Auto Industry Forecasts & Analysis - ABOUT THIS …...As part of this report, we surveyed industry insiders to gauge their outlook on battery development and the emergence of the EV

E V & B AT T E RY R E P O RT / WARDSAUTO INTELLIGENCE i

ABOUT THIS REPORT

There is near-unanimous agreement the automotive industry is nearing the dawn of the age of electrification, with most industry-watchers and insiders expecting some form of battery technology onboard the majority of new vehicles produced and sold in 2030.

What’s more difficult to discern is how big the market – currently dominated by hybrid-electric, plug-in hybrid-electric vehicles and, soon, 48V mild hybrids – will be for full-electric vehicles. That likely will hinge on how far government policy goes and how quickly improvements in technology will bring EV costs down and driving range up – two highly fluid factors.

This report takes an in-depth look at the market drivers for EVs, various demand forecasts from a wide range of sources and the aggressive plans by automakers around the world to fill their lineups over the next few years with full EVs.

Among the findings:

n Although the EV market is growing, global sales are likely to remain a single-digit percentage of overall light-vehicle demand annually until after 2025.

n Despite the conservative near-term volume outlook, automakers are planning to launch no fewer than 85 new battery-powered models by 2025.

n Battery makers are working on new technology and chemistries that would cut costs and extend range, but lithium-ion will continue to dominate the market well into the next decade.

n Five suppliers, all based in Asia, will control 75% of the market for EV batteries worldwide.

The report also ranks the automakers as to which are best positioned to exploit the expanding EV market and profiles key battery suppliers, detailing their market successes to date, current technology strategies and what may be next and the industry’s Li-ion-battery capacity-expansion plans.

BEVs, Batteries and the Electrification Future seeks to answer the question of how big and how fast the EV market will grow and whether the industry is equipped to meet demand – or is on a dangerous path toward investing too much, too soon into battery-electric vehicles.

E V & B AT T E RY R E P O RT / WARDSAUTO INTELLIGENCE ii

Included are verbatim Q&As with key industry executives and analysts, results of an exclusive WardsAuto Intelligence industry survey and unique, detailed data on markets, production, battery specifications and more.

ABOUT THE AUTHORRoger Schreffler is a veteran business journalist and WardsAuto correspondent who has covered the Japanese auto industry since the 1970s. Roger visited his first advanced battery facility in 1991 and drove his first hybrid (a Mitsubishi) two years before Toyota launched its best-selling Prius. He previously authored three reports for WardsAuto, including one on the emerging 48V electrification technology, one on the recovery of the Japanese automotive supply chain following the devastating 2011 earthquake and tsunami and another on future powertrains.

ABOUT WARDSAUTO INTELLIGENCEWardsAuto Intelligence has served the automotive industry’s information needs for more than 90 years as a world-leading provider of automotive insights and analysis. Based in metropolitan Detroit, WAI provides historical context and forward-looking perspective on all aspects of the automotive business.

Our staff of automotive analysts and industry researchers offers global and regional forecasting, historical data, trend analysis and industry insight through online tools and databases, special content conferences, intelligence reports and consulting services, with a focus on providing clients with reliable, responsive customer service and support.

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TABLE OF CONTENTS

I. OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . .12• COST TRENDS • MATERIALS TRENDS • MATERIAL AVAILABILITY • STATE OF LI-ION TECHNOLOGY •

III. MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21• HIGH EXPECTATIONS • ASIA’S VIEW • CHARGING INFRASTRUCTURE PROBLEM: CHICKEN AND EGG • 48V SAFETY VALVE • BATTERY PERFORMANCE, COST TARGETS • NO SILVER BULLET YET • KEY MANDATES •

IV. AUTOMAKERS . . . . . . . . . . . . . . . . . . . . . . . . . 37• VOLKSWAGEN • AUDI • BMW • MERCEDES • PSA • RENAULT • VOLVO CAR • GM • TESLA • FORD • FCA NORTH AMERICA • TOYOTA • HONDA • NISSAN AND MITSUBISHI • HYUNDIA-KIA • CHINA • THE WANNABES •

V. SUPPLIERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .72• FOUR WINNERS, MAYBE MORE • MOVING UPMARKET FROM 18650 • PANASONIC • CATL • LG CHEM • SAMSUNG SDI • PRIMEARTH EV ENERGY • AESC • BYD • HITACHI AUTOMOTIVE SYSTEMS • GS YUASA • TOSHIBA • THE REST OF THE FIELD •

VI. Q&As . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97• MATTHEW STOVER • BOB GALYEN • SUBHASH DHAR • BRETT SMITH • DOUG CAMPBELL • MICHAEL BURZ •

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120• WARDSAUTO INTELLIGENCE 2017 BATTERY & ELECTRIC VEHICLES SURVEY RESULTS • DATA TABLES •

THIS IS ASAMPLE OF THEFULL REPORT.

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E V & B AT T E RY R E P O RT / WARDSAUTO INTELLIGENCE iv

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E V & B AT T E RY R E P O RT / WARDSAUTO INTELLIGENCE 1

I. OVERVIEWThere is much debate about if and when there will be a tipping point on battery cost and performance that drives electric vehicles into the mainstream.

It is true the market has witnessed substantial growth in EV sales, including both full battery-electric vehicles (BEVs) and plug-in hybrid-electric vehicles (PHEVs). Global sales, including buses, hit 900,000 units in 2016 and are on track to reach 1.2 million this year, while cumulative sales have swelled to more than 3 million units. That compares with fewer than 150,000 five years ago and fewer than 10,000 in 2010 (see WardsAuto Global Production Chart starting on p.129).

On the other hand, almost every EV sold in Europe, the U.S. and China, the world’s three major markets, was supported by subsidies and other incentives, including tax breaks, meaning sales would be much lower if left to seek their more natural demand level. In the U.S., Congress has proposed eliminating a $7,500 credit on EV purchases as part of a tax-cut bill, a move that seriously would curtail future sales.

“If you do away with the incentives, the market goes away,” sums up Xavier

Mosquet, an auto analyst with The Boston Consulting Group.

Even if existing policies were to go unchanged in the U.S. and worldwide, WardsAuto Intelligence remains bearish, forecasting BEVs will account for just 2.4% of global light-vehicle production in 2024. That equates to 2.6 million units annually out of a total output of 107.8 million light vehicles.

The projection does not include PHEVs. That market is in flux with the emergence of 48V mild hybrids that offer a better value-for-money

Source: WardsAuto 2017 Battery & Electric Vehicles Survey

0 10% 20% 30% 40% 50%

No growth

No longer critical

Somewhat critical

Critical

– the EV market will grow either way

– EV market will not grow with or without subsidies

45.531.6

17.05.9

TAX CREDITSHow critical is the federal tax credit of $7,500

to sustaining the U.S. EV market through 2022?


New ’18 Nissan Leaf’s 40-kWh lithium-ion

battery pack.

proposition than plug-in hybrids and will allow big, expensive SUVs to meet emissions standards in Europe. As a rule of thumb, sales of PHEVs tend to run at a rate about half that of BEVs, so including them would take the combined PHEV/BEV share to just 3.6% in 2024.

Other forecasts are projecting EV penetration (BEVs and PHEVs) as high as 14% of the market by 2025, with xEV share (including all hybrids) at a quarter of the market or more by 2030. Behind the more bullish outlooks is a belief the industry will exceed the U.S. Department of Energy targets on battery-pack costs – $125/kWh by 2022.

Some forecasts predict that $100/kWh level will be needed before then.

More realistic is $125/kWh on a module basis by 2025, including capital expenditures and R&D. Even at that level, a 60-kWh battery, the size found in the Chevrolet Bolt and currently good for a 200-plus mile (322-km) range, still would cost $7,500.

As part of this report, we surveyed industry insiders to gauge their outlook on battery development and the emergence of the EV market worldwide. Of the nearly 500 people responding, 29% believe the DOE’s $125/kWh target won’t be met until after 2025, while 42% say it will happen in the 2021-2023 timeframe. Only 5% predict the mark will be reached as early as 2019.

While it is difficult to predict when BEV global market penetration will reach 10% annually, it is more likely to happen closer to 2030, when improvements in battery technology and accompanying lower costs finally make their way through the vehicle-development process and into dealer showrooms. One product cycle will not be enough for that to happen.

There also does not appear to be a silver bullet on the near-term horizon in terms of battery technology that would provide a magnitude


leap in BEV range and cost beyond what might be possible with more conventional Li-ion applications.

Interesting research continues, including the work in low-cost, low-volatility zinc batteries (see Q&A starting on p.115) and even higher-performing lithium-air and solid-state batteries. Toyota and Dyson, the vacuum-cleaner manufacturer that is moving into the EV field, are among those looking to deliver vehicles powered by solid-state batteries early in the next decade. Supplier Continental has said it may invest in next-generation solid-state battery production capacity as well.

But while promising, developers say any widespread application of solid-state technology isn’t likely before 2028. Lithium-air batteries continue to run into trouble in the lab, and zinc concepts are seen at best as a gap-filler on the way to higher-performing chemistries.

With suppliers just now committing significant dollars toward expansion in Li-ion battery capacity, WardsAuto Intelligence believes the Li-ion era is just beginning, and only more incremental advances in battery technology will be seen between now and 2025.

The regulatory picture is another potential wild card when it comes to EV sales growth. Air quality in many of the world’s largest cities, including more than two dozen megacities, is substandard to the point of being a health risk. More than 80% of people living in urban areas that monitor air pollution face air-quality levels exceeding limits set by the World Health Organization.

The European Commission’s proposed 2030 carbon-dioxide emissions targets announced in November, which call for 30% reductions beyond Euro 6 levels to 66 g/km for cars and 103 g/km for vans, certainly would require expanded sales of BEVs. But even that would mean the market tipping point toward electrified vehicles wouldn’t come until closer to the end of the next decade.

Although several countries have proposed banning gasoline- and diesel-fueled cars, it remains unclear whether that is mere political posturing, and predicting how far public policy will take the EV market a decade out is an uncertain exercise at best. Leading the movement on the municipal level are cities such as Paris, Madrid, Athens and Mexico City, all of which have announced plans to exclude diesel vehicles from their city centers in 2025. In the U.S.,

California continues to push hard for stricter CO2 emission standards and

Norway 2025Britain 2040France 2040China To be decidedIndia 2030 (provisional)

COUNTRIES CONSIDERING BANS ON GAS/DIESEL VEHICLES


has floated the idea of banning gas and diesel cars by 2040.

If governments follow through on restrictions that certainly would boost EV demand, and many of the leading OEMs have announced aggressive new-product rollout plans in anticipation. Some are publicly promising that 25% of their sales in 2025 will be full-electrics and plug-in hybrids. WardsAuto data shows no fewer than 85 new BEVs will enter the market between now and 2025.

However, product availability alone will not lead to a massive consumer shift toward BEVs. It also is unclear at this early stage whether the new-product slate will stay intact, particularly if BEVs continue to be a drain on the bottom line.

But even that may be beside the point. Based solely on expectations around Li-ion battery costs and global production capacity – two keys to converting the market from internal-combustion engines to electric powertrains – it appears unlikely most 2025 volume targets will be achieved (see WardsAuto Global EV Product Plans starting on p.123).

Should demand forecasts be exceeded, there are nine automakers best positioned to take advantage of a bigger-than-expected market for EVs, according to a WardsAuto Intelligence analysis.

Among them are brand stalwart Tesla, forecast to control 16% of the

EMISSION STANDARDSIf requirements to sell EVs in some U.S. states are eased, it will:


Have little e�ect; automakers will still compete globally and the

EV market will �nd its appropriate level

46%

All of the above (answers to the left)

39%Put automakers at a disadvantage when it comes to competing in global markets

3%

Cause demand in the U.S. to decline further

8%

Cause U.S. automakers to fall behind in EV/battery technology

4%


world’s BEV market in 2024; current market leader Renault-Nissan; China’s surging Geely; and General Motors, among the best in battery range and cost. Also making the favorites field is Daimler, which has an aggressive new-product rollout strategy and is forecast to control 10% of global sales in 2024, and Ford, which is making electrification a bigger part of its future strategy. Chinese automakers BYD and Beijing Automotive Group are given the nod for their foothold in what is expected to continue to be the world’s biggest market for BEVs.

Japanese automakers Honda and Mazda, more invested in hybrid or conventional powertrain technology and lacking scale, are on the list of those least able to exploit a surge in BEV demand. Also likely to trail the pack are Italian-American FCA Automobiles and small automakers such as China’s Chery, Malaysia’s Proton and India’s Tata.

Another uncertainty is how any rollback in U.S. CAFE requirements under the Trump Admin. might affect the willingness and ability of U.S. automakers to compete in the BEV market. Respondents to the WardsAuto Intelligence survey are split, with 46% believing the impact will be minimal while 39% say it will cause the U.S. auto industry to fall behind and reduce demand for EVs overall.

One concern is whether a proper analysis of the well-to-wheel emissions impact of EVs has been made and future mandates are in fact addressing the right problem.

In the run-up to the 2010 launch of the Nissan Leaf electric car, Nissan Chairman Carlos Ghosn admitted the Prius, Toyota’s first gasoline-electric hybrid, was more efficient in terms of C02 emissions than full-electric cars in markets where electricity is produced from petroleum and coal.

Nothing has changed since then, except that China now has emerged as the leading producer of EVs and the batteries needed to power them. Coal still accounts for nearly 70% of electric power generation in China, 45% in Germany, 35% in the U.S. and 80% in Poland, where LG Chem is building a lithium-battery plant and Volkswagen plans to produce electric vans.

INTERNAL COMBUSTION ENGINESDo you believe some governments will follow through on plans to ban

ICE vehicles as early as 2025?


YES = 64%

NO = 23%

DON’T KNOW = 13%


France, in contrast, uses nuclear power for the bulk of its electric-power generation, thus the cleanest EV would be one built and operated in that country. Of course, almost no government planner is advocating wider usage of nuclear power.

Grady Loy, an in-house attorney for a Mitsubishi group energy company, warns that both upstream and downstream issues need to be resolved more assiduously. “This does not discount the general rightness of the green movement. But environment policy not based on the numbers, all the numbers, will certainly lead to added and unforeseen costs.”

Still, industry insiders are taking the threat to outlaw ICEs seriously, with 47% in our survey saying they expect at least some governments will follow through on proposed bans of fossil-fueled vehicles, compared with 43% who believe they won’t.

Even if advances in battery technology allow range to improve, other impediments to drawing buyers to BEVs will remain. Charging will be at the top of the list, respondents to our survey believe, with 34% saying next to range, the lack of a recharging infrastructure will be the biggest roadblock to EV sales. Another 28% believe the time needed to recharge will keep many buyers out of the EV market.

The biggest unknown that could trigger a spike in demand for electric

ROADBLOCKSOther than range, what is the single biggest

factor limiting EV sales today?


Model availability and variety

8%

Low gasoline prices9%

Cost21%

Time needed to recharge

28%

Lack of recharging infrastructure

34%


and electrified vehicles, is an unexpected surge in fuel prices. The consensus in the U.S. is that gas prices of at least $4/gallon will be needed to change consumers’ buying habits, a considerable spike from today’s $2.60/gallon average.

Improvement in conventional powertrain technology is another impediment. Cases in point: Mazda’s new homogeneous charge compression ignition engine

that is scheduled come onto the market as early as 2018 and continued advances by other traditional OEMs to downsize and improve the efficiency of their gasoline engines.

Currently, no automaker is racking up profits from selling full-electric vehicles, and at least one analyst has concluded no battery supplier is making money off BEVs either.

Will the sector become profitable by 2025? Will the industry still depend on government subsidies for sales? Will new models on the drawing board be delivered on schedule? Will they be accepted by consumers?

How those questions are answered will determine the size and success of the EV market over the next decade, and we see four major developments

China 57.7%Europe 28.2%North America 8.2%Japan/Korea 5.9%

WHICH MARKET WILL BE THE PRIMARY DRIVER OF

WORLD EV SALES IN 2022?



playing key roles:

n The emergence of China as the world’s leading manufacturer of electric vehicles, both plug-in hybrids and all-electrics, and lithium batteries.

n Tesla’s rise as the most visible and innovative brand.n Proposed bans on internal-combustion-engine vehicles as early as 2030

and post-Euro 6 emission standards in Europe – still being finalized but linked to the Volkswagen diesel scandal – that are forcing OEMs to rethink their powertrain strategies and make bigger commitments to electric than planned.

n Improvements in battery technology, fostered by advances in lithium metals and other materials, and required capacity that is just now being put in place or planned. Some 200 GWh/year of new or expanded production capability is expected by 2021. The preponderance of that is in Asia and much of it is in China, which is looking to dominate the market for EV batteries.

What follows are detailed looks at the prospects for EV sales out to 2024, the state of advanced battery technology, key battery suppliers and projected manufacturing capacities, government regulations that will help drive the market, and EV product plans of major automakers. Many

2025Which level of electrification do you expect

to dominate the global market in 2025?

0 5% 10% 15% 20% 25% 30% 35%

Fuel Cell

Conventional Hybrid

Full Battery Electric

48V Hybrid

Plug-in Hybrid 31%22%

21%17%

9%Source: WardsAuto 2017 Battery & Electric Vehicles Survey


industry executives and analysts were interviewed for this report and contributed greatly to its conclusions; we’ve included edited transcripts of several of those discussions as well.

The report seeks to answer the question of how big and how fast the EV market will grow and whether the industry is equipped to meet demand - or is on a dangerous path toward investing too much too soon in full-electrics.


CATL’s Bob GalyenBob Galyen is chief technology officer of China-based battery maker Contemporary Amperex Technology (CATL), chairman of the SAE’s international battery standard steering committee and chairman of NAATBatt International. He discusses the state of battery technology, the U.S.’s position in the sector and the future direction of CATL.

WardsAuto: Panasonic, LG Chem and Samsung SDI are all moving to larger-sized cell formats including 21700. Is CATL following suit?

Galyen: We don’t believe there are any margins in 21700 cells. We don’t want to go back to cylindrical cells. We prefer to use the prismatic hand-cell technology because it is

safer and we can pack in more energy density than with a cylindrical cell. Mathematically, it is impossible to make a cylindrical (cell) at the same amount of capacity even if you use the same chemistry.

WardsAuto: Is CATL still producing lithium-iron phosphate, or LFP, batteries?

Galyen: For our bus business, yes. Lithium-iron-phosphate technology has a lower energy density, but it is safer. This is why the Chinese government put the mandate on using LFP technology for bus applications.

But for most car applications we need to switch to nickel-manganese-cobalt cathodes that have far higher energy density, which is required to give the car the added range to help eliminate range anxiety.

WardsAuto: What cost level do you expect lithium batteries to reach in 2025?

Galyen: I think $140/kWh is achievable. That’s at a pack level.

WardsAuto: Then you don’t think $100/kWh, as some analysts have forecasted, will happen in the near term?

Galyen: No.

WardsAuto: What will come next after the current generation of batteries?


Galyen: Solid state.

WardsAuto: Subhash Dhar, the respected battery consultant, said solid state will reach the market around 2025 for consumer applications, but that it will take another three years before solid-state batteries are ready for the auto industry. Is that how you see it?

Galyen: I think it’s going to take at least that long and perhaps longer. And the main reason is scaling. We will need a whole new breed of manufacturing technologies to commercialize solid-state batteries for large production volumes and automotive applications.

WardsAuto: Wearing your other hat as CATL’s chief technology officer, when do you expect CATL to begin lithium-cell production overseas? Before 2020?

Galyen: Possibly. Remember, these big plants take somewhere between 18 and 26 months to build and commission, depending on how big and complex they are. But you have to have the sustaining business before you start building with bricks and mortar.

WardsAuto: Will you build a plant in Europe first? There have been multiple reports linking CATL to Volkswagen. And in China, you supply BMW and Mercedes.

Galyen: I won’t deny the news reports. In China, as you are aware, we are working with BMW, Daimler and Audi. Clearly, shipping big bulky batteries is not conducive to making a good profit.

WardsAuto: What about North America?

Galyen: Again, I won’t deny the reports.

WardsAuto: How serious a competitor is BYD?

Galyen: Honestly speaking, we don’t compete with BYD. And this is because BYD builds most of their batteries for themselves – for BYD buses and cars. I believe they recently made an announcement that they were considering selling outside their group. But as things stand today, BYD is vertically integrated. In that sense, we are not competing with them.

WardsAuto: Is it true CATL delivered more battery packs to one customer, Zhengzhou Yutong Bus, than Tesla has used since its inception?

Galyen: It’s a back-of-the-napkin calculation, but yes, we delivered more than 250,000 packs to Yutong Bus last year. Keep in mind that electric buses, depending on their size, use between six and 24 packs per bus.

EV & BATTER Y REPORT / WARDSAUTO INTELLIGENCE 103

WardsAuto: Given the rapid growth of your company with installed capacity to reach 40 GWh next year, it sounds like Warren Buffett (who has a stake in BYD) should have invested in CATL.

Galyen: He didn’t know about our company, because we’ve kept quiet until now.

WardsAuto: China has a large percentage of the world’s metals that are used in batteries. Are there alternative sources?

Galyen: Yes, there are alternative sources. I don’t agree with the naysayers who feel we’re going to run out of metals for these battery systems, including cobalt and lithium.

WardsAuto: I understand at this year’s Battery Show Exhibition & Conference (held in Novi, MI, in September 2017), you raised eyebrows about the U.S. falling behind in battery technology. How serious a problem is this?

Galyen: Look at the total production of the capacity of lithium-ion batteries in the U.S. and compare that to China. EnerDel can produce about 200 MWh per year and XALT Energy 700 MWh. We can produce that amount in just one week in one plant in China. The United States is way behind in battery technology.

WardsAuto: Could this become a serious national security issue?

Galyen: I think so. And the situation isn’t much different in Europe. There are no global-scale battery manufacturers and only Samsung SDI among the top four or five producers. We’re hoping to be one. n

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Auto Industry Forecasts & Analysis - ABOUT THIS …...As part of this report, we surveyed industry insiders to gauge their outlook on battery development and the emergence of the EV