With the automotive industry rushing headlong to an electric vehicle (EV) future the traditional automotive value chain – where powertrain component manufacturer and supply had a central role – is being upended. Already countless warnings have been made about the hollowing out of automotive clusters surrounding industry bedrocks with the accompanying loss of employment.
The transition to EVs and accompanying battery plants may provide some solace for the industry and governments. Firstly, for the industry the need to have battery plants located near vehicle assembly will help preserve clustering. Second, governments – that have long regarded the automotive industry an attractive industry to promote due to its economic multiplier – will take heart from recent developments. Additionally, with the rush to establish battery gigafactories ready for the EV revolution a valuable source of Foreign Direct Investment is being injected into economies slowly emerging from the damage wrought by the COVID-19 pandemic.
In this respect, new GlobalData research estimates that by 2030 there will be 3,964GWh of lithium-ion battery capacity for EVs worldwide up from 412GWh of capacity in 2020. That is a not unsubstantial CAGR of 25.4%. What is more, whereas in 2020 the capacity was spread among 65 plants with an average capacity of 6.3GWh, by 2030 that capacity will be spread among some 150 plants with an average size of 26.4GWh. With each GWh of capacity costing in the range of $30-50m that means that between $106bn and $177.6bn is set to be invested in gigafactories worldwide between 2020 and 2030.
The scale of the investment planned by the industry and the rapid progress of EVs in Europe should see the Gigafactory landscape change markedly over the next decade. For 2021, GlobalData estimates that China accounts for over 72% of the world’s EV gigafactories. By 2030, the share of China is forecast to have fallen to 48.8% with Europe increasing its share to 33.4% from just over 8% in 2021.
The New Energy Vehicle (NEV) program initiated by the Chinese government has not only given the market a head start – with China capturing just over half of BEV sales in 2020 – but it has conferred advantages on Chinese battery specialists. This will be very much part of the design of the NEV – the Chinese government is keen to see Chinese companies emerge as technology leaders in a number of strategic industries by 2025 as part of its Made in China 2025 program (refer to GlobalData’s thematic report ‘China Impact in Automotive’ for details). Contemporary Amperex Technology (CATL) is forecast to move from being the fourth largest player in 2020 to taking a 22% share of capacity by 2030 thanks to an aggressive expansion policy and a host of supply agreements it has signed with myriad Chinese OEMs and companies like Honda, BMW, Daimler and Toyota (see this Analyst Briefing for more details). What is more CATL has plans for at least one factory outside of China – with Germany earmarked for a 100GWh development – and it joins fellow Chinese EV battery suppliers Farasis, Gotion and Svolt with plans to establish operations outside China.
Does all this investment in battery gigafactories guarantee that the industry will be able to supply enough cells and packs for the forecast boom in EV production and sales? The answer to that lies in where the BEV market is viewed as heading. The current GlobalData forecast sees a 25m unit BEV market by 2030 (heading for 45m by 2036). The chart below shows the total installed capacity plans versus the range of OE requirements (set at between 40kWh and 110kWh battery size). As can be seen at an 80kWh battery size the industry will have more than double the capacity required. Indeed, planned installed capacity by 2030 would be enough to supply 65m light vehicles with an average battery size of 60kWh. However, what this analysis neglects to include is that batteries for storage are reckoned to be a market opportunity at least double the size of the BEV opportunity giving the gigafactory capacity multiple market opportunities. Furthermore, the transition to BEVs has happened at such a pace in the past 18 months that the tipping point for BEVs may happen faster than even the most optimistic forecasts. At this point it may become a fool’s errand for many OEMs to manufacture anything other than BEVs thus hastening the demise of the internal combustion engine.
The current bonanza phase of gigafactory installation raises many important questions for those funding and supporting investments. For example, for governments do the inducements currently on offer make financial sense in the light of some of the planned capacity expansions and/or gigafactories perhaps never seeing the light of day. Or does the market need to be looked at with a more nuanced eye. Here we could see that the shared mobility model begins to take off, vehicles are utilized at much higher levels necessitating more churn in ownership or battery replacement.
Wherever one sits on future EV demand it could be argued that the current gigafactory bonanza has been well-judged. If one sees it as too much supply, there is the positive flip side that fundamental economics delivers; excess supply exerts downwards price pressure prices. This could mean that battery prices fall even more dramatically than experience curves typically determine and put EVs within reach of more consumers worldwide. In such circumstance, the headlong rush for gigafactories could look judiciously planned. If one believes that current plans understate future demand – factoring in energy storage demands, a faster move to EVs, more vehicle churn due to the move to shared mobility etc. – it is well to remember that we are nine years out from 2030 and experience in China shows gigafactories take anywhere between 12 and 18 months for construction to be completed. Contrast this with the seven-year lead time required to establish lithium mines, which is where the real supply constrictions for EV batteries could start to be felt.