Transition Center of Expertise: Batteries

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.

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.