Interview Transcript

What’s the biggest challenge for battery manufacturers?

Well, part of it is continuing this push towards cost reduction. We have to get the prices down to make the EV price competitive with ICEV to get to this 10x kind of a growth and still trying to squeeze out, at least, the 5-10% margin, and at the same time, absorbing any raw material shocks. That’s why the cobalt content continues to get pushed down. The other thing that’s happening is that there is already a lot of R&D going into recycling and I’m expecting, by 2022-23, that we’ll have commercial-level recycling, which then eases a lot of pressure on materials like cobalt or the volatility and so forth. So, it’s just managing these pressures from all directions around material prices, the overall battery price having to go down, and trying to maintain margins in that environment.

Do you see there being a challenge between the battery manufacturers, also moving upstream to the raw materials, but also the auto OEMs that are clawing back margin from anywhere they can, given that they’re being pressured at the business level? Do you see them being a challenge where they’re actually a partnership to manufacture the batteries but then also potentially a clash in terms of moving upstream to the materials?

Yes and no because the OEMs recognise that for the battery cost to go down, they have to allow for R&D capability to the battery manufacturers. They realise it’s not magic. If they strip away all the margins, they may be happy with the few percent, but they’ll be losing in the long term because the battery manufacturers are not going to be able to innovate to get the overall cost down, so recognising that it has been more of a partnership, and I think it will continue for some time because they both realise the best way to optimise is to work together, especially if it’s sharing future product plans, which then allows you to optimise the cell chemistry, format, etcetera.

So, I think that will continue, and there is quite a bit of transparency in terms of the cost structure and the flow through of raw materials. Of course, the OEMs will push back, but at the end of the day, they realise, and that’s why some of them are getting these long-term contracts for materials, especially cobalt and, to some extent, lithium — although I don’t think lithium is going to be that big of an issue — to help ease that pressure, so there is a lot of co-work or collaboration, partnership that is going on, and that will continue, at least for the next 8-10 years.

How do you see the tier-one manufacturers in the auto industry reacting to this?

They have had to scramble. A couple of things that you see happening is the Bosch’s and Conti’s, and people like that, have a niche — actually, it’s a pretty significant size — in these smaller battery packs like the 48v type of systems because, even with the aggressive growth we’re seeing in EVs, you’re still projecting maybe 10-12% penetration, new vehicle sales by 2025. But that means the rest of them are conventional ICEVs and because of the stringent CO2 and emission requirements, the so-called micro-hybrid —the 48v systems and start-stop systems — are going to grow significantly because I think by that time, maybe 25-30% of new vehicles will have some level of electrification. And as you get to these smaller packs, when you are at the 60 kilowatt/hour, 200-mile range at the pack level, 75% is cells, but if you come to a plug-in hybrid, which is a 10-12 kilowatt/hour pack, it’s maybe 60%, and if you get to 48v, it may be 50% or even less. In other words, the non-cell content is a significant chunk, and that’s where these traditional tier-ones have their strengths in automotive systems. So, they’re just continuing to adopt these stop-or-shift and electrification.

Do you expect to see increased consolidation across the value chain?

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