Thursday, November 19, 2015


For those of you old enough to remember the Sony Walkman portable radios in 1970s, they ushered a new era of consumer electronics, and one could argue, the first mobile battery-powered "devices," the ancestral precursor to the Apple iPod three decades later. These early electronics were powered by replaceable batteries. Lithium-ion batteries didn't exist back then. So how did they get invented?

A large amount of research and development effort has gone and continues to pour into rechargeable batteries, but one could point to three seminal moments that transformed rechargeable batteries in general, and lithium-ion batteries in particular.

The first moment was in the early 1970s at Exxon. It was a time when large corporations such as GE, Exxon, IBM and others competed with AT&T's famed Bell Labs for scientific supremacy....a time not much different than ours today with the likes of Google and Apple competing for new innovations. An English-born chemist at Exxon's research laboratories, Stanley Wittingham, made an important scientific discovery; he found that ions can "intercalate" in between sheets (or layers) of titanium  sulfide, and effectively store electrical charge. By shuttling these ions back and forth between two electrodes with such layered materials, he could build a rechargeable battery. Exxon filed for its first battery patent in 1976, and was awarded a US patent 4,084,046 in 1978.

But Exxon and Wittingham ran into several challenges: the batteries degraded fast and they were prone to explode. Exxon couldn't capitalize on this discovery.

The second seminal moment came from John Goodenough, now professor emeritus at UT Austin, but at the time, he was a professor of Chemistry at Oxford University in the UK. After researching metal oxides and testing several varieties, he and his group discovered that lithium-cobalt-oxide (LCO) was a very effective cathode material. The results were published in 1980: the battery had a higher voltage than Wittingham's cell (2.2 volts); its energy density was far better than anything on the market; it worked very well at room temperature. It was the missing link to making a rechargeable battery.

Someone had to turn these discoveries into a product; that role was exceptionally fulfilled by Sony in 1991. Sony combined Goodenough's LCO cathode with a graphite/carbon anode to produce its first commercially available rechargeable lithium-ion battery. Sony put these new batteries into their camcorders and was a commercial success. Sony went on to rule lithium-ion batteries for a decade or more. Sony continues to date to be one of the major producers of lithium-ion batteries, albeit several other companies have since emerged as even larger suppliers.

The Sony commercialization was also a major catalyst for laboratories around the world to accelerate the material discovery. John Goodenough's team at UT Austin went on to discover another category of cathode material, lithium-iron-phosphate (LFP), that was safer than LCO but at the expense of lower energy density.

This post is by no-means intended to give all the inventive credit to the three groups mentioned above. Hundreds if not thousands of innovators and organizations have greatly contributed to the evolution of the lithium-ion battery and continue to do so. Much like the semiconductor industry points to a handful discoveries that transformed electronics, one can trace similar inflection points in the history of the lithium-ion battery.

© Qnovo, Inc. 2015 / @QNOVOcorp @nadimmaluf #QNOVOCorp

Tuesday, November 10, 2015


The lithium-ion battery market is large. For consumer devices, it will exceed $10B in 2015 corresponding to a total output capacity of 40 GWh. The promise of even greater markets in stationary energy storage and electric vehicles is attracting interest and investment. Goldman Sachs estimates that the energy storage market could reach a demand greater than 700 GWh in 2015, eclipsing the expected 175 GWh capacity demand for electric vehicles.

But these large market figures belie the harsh market realities of building batteries, in particular manufacturing cells for lithium-ion applications. This post will dive a little deeper into the financial challenges that cell manufacturers are facing today and will most likely face as the battery markets expand rapidly in the coming years.

Let's start by looking at the present state of cell manufacturers. The bulk of the manufactured cells goes to fulfill the demand in consumer devices, including some 1.4B smartphones and 400+ million laptops and tablets. To first order, 4 major cell suppliers deliver 80% or more of these cells, mostly polymer cells. 

The $10 Billion-battery consumer market is serviced primarily by 4 large Asia-based suppliers.
By virtue of the market size and volume, batteries for consumer devices have been and continue to be under immense pricing pressures. On average, the pricing is about $0.25 per Wh, but that can be as low as $0.10 per Wh for some of the vintage low energy density batteries. This competitive landscape left these battery suppliers with, let's just say, less-than-attractive financial statements. For example, a visit to LG Chem's website reveals the financial situation for their "energy division." For this most recent 3rd quarter in 2015, it recorded revenues of approximately $640m, about 80-85% of it from consumer devices, and the rest from their sale into xEVs (Electric and hybrid electric vehicles). Against these revenues, the company recorded a meager profit of 1.3%. It had reported a 6% loss in the prior quarter. Gross margins for battery manufacturers tend to be in the range of 10 - 20% at best. That's nothing to write home about.

Such strained financials seldom give the company's management any latitude to invest in extensive R&D -- the expectation of future returns on invested R&D is often missing in such scenarios. The result is diminishing innovation, rising pricing pressures, and the onslaught -- more rapid than one might imagine -- of new low-cost manufacturers, especially ones based in China. 

Instead, the management teams of battery manufacturing companies begin to look at alternative markets that can be financially more rewarding. After all, they are all watching Panasonic reap the rewards of their relationship with Tesla. Panasonic recorded nearly $800m of sales to Tesla in 2014, and the markets expect the number will grow to $3.35B in 2020 if and when Tesla succeeds in shipping 250,000 electric vehicles. 

We can witness this change of direction from a number of observations. First, Nikkei published on 28 October a report that Tesla is in discussions to source batteries from LG Chem, in addition to Panasonic. Second, let's take a look at Samsung SDI's revenue projections for their battery division.

One can immediately see flat revenues from their mobile product line, but growing projected sales from energy storage as well as transportation. In other words, the unstated strategy of these giant conglomerates is to controllably relinquish their mobile market share to their Chinese competitors and focus on winning in the growing but hopefully more profitable storage and xEV markets. In these markets, there is also room for them to add value beyond building cells -- they can also build packs and the complex battery management systems.

So where does this leave innovation in consumer devices? most likely stranded! Increasing pricing pressures from Chinese manufacturers makes it quite unattractive to invest in consumer batteries -- thus leaving the mobile device OEMs at the mercy of decreasing cell quality and possibly performance.  Of course, I am sure someone will argue why can't the innovation trickle down from energy storage and xEVs to consumer? The answer is that these are complex systems where innovation is often at the system-level and less so at the cell-level where consumer devices demand it. Additionally, the cost points for these large-scale systems are vastly different from the relatively simpler consumer device; hence the dilemma that is creeping up rapidly on both battery manufacturers and consumer device OEMs. This is also the commoditization of the lithium-ion battery.

© Qnovo, Inc. 2015 / @QNOVOcorp @nadimmaluf #QNOVOCorp