Battery cells
CENTERS OF EXPERTISE

Transition Center of Expertise: Batteries

Electrification is an essential element of the transition to a low-carbon economy – and batteries are a vital part of the shift. As an opportunity set, batteries are driven by rapid technological advances, falling costs, regulatory tailwinds and accelerating adoption, with opportunities to invest across both private and public markets.

Key takeaways

  • Electrification, the replacement of combustion with electricity, is an essential element of the transition to a low-carbon economy – and batteries are a vital part of the shift.
  • As an opportunity set, batteries are driven by rapid technological advances, falling costs, regulatory tailwinds and accelerating adoption. 
  • Batteries are a key enabler for two major trends: the rise of electric vehicles and the growth of renewable electricity generation.
  • Most large automotive manufacturers in the world are launching new EVs, while also electrifying more aspects of their cars.
  • The increase in solar and wind energy has created intermittency in the power grid, making batteries an essential solution to stabilizing the energy supply.
  • To address potential supply-chain constraints in the battery space, companies are turning to efficient, larger-scale recycling of essential minerals.
  • The opportunities to invest in batteries exist across both private and public markets.

About BlackRock’s Transition Centers of Expertise

The transition to a low-carbon economy is among a handful of major structural shifts that we see rewiring economies, sectors and businesses.

 

BlackRock’s new Transition Centers of Expertise (CoEs), of which our Battery CoE is one, bring together the knowledge of our more than 600 sustainable and transition specialists across the firm, as well as external experts and industry associations. These virtual communities, organized by sector technology, encompass expert views throughout the capital stack and across industry value chains, contribute to the assumptions used in the BlackRock Investment Institute Transition Scenario (BIITS), and help source new opportunities for our clients.

Batteries are, and will be, essential in two particular transition segments: powering electric vehicles and supporting renewable electricity on the power grid.

  • Batteries are critical to the electrification of transport, which will rapidly accelerate in the coming decades.

    The BlackRock Investment Institute Transition Scenario (BIITS) expects nearly all new light-duty vehicles to be electric by 2050, up from less than 4% in 2020. We see roughly one third of global transport demand being electrified by 2050, with near-universal electrification of passenger road transport. The advances in EVs will also have benefits for the power grid as new technologies allow the grid to access vehicle batteries for resilience.

  • In the BIITS view, global power demand will grow roughly two-and-a-half times by 2050, with more than eighty percent of the rise in power generation coming from low-carbon sources, primarily wind and solar. By 2050 we expect the global power grid to be 90% decarbonized compared with 2020 levels.

    As renewable power sources take an increasingly large share, batteries will become essential to support the grid. They’ll be required to supply energy when the sun isn’t shining and the wind isn’t blowing.

    But the role of batteries in the grid of the future isn’t limited to stepping up delivery when renewable power generation is low. Stationary batteries can help operators manage grids, while off-the-grid, distributed batteries can provide on-site resilience to homes, hospitals and office buildings where grid service is unreliable or nonexistent.

    With the tailwind of supportive policy and regulation for grid-scale batteries, stationary battery deployment is set to grow by two-thirds by 2050 across a diverse set of power systems.

  • There are still significant concerns that could hinder the outlook for the industry: Sourcing the minerals required to make batteries, accessing the full range of battery chemistries and potential supply-chain bottlenecks as the industry scales up.

    Minerals such as lithium, nickel and cobalt can be hard to access given current geopolitical tensions, and their prices in commodities markets often fluctuate. And we saw during the pandemic that supply chains can be vulnerable to disruption, especially in cutting-edge technology sectors. Even without these challenges, battery manufacturing is capital intensive and technically complex – it may not be a smooth, straightforward expansion for business in the sector.

  • While the market today is dominated by lithium-ion batteries, there may soon be alternative technologies that could solve some of the mineral-sourcing issues that now face the industry. For instance, sodium-ion batteries do not contain any lithium, nickel, or cobalt – potentially leading to lower costs, along with fewer supply chain risks and environmental concerns. Other innovations, such as solid-state batteries and flow batteries, are worth watching, along with evolving technologies that could improve the recycling of costly, supply-constrained, and often toxic battery metals.

    In the following pages, our investors delve deeper into the opportunities, challenges and changes facing the battery sector.

Mega forces: Low-carbon transition

The transition to a low-carbon economy is set to involve a massive reallocation of capital as energy systems are rewired. We see the transition’s speed and shape driven by an interplay of policy, technology and consumer and investor preferences.
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Investor Q&A

Our Batteries CoE includes Kojo Ako-Asare, who invests in early stage private companies, Charles Lilford, an active manager in public markets, Akhil Mehta, who specializes in energy infrastructure and Tomas Peshkatari, who looks closely at manufacturing.

Where do you see the opportunity set around batteries?

Charles Lilford: It’s very broad, but right now, it starts with the electrification of vehicles. When you consider the volume, a typical electric vehicle has over 3,000 times more battery content than a smart phone. And global volumes of EV batteries represent more than two-thirds of all the lithium-ion battery capacity currently going into the marketplace.

The installed fleet of electric passenger vehicles is close to 30 million today2. However, we remain at the early stages of electrification, with the penetration rate of electric vehicles to the global automotive fleet at barely 2% today2.

And you have to add to that the electrified two- and three-wheelers, effectively motorbikes – a fleet of about 280 million vehicles. It’s an exciting new area, particularly for places such as Southeast Asia, India and parts of Latin America, where motorbikes resonate from an economic perspective and have a much larger penetration rate. And among these electrified motorbikes, battery swapping is unlocking new use cases.

Akhil Mehta: I agree that EVs are huge now, and continue to grow. Looking ahead, I’d say the biggest opportunity in the power sector is the global trend towards decentralizing the power grid. Batteries are a huge part of that, simply because people are building battery storage instead of traditional electric substations to supplement traditional electric power plants.

There’s more demand for storage. That’s a result of more renewable energy sources coming online, as well as the growing number of climate-related events.

Some grids, such as California, now are nearly 50% powered by renewable, intermittent energy sources, which creates unpredictability. That unpredictability will increase globally as other regions, especially Asia, decarbonize over the next 30 years.

Batteries can be essential to stabilizing the grid both in front of the meter, in the form of utility-scale batteries, but also localized batteries in homes and other buildings that can store and distribute electricity as needed.

Large-scale battery energy storage systems, or BESS, have the potential to be a driver of significant growth. When you think about it, cell phones require one battery cell, an EV requires thousands, while a BESS requires millions of cells. In addition, BESS will be essential to providing energy to remote, off-the-grid sites.

Kojo Ako-Asare: Our landscape review points to most of the near-term lithium-Ion battery growth being driven by the emerging prominence of passenger hybrids and EVs.

As Akhil mentioned, the other large opportunity for lithium-ion batteries is in supporting the grid with energy storage systems. Within the home battery storage market, we’ve seen several emerging companies that are using batteries in new ways, such as high-quality induction stoves, low-cost grid backup, and even the creation of new household income streams through the consolidation of home batteries into virtual power plants. As battery production capacity increases, we expect the prices to rapidly fall. And those lower prices, coupled with increases in energy density, should lead to an even wider range of uses for lithium-ion batteries, including trucking, aviation and shipping.

Lilford: I’d add that there’s the broader opportunity set within the supply chain. If you think about an internal combustion engine car today, typically the 12-volt starter is lead acid. We expect to also see this battery evolving towards higher-capacity lithium-ion cells over time.

And more electrified vehicles will expand the battery markets further. Every new EV sold instead of an internal-combustion vehicle represents 40-100 kWh of additional battery capacity. At current pricing levels this can represent approximately $4,000 to $12,000 of additional battery-related revenue per vehicle3.

Tomas Peshkatari: I agree with Charlie – and the opportunity is so large precisely because batteries are such a critical piece of the value chain to decarbonize both transport and electricity generation.

Government policy, technology advances and the industrialization of battery production are leading to significant investment opportunities on a global basis. Hundreds of billions of dollars are being invested in innovation, in building supply chains – from the mining metals used in batteries, to manufacturing, to recycling – and in businesses that benefit from batteries’ growing storage capabilities.

At the same time, new business models are emerging for batteries. We expect increased demand for on-site storage at commercial and industrial sites, especially in remote areas. This lends itself to a storage-as-a-service leasing model that would enable businesses to expand their production capabilities, without the need for costly and time-consuming grid upgrades. This model has the potential to ease the burden on corporate balance sheets and further expand the attractiveness of large-scale battery storage systems.

The cost of battery power

Source: The plot shows battery cost forecast distributions under No, Slow, and Fast Transition scenarios, representing blended historical consumer cells and electric vehicle (EV) battery pack prices, though these are now almost identical. The forecast is based on consumer cells. Source: Way et al., Joule 6, 2057–2082 September 21, 2022 Published by Elsevier Inc. https://doi.org/10.1016/j.joule.2022.08.009. Last accessed on 31st October 2023.

Read the full report

The transition to a low-carbon economy is set to involve a massive reallocation of capital as energy systems are rewired. We see the transition’s speed and shape driven by an interplay of policy, technology and consumer and investor preferences.
Transition Center of Expertise: Batteries

Market insights contributors

Dickon Pinner
Head of Transition Capital
Mark Everitt
Head of Private Markets Investment Research and Strategy
Benjamin Attia
Research Lead for Energy, Climate and Sustainability, BlackRock Investment Institute

Center of Expertise - Batteries

Charles Lilford
Portfolio Manager, Fundamental Equities
Kojo Ako-Asare
Managing Director, Decarbonization Partners
Tomas Peshkatari
Managing Director, Infrastructure
Giovanni D’Andria
Director, Infrastructure

2Source: BloombergNEF, BNEF Long Term Electric Vehicle Outlook data up to 2022. The total number of EV units sold is 26.2m units up to an including 2022.

3Source: BloombergNEF, BNEF Long Term Electric Vehicle Outlook data up to 2022. Assuming $120-150/kWh in battery cell and pack costs.

 

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FOR PROFESSIONAL, INSTITUTIONAL, WHOLESALE AND QUALIFIED INVESTORS/PROFESSIONAL, QUALIFIED AND PERMITTED CLIENT USE ONLY

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