Using our News Commentary feature (client registration required), Lux Research analysts have been tracking the energy storage space with unprecedented detail, covering more than 300 chosen individual developments during the past half year. These innovation-related events span from partnerships and investments to new research and new factories, and include information about the companies involved and our own takes on the developments. While this set of coverage is not meant to include every single development, it does capture much of what Lux analysts think is worth considering. The full dataset is available to Lux members to explore here, by clicking the News tab’s Energy Storage filter (client registration required), which includes interactive versions of the visualizations shown below. To help extract insights from this wealth of data, in this summary we analyze the trends that have emerged out of this in-depth coverage of how the energy storage landscape looks like in 2017 thus far, using the following heat map:
Last week ended with Apple announcing a $1 billion investment in the Chinese ride-sharing company Didi Chuxing. Didi Chuxing is Uber’s biggest competitor in the Chinese market. Apple’s investment is meant to act as a chance for Apple to learn more about Chinese market segments. The investment would also be a key component in Apple’s rumored self-driving vehicle project.
With each new partnership or investment announcement, an ecosystem within the autonomous vehicle space is developing that consists of three key components: autonomous vehicle technology development, the emergence of new business models, and manufacturing of vehicles. To survive in this evolving ecosystem, companies must be able to touch all three of these points. It isn’t feasible for any one company to hit all three of these by itself, though; companies operating in this space are looking for relationships with other companies to be able to fill any gaps. A recent example of this is the automaker GM, investing in the ride-sharing company Lyft, and in the process of acquiring the autonomous vehicle technology developer Cruise (client registration requred). Lux recently wrote a report (client registration required) comparing automotive OEMs and the companies that were lagging behind were the ones that chose to ignore one of these components, like Audi and its conservative approach to technology implementation or Renault Nissan and its lack of self-driving vehicle technology.
Apple’s recent investment shows that it is taking the autonomous vehicle space very seriously, even if it hasn’t openly stated that it is working on this technology. But for Apple to consider approaching the rest of the pack, there is still a critical question remaining: who will make its cars? Previously, Daimler and BMW both rebuffed Apple’s advance, likely due to arguments over data ownership and Apple’s notoriously demanding requirements from its partners. Clients can expect tech companies operating in the autonomous vehicle space to look elsewhere for the vehicle manufacturing piece of this new – and still developing – ecosystem. If an automotive OEM isn’t an option, Apple will need to look toward tier-ones with experience manufacturing vehicles.
By: Kyle Landry
Last month, Tesla Motors (client registration required), confirmed earlier reports that it will purchase LG Chem cells for a battery pack upgrade to its Roadster. The Roadster was Tesla’s first model offering, with around 2,500 vehicles sold between 2008 and 2011. However, only some Roadsters (the so-called versions 2.0 and 2.5) are eligible for the upgrade, limiting the total available upgrades to about 2,000 vehicles. In addition to a larger capacity battery pack at around 70 kWh, the upgrade also includes an improved aerodynamic package and low rolling resistance tires which will reduce drag and increase efficiency. All of these upgrades, as well as labor and transport to a service center, will cost the customer $29,000.
One key factor about the supply agreement is the cell format that Tesla will be using for the upgraded Roadster. Tesla has famously lauded cylindrical cells, and both its CEO and CTO confirmed that future cylindrical cells may increase about 10% in height and width from the existing 18650 format. On the other hand, LG Chem has exclusively supplied large format pouch cells like those found in the Chevrolet Volt for electric vehicles, although the company offers cylindrical and prismatic cells, as well. While the format remains unconfirmed, in the likely case Tesla will use LG Chem’s cylindrical 18650 cells, but Tesla has recently shaken up conventional wisdom about its battery technology switching to NMC cathodes for most of its stationary products (client registration required) and making use of silicon anodes in its premium vehicles (client registration required).
Overall, this is a relatively small supply agreement for both Tesla and LG Chem. Even assuming that all 2,000 eligible Roadster’s receive an upgrade, the battery upgrades would represent just a $60 million total opportunity for LG Chem. Tesla in comparison is aiming to sell 50,000 Model S and Model X vehicles per year representing around 3.9 GWh and $1 billion in Li-ion battery packs. To date, Panasonic has been the sole supplier of Tesla’s Li-ion cells, and has committed to investing around 30% to 40% of the Gigafactory construction costs in a pay-to-play model (client registration required).
Panasonic will likely continue to be the leading supplier for Tesla’s vehicles with cells produced from the Gigafactory, but this deal represents a low risk opportunity for Tesla to test cells from other suppliers looking beyond the Gigafactory. It is worth noting that other OEMs too are going towards multiple suppliers for their cells, like Audi with its upcoming SUV (client registration required). Although Tesla and Panasonic are committed to the U.S.-based Gigafactory, Tesla believes multiple Gigafactories will be needed globally, and could ultimately choose to go with another cell supplier for those factories. However, this is a much longer term vision as Tesla will have excess capacity at the Gigafactory in Nevada for at least the next five years.Meanwhile for LG Chem, although the dollar amount of the deal is relatively small, the company has been making inroads with major OEMs across the board, giving it a realistic shot at taking the top spot in electric vehicle market share (client registration required). Also important to watch in the future will be if more popular Tesla cars – like potentially more than a hundred thousand Model S sedans – will eventually receive their own battery pack upgrades, and who would supply that much larger opportunity.
Volkswagen (VW), the world’s best-selling automotive OEM, has been caught in a vehicle emissions scandal of unprecedented proportions. At least 11 million diesel-powered VW cars worldwide use a specially-coded piece of software to purposefully cheat during emissions testing. The result is that VW’s diesel cars appear sufficiently clean to government regulators – enough to be eligible for sale – but when consumers drive their cars in the real world, the vehicles’ software switches the engines’ behavior: In consumer hands, these VW diesel engines switch into a mode where they perform better (more power and more fuel efficient), but pollute up to 35 times more than during official testing.
The initial fallout for VW has been swift and brutal: Its stock plummeted 23% in value, its lowest in three years, wiping out almost $20 billion worth of market capitalization. It faces a revenue decline too, as the OEM has told dealers to stop selling new diesels. Consumers are starting to file class-action lawsuits, as their VWs will have lower resale values. Next will come the fines: In the U.S., it will face fines of up to $37,500 per vehicle from the Environmental Protection Agency (EPA), totaling $18 billion in the worst case. The final amounts may not be as high, but nonetheless VW is preparing for some high losses, setting aside $7.2 billion already to start handling the fallout. Besides the U.S. Environmental Protection Agency (EPA), VW faces other challenges too: South Korea has already announced it will investigate VW’s vehicles, as will Germany. Even the U.S. tax agency is looking into VW’s cheating, because the OEM benefited from $52 million in tax credits for its “clean diesels” that have now turned out to be dirty.
VW is not the first OEM to court disaster. Other high-profile fiascoes include General Motors’ faulty ignition key, Firestone’s tread separation on Ford Explorers, and Takata’s exploding airbags. All are bad in their own way, and these OEMs survived, just like VW will. The other fiascoes involved an inadvertent flaw in the design or manufacturing, which dishonest and incompetent managers later tried to cover up. The VW case is different: It appears that the OEM purposefully engineered the cheat into its cars from day one.
The audacity and sophistication of VW’s cheating software is stunning. Its engineers apparently programmed the cars to detect when a regulator like the U.S. EPA tested vehicles – doable because testing uses a stationary dynamometer, where some of the vehicle’s wheels spin, but others do not. For example, on a VW Jetta, the front wheels spin on a dynamometer because it is a front-wheel-drive car, but its rear wheels are stationary. In real-world driving all four wheels spin. VW engineers appear to have used sensors to distinguish between these two modes, programming the engine to behave in different ways depending on whether the car was being tested by the government or being driven in the real world by consumers. This cheat worked for years, until an independent study carried out by West Virginia University actually tested VW’s diesel emissions in the real world. It is flabbergasting that VW thought they wouldn’t be caught – the U.S. EPA had already fined diesel cheaters $1 billion in 1998, for deceptively programming their engines as well.
At its very root, VW’s misbehavior was driven by the push for cleaner cars. Automotive OEMs are under immense pressure from governments and consumers around the world to perform a fine balancing act: Make their cars emit less pollutants, keep power high and acceleration good, deliver better fuel mileage, and keep costs low. Diesel engines have had a hard time pulling all of these off. When OEMs optimize these types of engines to deliver good performance (snappy acceleration and fuel mileage), they become prone to emit poisonous, reactive gases known as nitrogen oxides (NOx). To deal with that NOx issue, OEMs like Mercedes-Benz and Toyota use an additive based on urea as part of a selective catalytic reduction (SCR) system, which is expensive. VW’s cars were unique in passing tests without a urea system, thus saving money on each vehicle. It turns out that their secret to doing so was a software cheat.
In the near-term, VW doesn’t have good options to fix the issue. If they reprogram the software to pollute less, then 11 million of their car owners will have poorer acceleration and worse fuel economy. If they re-engineer the cars to retrofit them with a urea system, it would likely come at a cost of tens of billions of dollars over recall, R&D, component costs, and ongoing urea refills. In the longer term, this will force VW to re-evaluate their strategy for clean cars. The OEM had staked a lot on its “clean diesel” strategy – for example, just a few months ago, VW’s marketing arm proudly announced that one of its diesel-engined cars had set a new Guinness World Record for lowest fuel consumption by a nonhybrid car. In the aftermath of the cheating scandal, VW will face an uphill battle to win back consumer trust and acceptance.
Looking forward, clients should expect that:
1. Regulators will try to smarten up, but will need better equipment: It’s striking that the U.S. EPA, with its $8 billion budget and workforce of 15,000 staff, couldn’t catch VW, but a small team of researchers from West Virginia University could. Regulators should revise their testing protocols to test real-world performance when the vehicles are in motion in real traffic, rather than on a stationary dynamometer. With the miniaturization of sensors and better analytical software, making this change is easier than ever before. Indeed, testing authorities have known about discrepancies between real-world performance and testing for a long time, and more efforts like the upcoming Worldwide Harmonized Light Vehicles Test Procedure are needed.
2. VW will reconsider its clean vehicle portfolio strategy: VW was slowly moving beyond conventional gasoline and diesel engines anyway. Earlier this month, before the diesel scandal started, VW’s CEO discussed the OEM’s plan to put out 20 plug-in vehicles by 2020, like an Audi EV (client registration required) with a 500 km driving range. They have also invested (client registration required) in next-generation batteries, including lithium-sulfur and solid-state. VW is actually in a strong position to innovate their way out of this mess. They have been spending most on the R&D of any OEM (about $11 billion in 2013), and they are the largest automaker by volume. Arguably, no major OEM is better positioned than they are to decisively accelerate the push towards plug-in hybrids and electric vehicles, putting the shine back on their tarnished image. However, they probably lack the vision, leadership, and ambition to do it, so they will most likely carry on as usual after some apologies.
3. Automotive software will come under pressure to open up: In the U.S., it is illegal to prevent independent repair shops from fixing cars, under a policy called “right to repair”. However, OEMs successfully lobbied regulators to use the Digital Millennium Copyright Act (DMCA) to keep their software locked up and proprietary, and off-limits to diagnostic and repair companies the OEM does not like. That has led to legal squabbles, with GM arguing that while consumers may own their cars, the OEM owns the software; similarly, Ford sued a company called Autel, which was developing some independent repair software. Indeed, even VW itself sued some security researchers that pointed out a flaw in the way its key-fobs worked. Ironically, the U.S. EPA itself sided with OEMs, fearing that if the software is open-access then consumers would modify it at the expense of emissions. VW misused the protection of the DCMA to hide their crime – precisely the kind of scenario that open source software advocates have argued makes closed systems a bad idea. Forget consumers – OEMs’ actions show that they need watching too. The DMCA exception for automotive software should be struck down, and replaced with a policy in line with right to repair.
4. Diesel passenger vehicle sales in the U.S. will drop drastically: Due to strict NOx emission standards in the U.S. diesel passenger vehicles have failed to make any significant market penetration, representing less than 1% of passenger vehicles and only 3% of all vehicles on the road. In part, slow adoption was due to the requirement of installing the urea-containing SCR unit to control NOx emissions in diesel engines, which is expensive. When Lux Research compared OEM engine options – the cheapest engine option within a model range versus the diesel-engine option – we found on average the diesels cost $6,000 or more. VW’s “clean diesel” was positioned to revolutionize passenger diesel vehicles without the need of an SCR unit, saving costs. With the EPA setting new emission standards in early 2014, close to California’s much stricter regulations, this is not a good sign for diesel. Consumers will now consider other vehicle options likely to the charging of the U.S. EPA, which had plans to aggressively grow (client registration required) the biodiesel market over the next three years.
5. AdBlue systems and renewable diesel will infiltrate Europe’s existing diesel passenger vehicle market: The Euro 5 NOx emission standard that is applicable to vehicles prior to 2015 is nearly six times more lenient than that in the U.S. (180 mg/km compared to 31 mg/km). This has resulted in diesel powertrains present in approximately 35% of passenger vehicles and 53% of all vehicles and biodiesel making up 62% of Europe’s biofuels market (see the report “Biofuels Outlook 2018: Highlighting Emerging Producers and Next-generation Biofuels” [client registration required]). With Euro 6 approved and increased attention to NOx emissions (80 mg/km), and implementation of AdBlue systems in diesel passenger vehicles, it’s truly inevitable to achieve “clean diesel”. While biodiesel has carbon emission benefits that’s been the primary focus of Europe’s biofuel mandates, it actually has higher NOx emissions – up to 10% depending on blend percentage. Biodiesel will soon lose its luster as a viable solution. With the push for nonfood biofuels and new focus on NOx emissions, Europe offers potential for renewable diesel growth. By no means is renewable diesel the holy grail, but it has been shown through third-party testing to emit up to 9% less NOx compared to conventional diesel, and the region will see nearly 300 million gallons per year (MGY) of capacity come online by 2018, nearly doubling what it is today, according to our Alternative Fuels Tracker (client registration required).
What They Said
In a recent interview with CNN, Tesla’s CEO Elon Musk stated, “The Tesla car next year will be, probably be 90% capable of autopilot.” He continued that highway driving would obviously be automated by 2015. When asked by the interviewer how this would happen, Elon replied, “With a combination of various sensors. Cameras plus image recognition, radar, and long-range ultrasonics, that should do it.” The interview ended with few concrete facts, but Elon asserted, “Tesla is a Silicon Valley company; if we’re not the leader, then shame on us” – thereby asserting Tesla’s supposed dominance of the emerging autonomous vehicle market.
What We Think
If Elon Musk’s comments seems far-fetched and vague, it’s because they are. In its latest release, Tesla has effectively caught up with competing car companies, but certainly hasn’t passed them. Manufacturers like Daimler, Audi, BMW, and Ford, alongside many others, are all incorporating advanced driver assist systems (ADAS) into their cars. Tesla’s new release highlights two major ADAS features: automatic lane change and the ability for the car to read speed-limit signs and adjust speed accordingly. While an advancement for Tesla, neither feature is all that new – in 2013, there were 19 automakers with adaptive cruise control systems on the market, most of which offer the ability to read and react to speed limit signs, and others have automatic lane-change prototypes on the road.
Claims that autonomy for Tesla’s cars will be a simple matter of firmware and software updates are unrealistic. The 12 sensors that Tesla has installed onto its new car are a mix of cameras, radar, and ultrasonic sensors. While we don’t doubt that all of these sensors will be important in the progression towards autonomy, we disagree with the view that the hardware to enable autonomy is already fixed and that future cars will only require software upgrades to become autonomous. Google has been testing its autonomous vehicle, outfitted with significantly more sensors than Tesla’s, and they continue to struggle in poor visibility weather conditions. We agree that advances in machine vision, and subsequent software updates will add a lot of capability to ADAS features; however, the hardware is far from fixed. Tesla may soon find that as vision algorithms improve they will require dedicated processors like CogniVue’s (client registration required) to efficiently run the required computation in real-time. Furthermore, by fixing its hardware and relying on future software and firmware updates Tesla may miss out on emerging imaging solutions like Fastree3d‘s (client registration required) imagers that can offer advances in terms of speed, accuracy, and cost over currently used sensors.
Even if the technology to make a fully autonomous car is available in the next five to six years, as Elon suggests, it will be many years of prototyping and testing before that technology hits the road in commercially available vehicles. The first adaptive cruise-control-equipped vehicles came onto the market in 1995, and it’s taken the technology nearly 10 years to reach its currently limited market share. If a prototype of a fully autonomous vehicle is possible in five years, it will be at least another decade after that before buyers start enjoying hands-off driving.
Given the bold claims, it is likely that in 2015 Tesla will be backpedaling from its CEO’s comments. Perhaps Tesla has a partnership in the works and its ADAS features are being developed by outside developers, but nonetheless, Tesla has notoriously been delayed in product deployments. Still, marketing and PR are a true strength of Tesla, and conversations in our automotive network indicate frustration that Tesla is viewed as so advanced while in reality numerous OEMS have technologies equal to or more advanced than what Tesla is claiming. Clients should expect Tesla to continue to drive the conversation, but expect the rapid innovation in ADAS and autonomous vehicles to progress quickly – and much of it outside of Tesla’s walls.
Tesla Motors is riding a wave of strong momentum ahead of an earnings report due for release on February 19th. As shares soar, Tesla’s market capitalization is approaching $25 billion and in particular there is positive buzz around its plans to conquer the Chinese market. Early results are positive, as Tesla has announced a backlog of a couple of hundred orders already. Beyond these early adopters, however, there remain significant obstacles in duplicating its early success in the U.S. in China.
Tesla has been aggressively exploring the Chinese market. At the end of 2013, the company’s largest sales operation opened in Beijing. According to Veronica Wu, Tesla’s Vice President of China operations, sales spaces in 10 to 12 cities are planned by the end of 2014. Additionally, Tesla is trying to translate its Supercharger plan from the U.S. to China, and to build on-route charging stations between large cities like Beijing and Shanghai.
Tesla has been very clear that its vehicles are not eligible for China’s aggressive electric vehicle (EV) subsidies, but curiously, the mere existence of China’s subsidy plan is enough to boost Tesla’s rating. Contrary to this take, research out of Lux Research’s China Innovation team indicates that the Chinese central government’s clear goal is to protect and grow Chinese companies.
Additionally, numerous statements, both public and in our network, indicate roadblocks for Tesla in China.
Following the first Tesla Model S sale in China mainland in October 2013, representatives from both BYD and the China Association of Automobile Manufacturers (CAAM) publicly stated that Tesla’s business development in China may not be successful.
BYD is a Chinese electric vehicle market leader, and CAAM is the most important Chinese government-backed association in the automotive industry. These statements reflect a common theme: Neither Chinese OEMs nor the Chinese government are receptive to imported electric vehicles and willing to let them grab a share of China’s currently small electric vehicle space.
Tesla is facing three major obstacles to success in the Chinese market. Tesla’s retail price in China starts at RMB 734,000 (~$121,000). At this price level, Tesla will obviously target China’s high-end market. However, it is common in Chinese culture that high-end consumers would choose deeply recognized brands, like Audi, Mercedes-Benz, and BMW, due to the prestige associated with those brands. Even though Tesla so far has successfully penetrated the U.S.’s high-end market because of its performance and unique concepts, it is questionable whether Tesla is able to overturn Chinese people’s brand perception and preference beyond early adopters. Secondly, China’s high-end market is concentrated in large cities, and three out of four tier one cities (Beijing, Shanghai, and Guangzhou) in the country are suffering from a license plate restriction policy, which means the new motor vehicle market is limited. Finally, infrastructure is still one of the biggest obstacles for the Chinese electric vehicle market, and Tesla’s charging station plan appears almost impossible in China. According to a Lux Research connection at State Grid, a state owned giant that leads the build out of EV infrastructure across China, acquiring land to build charging stations is challenging for the government-backed State Grid, let alone Tesla, a foreign company without any Chinese government connections.
The unbelievable momentum behind Tesla’s stock could very well continue, especially in light of recent hype over rumors that Apple may have considered acquiring the EV maker. Beyond the hype, Tesla has impressed by overcoming difficult odds and reaching its current level of adoption, but it must be careful in assuming China will welcome it with open arms. There is no doubt that the Chinese EV opportunity is big, and will eventually be the largest EV market in the world, but penetrating that market requires deep understanding of the politics underlying adoption. In a country where many of its competitors will have ties to the central government, Tesla should not underestimate the barriers in its way, nor for that matter, should investors.
Osram Opto Semiconductors introduced a new light-emitting diode
(LED) product called the “Oslon Black Flat” for automotive front lighting systems; it boasts LED packaging technology that allows the headlight to function without a lens. Osram claimed that this product offers good light output of about 200 lm at 25 °C and 700 mA operation (compared to a standard headlight that outputs between 150 lm and 190 lm); if operated at 1.2 A it can achieve 270 lm. It’s projected that an efficient headlight can extend the range of an electric vehicle by nearly six miles.
Leading auto OEMs such as BMW and Audi are investing in LEDs for front lighting in their cars to achieve energy and emission savings (and LED aesthetics as an added incentive); as a result; expect to see specific product releases for the automotive lighting segment from major LED makers like Philips and GE as well. However, just as in the general illumination and back-lighting segments the automotive space could provide for a testy IP environment for LEDs. In fact, LG Electronics and Osram Opto engaged in a IP infringement battle over LED patents for automotive headlights in Korea. With heavyweights wielding massive patent portfolios, this space will be as hostile to start-ups trying to enter as any other LED market. However, this challenge also presents an opportunity for developers of balance of systems such as drivers and thermal management technologies that are in need of more efficient solutions – the unique needs of automobile applications could provide opportunities for companies that want a new play in the LED space.
China Wanxiang Group’s investment in financially troubled A123 Systems has moved quickly from a memorandum of understanding (client registration required) on August 8 to a definitive agreement, executed a week later. Wanxiang is certainly not a new name to those paying attention to the clean tech space. The company is actively expanding internationally, acquiring a $420 million minority stake in GreatPoint Energy, establishing a joint venture with Ener1 (client registration required) and partnering with, investing in, and forming a joint venture with Smith Electric Vehicle (client registration required).
In reality, lithium-ion batteries and the broader electric vehicle (EV) space are only a very tiny part of the group’s whole business. Wanxiang is China’s largest auto part supplier, serving almost all of the automotive original equipment manufacturers (OEMs) in China as well as leading international OEMs. It is famous for universal joints, bearing, drive axles, suspension struts, braking systems, rubber seals, and body panels, and is a bumper supplier for the likes of Audi. Being a highly influential group in Zhejiang province, the company has easy access to bank loans, making the $450 million total investment in A123 less painful for Wanxiang than it would be for many companies.
Chinese companies’ foreign merger & acquisition (M&A) activities are being driven by technology acquisition and/or foreign market penetration, and Wanxiang is no different. Chinese battery companies like ATL, China BAK, and CALB have much longer histories of lithium-ion battery R&D and a greater focus in this area than Wanxiang. As such, the fastest route for Wanxiang to catch up is to acquire technologies from foreign companies, which they will absorb to improve their own products then leverage existing sales channels already in place to distance themselves from would-be domestic competitors.
However, it is questionable whether the heavy investment can drive meaningful change in Wanxiang’s domestic business. Reviewing China’s EV landscape, only 8,368 full electric and hybrid electric vehicles were produced in 2011. Even though the Chinese government plans to put half a million EVs on the road by the end of 2015, only around 92,000 units can be produced in that year (see the report “Hype vs. Policy: The Chinese Market for Lithium Batteries” — client registration required). In addition, local product protection plays an important role in China’s EV market compared to traditional vehicles, adding greater complexity for companies in the EV value chain to supply to other provinces. Wanxiang is located in Hangzhou city, one of China’s six EV pilot cities, so a local market for Wanxiang exists. But it is only a portion of the already disappointing overall EV market in China. The $450 million investment is certainly a long-term bet if China’s EV market is the driving force.
Acquiring reputable foreign technology can also be used to alleviate the “made in China” stigma in developed economy markets. In other interviews with China’s large lithium-ion battery companies, most have indicated they are actively looking for sales opportunities in foreign EV markets, but they lack sales channels. It is challenging for major foreign EV OEMs to accept Chinese-made batteries from the more established, reputable battery suppliers, let alone for a company like Wanxiang that lacks a battery pedigree. This applies to the vehicle market in general, where Chinese automakers are viewed today with the same skepticism met by Japanese automakers during the middle of the last century, and more lately by Korean OEMs. Enter A123, not only with advanced technologies, but very strong customer networks with high-profile EV OEMs around the world ranging from upstarts like Fisker to established high-end brands such as BMW. Wanxiang hopes to increase access to the international EV market through A123’s already existing international customers. However, given A123’s trials and tribulations, which include product recalls and inconsistent customer acquisition, Wanxiang should know that there is some work to do before its foreign EV market penetration can ride on A123’s coattails.
The real medium-term nugget in the deal for Wanxiang may lie in grid storage, which has big market potential in China, and is substantially controlled by only two companies: State Grid and China Southern Grid. State Grid has opened a large grid-storage demonstration project in 2011 (Zhangbei), and Wanxiang is one of the four bid winners, along with CALB, BYD, and ATL. According to interviews with many executives in State Grid, big project winners must have good technology and close relationships with the grid giant, with the latter being much more important than technology. Wanxiang indeed has a very close relationship with State Grid. While it is unlikely that State Grid will open a new large grid storage project within two years, subsequent growth looks assured as renewable energy proliferates. China has installed 17.6 GW in wind turbines during 2011, representing over 20% of China’s power generation installations for the year. However, in our discussions with China’s National Development and Reform Commission (NDRC), only 80% of the wind energy can be utilized until grid storage is deployed. For Wanxiang, it is hard for outsiders to judge if the company will really digest A123’s technology and transfer it into its products, but because of the good relationship between Wanxiang and State Grid, Wanxiang’s acquisition of a controlling share of A123 gives State Grid a strong reason to ramp up battery procurement from Wanxiang.
Winners and losers in China’s domestic lithium-ion battery landscape may well be defined by which can pick up quality assets to shore up their technology and market needs. As we recently predicted:
“As technology developers around the globe struggle to stay afloat, even with quality technology, Chinese companies will be on the lookout for opportunities. In the near term, the foreign opportunity will be technologically focused, and Chinese companies will be looking for technology licensing or joint venture opportunities with large foreign companies, as well as M&A opportunities among startups and small to medium enterprises in foreign countries. Venture capital (VC)-backed Li-ion battery startups will be needing exits, some at pennies to the dollar, making VC-backed startups with advanced technology especially hot targets for Chinese big Li-ion battery companies as they inorganically grow their capability.”
Competitors in the space both in China and around the globe better be ready, as we’ve only just begun the global roll-up, and Chinese entities will not be spectating.
The automobile is at a turning point, unprecedented in its 100+ years of history. Rising gas prices, stricter fuel economy standards, a progressively more environmentally conscious customer base and forward-looking business models are all breaking the traditional automotive ecosystem. In response, OEMs are evolving their partnership webs in order to endure and compete.
This week’s graphic comes from a recent Lux Research report in which analysts examined the growing web of cross‐cutting industry relationships to see how automakers compared on the Lux Partnership Grid. Companies were scored on two metrics, partnership strength and technology diversity. Based on these scores, each automaker fell into one of the four quadrants in the graphic above.
Lone Wolves represent OEMs that are continuing business as usual, and have little footprint in the emerging technologies that threaten the status quo. The Dilute ecosystem quadrant encompasses automakers with a few partnerships scattered across a variety of technologies. The Siloed ecosystem includes OEMs that are putting their faith in a few, or in some cases one technology, while the Expansive ecosystem hosts OEMs who average nearly 16 partnerships apiece, representing an average of eight unique technologies.
A review of the partnership grid reveals multiple trends:
- Small companies tend to cluster in the Lone Wolves region, while large corporations partner ambitiously in a variety of areas so they group more in the Expansive quadrant. One exception is Fiat-Chrysler, which has only three, unsubstantial partnerships to its name.
- Daimler, GM, and Toyota lead the pack. All have formed strong partnerships in pursuit of technical diversity, placing them squarely in the Expansive ecosystem. Daimler has developed partnerships that span multiple key emerging technologies, including a JV with Toray to make carbon fiber reinforced plastics (CFRP) (Client registration required), a JV with Evonik (Li-Tec) to make Li-ion batteries (Client registration required), and participation in Europe’s Clean Energy Partnership for establishing fuel cell vehicles and hydrogen fueling infrastructure.
- Meanwhile, General Motors (GM) has emerged from a low point in its corporate history to emerge as a future looking company by partnering in a variety of technologies, and investing in companies at a variety of stages. It has invested in battery start-ups like Envia Systems (Client registration required) and Sakti3 (Client registration required), and in the fuels space with ethanol companies Mascoma (Client registration required) and Coskata (Client registration required). In the materials space, GM also sees value in CFRP, forming a JV with Japanese materials company Teijin.
- Lastly, Toyota is leveraging its leadership in hybrids, to position itself for advances elsewhere, such as advanced electrification (via its investment in Tesla). It also retains activity in hydrogen powered fuel cell vehicles and infrastructure, where it teamed with Air Products and Shell to install the first pipeline-fed hydrogen station in the U.S. In materials, Toyota has partnered with Toray to source CFRP initially used for the hood and roof of one of its Lexus models. As with Daimler and GM, these activities will prepare Toyota to profit from an ever changing landscape where the vehicle of tomorrow may not look like anything conceived today, but will no doubt carry key technologies in the areas of energy storage, increased connectivity, and new materials.
Source: Lux Research report “Under the Hood: Mapping Automotive Innovations to Megatrends.”
A group of U.S. and German automakers demonstrated an electrical vehicle charging standard at Electric Vehicle Symposium 26 (EVS26) that used a single plug to support both AC charging (including ‘level 1″ at 120V and “level 2” at 240V) and DC fast-charging. Ford, General Motors, Chrysler, Daimler, Volkswagen, BMW, Audi, and Porsche are all behind the new standard – which means they’re not behind the CHAdeMO DC fast-charging standard backed by Nissan and other Japanese automakers (or, for that matter, behind the separate DC charger offered by Tesla).
At stake is more than whether noted venture capitalist and chromed-out Fisker Karma owner Justin Bieber can plug in when he drops in on Elon Musk to talk investment strategies. Charging standards are widely, and rightly, seen as a key precondition for widespread market adoption. Issues of charging station availability and the resulting “range anxiety” are bad enough for would-be EV owners, without further doubts over whether or not the latest charging station will be compatible with their cars. Eventually good sense should prevail and send one approach the way of Betamax and the HD-DVD. In the meantime, the high cost of EVs is a bigger impediment, and >>the slow downward march of battery costs means that automakers have time to sort out their differences<< before EVs are ready for widespread adoption (see the report “Searching for Innovations to Cut Li-ion Battery Costs“).