion dollars after completing a $170 million series E investment round in April 2019.

Start-ups Enovix (batteries on silicon chips) and Amprius Energy (silicon nanowires produced via

chemical vapor deposition) are also working on silicon anodes, but their methods require unique

processes that are not directly implementable in current cell manufacturing lines.

While the previously mentioned start-up companies focused on improving the lithium ion

electrolyte and the anode, Oxis Energy and Sion Power are working to improve the lithium ion

cathode by replacing the metal oxide material with sulfur. Current high energy cathodes use

expensive and scarce components (battery grade nickel and cobalt). A sulfur cathode would be

twice as energy dense as the current state of the art cathode materials, and be far less expensive.

Given the number of battery start-up companies competing in the space, an effective go

to market strategy is required for companies to grow. Most battery start-up companies have low

production rates and high unit costs due to lack of scale. For these companies to start to sell

their product, they need to focus initially on niche markets where the benefit their battery

provides outweighs the high cost. Sila Nanotechnologies effectively does this by focusing initially

on selling the material to wearables (smartwatches) manufacturers. This is effective because

smartwatches have a high space premium. So, Sila Nanotechnologies’ more energy dense

material could allow for a smaller battery, freeing up room in the device. Secondly, the price of

the battery in a wearable device is relatively low compared to the device itself, so the initial high
cost of the material doesn’t prevent it from being used. Sion Power has does something similar

by agreeing to sell its lithium sulfur batteries to Airbus for use in a pseudo-satellite. These

agreements also allow start-ups to build up a record of reliability by selling their product, which

will be beneficial when they try to penetrate more commoditized lithium ion battery markets

such as automobiles.

Well run start-ups are getting large investments from their future customers.

Quantumscape’s investment from Volkswagen’s and Sila Nanotechnologies’ investment from

Daimler are effective ways for promising startups to get support during product development

and scale-up. In addition to providing start-ups with needed capital, these investments help align

the interests of the large companies with the start-ups, which makes it more likely that they will

provide additional forms of support, such as engineering advice, that may be beneficial. Finally,

these investments effectively lock in major long-term customers, allowing startup companies to

tailor their product offerings to a specific customer. This is helpful for product development, and

eliminates a lot of the risk of a company developing a product without having a willing market to

sell it to.

Overall, the lithium ion battery market is a burgeoning area as increasing demand

for consumer electronics, grid scale energy storage, and electric vehicles prompt large build outs

of manufacturing capacity. These buildouts have allowed for the rapid lowering of lithium ion

battery costs. The average lithium ion battery price is about $176/KWh today, and is projected

to fall below $100KWh in 2027. The battery manufacturers are heavily concentrated as large

specialized industrial companies in China, Japan, and South Korea. Additionally, there many

battery start-up companies developing new technologies that they plan to sell during the 2020s.
The rapidly falling cost of conventional lithium ion batteries combined with the large head start

many battery start-ups currently presents considerable challenge to any entrepreneur

attempting to enter the market now.

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