Lithium-ion batteries The bubble bursts

Stuttgart, October 2012

Li-Ion-Batteries_Bubble_final_E.pptx

SUMMARY

Consolidation in the lithium-ion battery (LiB) market is inevitable Stakeholders need to revise their strategies
A

The large-format lithium-ion cell market will face overcapacity and price wars: - Demand is lower than expected - A lot of capacity has been built up but new equipment to be installed will be more efficient - Prices are down to 180 and 200 EUR/kWH in 2014/2015 Bottom-up calculations show that with an expected EBIT margin at or below 5%, "early movers" in particular cannot generate enough EBIT to finance their cost of capital
New developments on the material side (mainly cathodes, electrolytes/separators) as well as in production technologies will lead to further cost reductions but require more cash for introduction and industrialization

Therefore only the already large players or companies will survive the shakeout, as their parent companies might be willing to provide the business with sufficient capital That's why cell manufacturers as well as their customers the OEMs need to rethink their strategies

Source: Roland Berger

Li-Ion-Batteries_Bubble_final_E.pptx

DEMAND

OEMs will increase xEVs sales significantly in the short term Toyota will remain the main player
OEMs xEV sales plans by xEV type [m units]
Hybrid light HEV1) BEV Comments

2.6

Figures are a summary of OEMs' sales targets for their xEV programs They do not include sub-A-segment vehicles (vehicles not classified as "passenger cars")
80% 0.6

1.3

1.1 25% 0.8 0.3

38% 17% 1.3 0.1 2015

CAGR 2011-2015

0.3

0.7 2015
Toyota

Sales targets tend to be on the optimistic side but were not adjusted by Roland Berger

2011
1) FHEV, PHEV
Source: Roland Berger

2011
xx

2011

2015

OEMs excl. Toyota

Li-Ion-Batteries_Bubble_final_E.pptx

DEMAND

However, in one 2020 scenario, xEVs will represent only a minor share of powertrains in EU, US and China Introduction delayed
Base scenario: xEV market share in the EU, US and China, 2020 [%]
COMMENTS Market share calculated based on an assessment of push (legislation-driven) and pull (customer-driven) factors for xEVs in the EU, US and China The market shares shown represent the minimum required xEV share to meet push and pull in each region Higher xEV market shares are possible and even likely The EU's xEV market share achieves the level required to meet EU CO2 emissions targets in an aggressive scenario regarding ICE optimization and driving resistance reduction The US's and China's xEV market shares are primarily required to fulfill pull factors for xEVs Further legislative action might increase share Japanese/Korean figures expected to fall between the US and EU

70%

95% 26%

97%

0%
1%

2%

2% 0%

0% 2%

1%

1% 1%

Conventional incl. Start-Stop Hybrid Light

Source: Roland Berger

FHEV PHEV

BEV/RE

Li-Ion-Batteries_Bubble_final_E.pptx

5 A DEMAND

The EU's xEV market is primarily legislation-driven The US and China are driven primarily by customer pull
Summary of push and pull factors for xEVs
1 EU 2 USA 3 China

Even under optimistic assumptions regarding ICE improvements and lightweight measures, all OEMs will need xEVs to comply with 2020 CO2 emissions targets In terms of costs, hybrid light and PHEVs are most favorable

CAFE emissions targets can be met by utilizing ICE improvements and some weight reduction technology OEMs also have no cost incentive to apply xEV technologies on a large scale However, the ZEV mandate and the ability to earn credits will lead OEMs to build at least some PHEVs and EVs

Technology penetration is driven only by government targets for PHEVs and EVs Fuel consumption targets can be met by optimizing ICE in all segments Fleet emissions are possible, but there is no clear indication yet If fleet emissions will be set, high xEV penetration expected

PUSH

No TCO advantage for FHEV, PHEV or BEV powertrains Hybrid lights will become neutral as regards TCO, but will provide additional functions In larger-car segments, customers will be willing to pay more for higher performing hybrids Only niche demand for BEVs

Source: Interviews; Roland Berger

PULL

No TCO advantage for xEV powertrains due to low fuel costs However, some customers are willing to pay for xEVs for environmental image reasons

Almost no customer pull for xEVs except in luxury segment Light and full hybrids would offer significant consumption advantages, but TCO advantage is limited due to low cost of fuel No willingness to pay for "green" image in luxury segment, innovativeness of xEVs is an important purchase criteria

Li-Ion-Batteries_Bubble_final_E.pptx

DEMAND

To meet CO2 emission targets, OEMs will mostly introduce xEV only according to the cost of CO2 emission reductions in their fleet
Assumption for xEV usage at OEMs to comply with EU CO2 emission regulation
Gap between CO2 fleet emissions and CO2 targets 108 2020 CO2 emission Usage of xEVs types to close the gap at OEMs1) 0 OEM will offer xEVs in segments to fulfill customer requirement and skim willingness to pay Hybrid light in large/luxury cars and minor share in medium size cars, PHEVs in large/luxury cars, BEVs in mini/small cars Intensify usage of hybrid light in medium size and small cars and PHEV usage in larger cars Cost of cutting CO2 emissions2)

101 2020 CO2 emission target 1

Expand PHEV usage to medium size cars

3 OEM

Increase EV penetration in smaller cars and expand usage to medium size cars

High

1) Based on interviews, validation with TCO calculations 2) Assessment is based on a calculation of xEV CO2 emission reduction potential, customer willingness to pay and cost (components and other cost)
Source: Interviews; Roland Berger Li-Ion-Batteries_Bubble_final_E.pptx 6

DEMAND

Hybrid light will become at least TCO neutral Buyers of large/ luxury vehicles will be willing to pay for full hybrids and PHEVs
Pull factors for xEVs Europe, 2020
Vehicle size Luxury
CO2 emissions limits in company car fleets
Esp. sport cars

COMMENTS Assessment of TCO is based on a detailed calculation taking into account necessary uplift of 200% on material cost for OEMs to maintain EBIT margin per vehicle Willingness to pay in large and luxury segment is driven by social pressure to be environmental compliant and additional functions enabled by xEV powertrains (e.g. comfort startstop, idle AC)

Large

Medium

Small

Mini Light Full xEV type

TCO neutral/advantage to best ICE-technology Willingness to pay Other reason

PHEV

EV

Source: Interviews; Roland Berger

Li-Ion-Batteries_Bubble_final_E.pptx

DEMAND

A significant share of powertrain electrification are stop-start and micro-hybrid systems but here, LiB are not competitive

Conventional starter batteries cannot be used effectively in start-stop and micro-hybrid applications due to poor cycle life and poor charge acceptance Initially, most of the start-stop systems used a 2 battery approach in order to fulfill the requirements: 1 conventional starter battery (for starting only) plus 1 AGM battery for power supply. Problems are cost for 2 batteries and limited life of the AGM battery Lithium Ion cell makers did expect a chance here Recent developments in Lead-acid batteries (called Enhanced Flooded Battery ) have now be presented and are likely to become a viable and cost effective solution for start-stop and micro-hybrid applications Companies like JCI, Exide, Banner, Moll, Shin Kobe, GS-Yuasa and others will probably be able to offer Lead-based products that will meet start-stop and micro-hybrid requirements exceeding 200,000 km or 6 to 8 years of operation at lower system costs than lithium-ion batteries.
Li-Ion-Batteries_Bubble_final_E.pptx 8

Source: Roland Berger Source: Roland Berger

CELL ECONOMICS & TARGET PRICES

Price levels around 200 EUR/kwH (approx USD 250) in 2015 do not provide sufficient EBIT to finance cost of capital
Typical 96 Wh PHEV cell Cell cost structure 2015
Cell P&L breakdown, 2015 Total cost: approximately USD 22.1/cell (~ 237 USD/kWh) EBIT SG&A Overheads Labour
10%

Cell material cost split, 2015 USD 13.4/cell ~24% of total cell costs)

5%

39%

Cathode

6% 1% Energy/Utilities 0%

18% 58% Raw material 13% 19% 11%

Anode Electrolyte Separator Housing and feed-througs

D&A Equipment

18%

0% 2%
D&A Building Quality / Evironmental

Material cost breakdown

1) Including carbon black content, foil and binder cost

Source: Roland Berger LiB Value Chain Cost model 2011 Li-Ion-Batteries_Bubble_final_E.pptx 9

CELL ECONOMICS & TARGET PRICES

Our calculation takes into account declining material prices Driven by strong competition to capture market shares
Impact on the cell manufacturing material prices (mid-term - 2015)
IMPACT FACTORS ON PRICES
Input materials CATHODE ANODE SEPARATOR ELECTROLYTE
Solution: 20 $
(LiPF6:25-30$)

Raw material cost

Process cost1)
2)

Standardization Competition/ capacities

Price Overall per kg impact 2015

NMC 25 $ LMO 15 $ NCA 35 $ 18 $ (50-50 mix)

Increasing the price 1) Investment, energy, labor

Source:

Limited impact

Decreasing the price

Overall strong price decrease

2) Process cost reduction potential for LFP available

Li-Ion-Batteries_Bubble_final_E.pptx 10

Roland Berger "Battery material cost study V.2.4 / Q1 2011"

CELL ECONOMICS & TARGET PRICES

Material manufacturer need to improve their materials to drive down costs resulting in additional R&D demand on cell level
Manufacturing cost calculation 2015 [USD/kg]
TMC1) ~32.5 ~25.5 4% 10% 10% 12% 13% 2% 13% 14% 2% 22% 2% 73% 66% 12% ~24.5 4% 13% 13% ~23.7 ~22.8 4% 14% 21% ~17.5 7% 7%
2)

~12.8 8% 5% 15%

~20.2 5% 16% 15% 2%

~19 5% 5% 17% 16% 2%

Comment According to latest analyst reports the prices of Nickel, Cobalt and Manganese will decline through 2015 Largely as a result thereof CAM material costs will decrease by between 7% and 22% between 2011 and 2015 The costs of LFP will increase largely as a function of higher energy and utility costs which account for 30% of total cost If high-capacity materials (HCMA) is ready by 2015, this will offer a significant cost advantage over other CAMs due to higher energy density compounded by lower material cost
Raw materials

20% 3%

64%

63%

62%
40% 49%

57%

54%

LCO
[USD/ kWh]

NCA
~34.49

NCM 111
~37.8

NCM 523
~36.54

NCM 424
~35.27

LFP FePO4
~34.12

LMO
~27.3

HCMA3)
~20.4

HV spinel4)
~27.46

~56.49

Quality/Environment Maintenance D&A Other D&A Equipment 1) Total manufacturing costs 2) High quality differences 3) not available until >2015
Source: Roland Berger LiB Value Chain Cost model 2011

Energy/Utilities Labor 4) not available until 2020

Li-Ion-Batteries_Bubble_final_E.pptx

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CELL ECONOMICS & TARGET PRICES

Declining cell prices will result in massive pressure on cell and CAM manufacturer margins - not enough to finance costs of capital
Typical 96 Wh PHEV cell Cell price breakdown 2015 [US $ / cell]
Other materials1) CAM margin 7.5% Cell margin 6.0 % Cell price Delta Market price2)

Comment For a typical CAM manufacturer Raw materials account for up to 55% of total cost D&A and utilities account for up to 25% of total cost For a typical cell manufacturer Raw materials account for up to 58% of total cost D&A and utilities account for up to 19% of total cost

CAM cost

Cell cost

22.1 2.3 2.1

0.4 0.3

23.3
1.3

1.2

22.0

13.4

4.3

8.2

4.6

Other Cathode CAM material SG&A cost

CAM Cell margin material cost

Cell D&A

Labor/ utilities

Cell SG&A

Cell cost

Cell margin

Cell Price

Market Market price price

Margin pressure Any price decrease beyond 24 USD / cell (lower than EUR 200 / kWh) will have direct impact on CAM and cell manufacturer margins
1) Anode, separator, electrolyte, housing 2) Expected market price based on expert interviews
Source: Roland Berger LiB Value Chain Cost model 2011

In view of their limited ability to offset sales price declines, CAM and cell manufacturers will compete over a shrinking profit pool
Li-Ion-Batteries_Bubble_final_E.pptx 12

CELL ECONOMICS & TARGET PRICES

To significantly reduce cell costs beyond 2015, major innovations in CAM technology and introduction of new CAMs are necessary
Typical 96 Wh PHEV cell Impact of material improvements on cell prices (cost for Auto. customers)
Comment
NCM cell 2015 (230 USD/kWh Cost reduction NCM cell 2015 2020 NCM cell 2020 Potential cost reduction HCMA HCMA cell 2020 204 USD/kWh

-6% 22.1 5.2 0.4 1.0 0.1 20.8 4.3

-10% 0.9 19.9 3.4

16.9

16.5

16.5

NMC cell cost 2015

Manufacturing

Energy density1)

Labor

NMC cell cost 2020

HCMA

HCMA cell cost 2020

Innovation pressure
Unless HCMA material is introduced, further price reduction potential of CAM materials is limited and margins remain at unacceptable level Also cell manufacturer need (and will) improve processes and yield rate
CAM cost share 1) Based on a high-density 50-50 mixture of NCM 111 and LiNiO2
Source: Industry reports, experts interview, Roland Berger analysis

Const. cell energy (at 96 Wh) assumed In 2016 introduction of higher density NCM CAM, resulting in:specific cell energy increase to141 Wh/kg and concurrent reduction in NCM usage to 113 g In 2018 introduction of high-density HCMA CAM: further increases specific cell energy to 144 Wh/kg with HCMA usage to 100 g HCMA price includes a license fee of 2% No changes in anode, separator and electrolyte cost assumed in figure: add. potential 10..20$ /kWh Add. cell manufacturing process improvement: potential ca. 10..15$ / kWh Cell price forecast 2018..2020: 200$ / kWh (incl. approx. 15% margin for both CAM and cell manuf.)
Li-Ion-Batteries_Bubble_final_E.pptx 13
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IMPLICATIONS

The value chain is therefore expected to further consolidate (1/2)

TODAY (2012) Raw materials > Oligopoly Lithium mining Anodes, Cathodes, Separators, Electrolytes and Precursors

CHANGES BY 2020 > Some selected new players > New recycling companies > Business models integrating recycling

> Dominated by Asian > New players (from specialty chemical (Jap.) players sector ) especially for Automotive and ESS > Partially specialized precursors sourced > More integration of precursor manufacturer > Some cathode materials > Cathode manufacturing by cell manufactured by manufacturer only for top 2..3 with cell manufacturer large chemical business

Source: Roland Berger

Li-Ion-Batteries_Bubble_final_E.pptx

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IMPLICATIONS

The value chain is expected to further consolidate (2/2)

TODAY (2012)

CHANGES BY 2020

Battery cells / > Some JVs > Massive consolidation (cost stacks disintegrating pressure, innovation) ("LiB manuf.") > Established players gaining share, > Auto-Cell manuf. JV's as exemption research spin-offs with public & IPO funding leaving the market
Battery assembly > Mainly by OEMs (JVs > Increased outsourcing, but still LiB) inhouse dominated by in-house assembly > Selected supplier > Some cell manufacturers try to deliver LiB JVs larger part of system (incl. electronics) as Tier-1 > Limited LiB alone
Li-Ion-Batteries_Bubble_final_E.pptx 15

Source: Roland Berger

Li-Ion-Batteries_Bubble_final_E.pptx

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