DETROIT – Back in 2010, a Roland Berger study was already warning that only six to eight global players in rechargeable battery business would survive through to 2017. In fact, the process of consolidation across the Li-Ion battery market is progressing even faster than expected.
Over the last two years, the industry has seen a number of new players filing for bankruptcy. And the wave of consolidation can only build in strength over the next five years as companies along the entire value chain are confronted by low profits and tight margins. The reason: enormous pressure on prices, slow market growth, strong competition and the need to keep investing in innovation. These issues are addressed in a new study by Roland Berger Strategy Consultants on “Lithium-Ion batteries ? The bubble bursts”. It shows that, going forward, both OEMs and battery producers will have to pursue new strategies in order to compete in a tough marketplace.
“The tremendous hype around Li-Ion batteries has left us with a bubble,” explains Thomas F. Wendt, Partner at Roland Berger Strategy Consultants’ Chicago office. “Government support and far too optimistic growth assumptions about electro mobility have led to major overcapacities. What is more, the ambitious drive to achieve economies of scale as fast as possible has triggered a fierce price war between the established market players in Asia and new players in the US.”
Battery suppliers unable to meet costs of capital
The Roland Berger study starts with a careful bottom-up calculation of cell and material costs right along the value chain. It demonstrates that, in many cases, producers of large-formal Li-Ion batteries will not be able to generate sufficient earnings to cover their costs of capital. This is because the automotive OEMs have been able to force significantly lower prices on their battery suppliers. OEMs will be paying between EUR 180 and 200 per kWh for large-format battery cells until 2014/2015.
“In this environment, battery producers can’t generate sufficient cashflow to make vital investments in new and more efficient production systems and in the R&D needed for next-generation batteries. Yet this spending is important for driving down material costs,” says Thomas Wendt.
Only the large suppliers will survive
The tight margins and lack of capital for new investment will result in a major market shake-out over the next few years. Only a few of the big suppliers of Li-Ion batteries will survive, with players from Korea and Japan probably among them.
In this struggle for survival, both the battery manufacturers and their customers, the OEMs, will be forced to rethink their strategies. Alternative technologies, like start-stop systems or light-hybrid engines, do not offer a promising market for battery makers. New developments in lead-acid batteries also present some big challenges for suppliers of Li-Ion batteries as they seek to remain competitive.
“On the other side, the OEMs have to review their supplier portfolio and find the most innovative companies to collaborate with. This is essential for securing innovative solutions and significant cost advantages,” said Wendt.
The full studies can be downloaded free of charge at RolandBerger.Com
