There’s a whole new economy in the works, and lithium-ion batteries are all set to play a huge role in it. Growing preference for renewable power and electric vehicles, increased demand for consumer electronics, and proliferation of cloud data centers are the key reasons why the battery segment is expected to grow at a fast clip in the post-COVID-19 age. As we all are aware, lithium-ion batteries are expected to take the lead because of their inherent advantages.
But wait, there’s bad news in the near term – battery makers are likely to experience a sluggish 2020 because of COVID-19’s impact on the automobile sector.
The good news, however, is market operators are likely to discount 2021 performance in advance, and if investors wait it out, they’ll miss the bus. So, here’s my take on lithium-ion batteries.
Why Lithium-Ion Batteries are in Focus
Lithium-ion batteries are low-maintenance, have a long life, and also have high energy density. Electronic equipment and EVs need to operate for a long time between successive charges, and that’s the reason why high energy density batteries score over other batteries – they discharge at a much lower rate than lead-acid, nickel-cadmium, and nickel hydride batteries.
These are the key reasons why lithium-ion batteries are preferred, and why they are likely to be responsible for the growth in the sector.
Many companies are experimenting with different materials to replace lithium-ion batteries. Some experts believe that solid-state batteries are the future. So, it is possible that one day a great discovery will be announced that will reduce reliance on lithium-ion batteries. Take this caveat into account, though many companies that make lithium batteries may already be experimenting with solid-state battery technologies.
(Image Source: Twitter)
I’ve been bullish on lithium-ion batteries even before COVID-19 struck and have uploaded several positive posts in The Lead-Lag Report, and I continue to maintain my bullish stance.
Battery Storage Trends
(Image Source: EIA)
Large-scale battery storage makers have reported to the EIA that they plan to add 3,616 MW of storage capacity between 2020 and 2023 – possibly more. The Annual Energy Outlook 2020 (AEO2020) estimates that large-scale battery storage capacity is set to grow from 1 GW in 2019 to 17 GW in 2050, which works out to a healthy CAGR of 9.9%. These players use lithium-ion batteries to store power.
Note that large-scale battery storage does not include lithium-ion batteries used in EVs and consumer electronics.
The Edison Electric Institute (EEI) estimated in 2018 that 18.7 million EVs would be running on U.S. roads by 2030 as compared to 1 million EVs in 2018. The numbers translate to a phenomenal CAGR of 27.64%. The institute also estimated that more than 3.5 million EVs would be sold in 2030. I’m going to stick my neck out here and suggest that the actual number will be higher given the climate change concerns highlighted by COVID-19.
Add to this the growth in consumer electronics, cloud centers, and new uses of lithium-ion batteries, and it becomes easy to estimate that lithium-ion battery manufacturers are in for some very good times in the next decade.
Lithium-Ion Battery Costs
(Image Source: S&P Global)
In 2010, lithium-ion battery packs cost was $1,183 per kilowatt-hour. By 2019, their price had dropped by 87% to $156 per kilowatt-hour. EV manufacturers are waiting for costs to drop to $100 per kilowatt-hour, which is on par with the costs incurred on fossil fuel-powered car batteries. Bloomberg NEF estimates that the costs will indeed drop to $100 per kilowatt-hour in 2024, the parity point at which EVs will not be considered pricier by buyers.
Meanwhile, the momentum in producing lithium-ion batteries has already picked up, and producers have started shifting from expensive materials like cobalt to nickel in a bid to cut costs. Production has picked up speed, and it is a matter of time before it snowballs.
Top Lithium-Ion Battery Makers and Enablers
Higher demand for emission reduction and on-grid large-scale power storage, the growing popularity and sales of EVs, emerging demand for batteries from 5G towers, and the proliferation of cloud centers are enough to make me bullish on the battery sector, particularly the lithium-ion battery segment. It’s a real power play that is likely to be at the forefront after the virus is contained.
I’m also reasonably certain that battery makers will be on top of any disruption and that they will be nimble enough to switch over to solid-state batteries, if and when the need arises.
So, this is a bullish call on all companies in the lithium-ion batteries segment. However, before considering investing in any, do check their financials and charts.
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