Lithium-ion batteries –
The bubble bursts

Stuttgart, October 2012 Consolidation in the lithium-ion battery (LiB) market is inevitable –
Stakeholders need to revise their strategies

The large-format lithium-ion cell market will face overcapacity and price wars:
- Demand is lower than expected
- A lot of capacity has been built up – but new equipment to be installed will be
- Prices are down to 180 and 200 EUR/kWH in 2014/2015 Bottom-up calculations show that with an expected EBIT margin at or below 5%,
"early movers" in particular cannot generate enough EBIT to finance their cost
of capital

New developments on the material side (mainly cathodes, electrolytes/separators)
as well as in production technologies will lead to further cost reductions – but
require more cash for introduction and industrialization
Therefore only the already large players or companies will survive the shakeout,
as their parent companies might be willing to provide the business with sufficient

That's why cell manufacturers as well as their customers – the OEMs – need to
rethink their strategies

Source: Roland Berger OEMs will increase xEVs sales significantly in the short term –
Toyota will remain the main player

OEMs xEV sales plans by xEV type [m units] Hybrid light
• Figures are a summary of OEMs' sales targets for their xEV programs • They do not include sub-A-segment vehicles (vehicles not classified as "passenger cars") Sales targets tend to be on the optimistic side – but were not adjusted by Roland Berger OEMs excl. Toyota xx CAGR 2011-2015 Source: Roland Berger However, in one 2020 scenario, xEVs will represent only a minor
share of powertrains in EU, US and China – Introduction delayed

Base scenario: xEV market share in the EU, US and China, 2020 [%] COMMENTS
• Market share calculated based on an
assessment of push (legislation-driven) and pull (customer-driven) factors for xEVs in the EU, US and China • The market shares shown represent the minimum required xEV share to meet push and pull in each region – Higher xEV market shares are possible and even likely • The EU's xEV market share achieves the level required to meet EU CO emissions targets in an aggressive scenario regarding ICE optimization and driving resistance reduction • The US's and China's xEV market shares are primarily required to fulfill pull factors for xEVs • Further legislative action might increase share • Japanese/Korean figures expected to fall between the US and EU Conventional incl. Start-Stop Source: Roland Berger

The EU's xEV market is primarily legislation-driven – The US and
China are driven primarily by customer pull

Summary of push and pull factors for xEVs • Even under optimistic assumptions • CAFE emissions targets can be met by • Technology penetration is driven only by regarding ICE improvements and light- utilizing ICE improvements and some government targets for PHEVs and EVs weight measures, all OEMs will need weight reduction technology – OEMs • Fuel consumption targets can be met by xEVs to comply with 2020 CO also have no cost incentive to apply xEV optimizing ICE in all segments emissions targets technologies on a large scale • Fleet emissions are possible, but there PUSH • In terms of costs, hybrid light and
• However, the ZEV mandate and the is no clear indication yet PHEVs are most favorable ability to earn credits will lead OEMs to • If fleet emissions will be set, high xEV build at least some PHEVs and EVs penetration expected • No TCO advantage for FHEV, PHEV or • No TCO advantage for xEV powertrains • Almost no customer pull for xEVs – due to low fuel costs except in luxury segment • Hybrid lights will become neutral as • However, some customers are willing to • Light and full hybrids would offer regards TCO, but will provide additional pay for xEVs for environmental image significant consumption advantages, but TCO advantage is limited due to low PULL • In larger-car segments, customers will
be willing to pay more for higher • No willingness to pay for "green" image performing hybrids – in luxury segment, innovativeness of • Only niche demand for BEVs xEVs is an important purchase criteria Source: Interviews; Roland Berger To meet CO emission targets, OEMs will mostly introduce xEV only
according to the cost of CO emission reductions in their fleet
Assumption for xEV usage at OEMs to comply with EU CO emission regulation Gap between CO fleet
Cost of cutting CO
emissions and CO targets
Usage of xEVs types to close the gap at OEMs1)
0 OEM will offer xEVs in segments to fulfill customer
requirement and skim willingness to pay – Hybrid light in large/luxury cars and minor share in medium size cars, PHEVs in large/luxury cars, BEVs in mini/small cars 1 Intensify usage of hybrid light in medium size and
small cars and PHEV usage in larger cars 2 Expand PHEV usage to medium size cars
3 Increase EV penetration in smaller cars and
expand usage to medium size cars 1) Based on interviews, validation with TCO calculations 2) Assessment is based on a calculation of xEV CO emission reduction potential, customer willingness to pay and cost (components and other cost) Source: Interviews; Roland Berger Hybrid light will become at least TCO neutral – Buyers of large/
luxury vehicles will be willing to pay for full hybrids and PHEVs

Pull factors for xEVs Europe, 2020 COMMENTS
• Assessment of TCO is
based on a detailed
calculation – taking into
account necessary uplift
CO emissions limits of 200% on material
in company car fleets cost for OEMs to
maintain EBIT margin
per vehicle

• Willingness to pay in large and luxury segment is driven by social pressure to be environ-mental compliant and additional functions enabled by xEV power-trains (e.g. comfort start- TCO neutral/advantage to best ICE-technology Willingness to pay Source: Interviews; Roland Berger A significant share of powertrain electrification are stop-start and
micro-hybrid systems – but here, LiB are not competitive

Conventional starter batteries cannot be used effectively in start-stop and
micro-hybrid applications
due to poor cycle life and poor charge acceptance
Initially, most of the start-stop systems used a 2 battery approach in order to fulfill
the requirements: 1 conventional starter battery (for starting only) plus 1 AGM
battery for power supply. Problems are cost for 2 batteries and limited life of the
AGM battery – Lithium Ion cell makers did expect a chance here
Recent developments in Lead-acid batteries (called Enhanced Flooded Battery )
have now be presented and are likely to become a viable and cost effective
for start-stop and micro-hybrid applications
Companies like JCI, Exide, Banner, Moll, Shin Kobe, GS-Yuasa and others will
probably be able to offer Lead-based products that will meet start-stop and
micro-hybrid requirements exceeding 200,000 km or 6 to 8 years of operation
at lower system costs than lithium-ion batteries
Price levels around 200 EUR/kwH (approx USD 250) in 2015 do not
provide sufficient EBIT to finance cost of capital

Typical 96 Wh PHEV cell – Cell cost structure 2015 Cell P&L breakdown, 2015
Cell material cost split, 2015
Total cost: approximately USD 22.1/cell ( 237 USD/kWh)
USD 13.4/cell
of total cell
Energy/Utilities 0% Housing and feed-througs Quality / Evironmental 1) Including carbon black content, foil and binder cost Source: Roland Berger LiB Value Chain Cost model 2011 B CELL ECONOMICS & TARGET PRICES
Our calculation takes into account declining material prices–
Driven by strong competition to capture market shares

Impact on the cell manufacturing material prices (mid-term - 2015) IMPACT FACTORS ON PRICES
Raw material
Standardization Competition/
Overall per kg
impact 2015
Increasing the price Decreasing the price Overall strong price decrease 1) Investment, energy, labor 2) Process cost reduction potential for LFP available Roland Berger "Battery material cost study V.2.4 / Q1 2011" B CELL ECONOMICS & TARGET PRICES
Material manufacturer need to improve their materials to drive
down costs – resulting in additional R&D demand on cell level

Manufacturing cost calculation 2015 [USD/kg] • According to latest analyst reports the prices of Nickel, Cobalt and Manganese will decline through 2015 • Largely as a result thereof CAM material costs will decrease by between 7% and 22% between • The costs of LFP will increase largely as a function of higher energy and utility costs which account for 30% of total cost • If high-capacity materials (HCMA) is ready by 2015, this will offer a significant cost advantage over other CAMs due to higher energy density compounded by lower material Quality/Environment Energy/Utilities 1) Total manufacturing costs 2) High quality differences 3) not available until >2015 4) not available until 2020 Source: Roland Berger LiB Value Chain Cost model 2011 B CELL ECONOMICS & TARGET PRICES
Declining cell prices will result in massive pressure on cell and CAM
manufacturer margins - not enough to finance costs of capital

Typical 96 Wh PHEV cell – Cell price breakdown 2015 [US $ / cell] margin price
• For a typical CAM – Raw materials account for up to 55% of total cost – D&A and utilities account for up to 25% of total cost • For a typical cell – Raw materials account for up to 58% of total cost – D&A and utilities account for up to 19% of total cost Other Cathode CAM material SG&A margin material D&A • In view of their limited ability Margin pressure
to offset sales price declines, • Any price decrease beyond 24 USD / cell (lower than EUR 200 / kWh) will CAM and cell manufacturers have direct impact on CAM and cell manufacturer margins will compete over a shrinking profit pool 1) Anode, separator, electrolyte, housing 2) Expected market price based on expert interviews Source: Roland Berger LiB Value Chain Cost model 2011 B CELL ECONOMICS & TARGET PRICES
To significantly reduce cell costs beyond 2015, major innovations
in CAM technology and introduction of new CAMs are necessary

Typical 96 Wh PHEV cell – Impact of material improvements on cell prices (cost for Auto. customers) HCMA cell
Cost reduction NCM cell 2015 – 2020 • Const. cell energy (at 96 Wh) • In 2016 introduction of higher density NCM CAM, resulting in:specific cell energy increase to141 Wh/kg and concurrent reduction in NCM usage to 113 g • In 2018 introduction of high-density HCMA CAM: further increases specific cell energy to 144 Wh/kg with HCMA usage to 100 g • HCMA price includes a license fee • No changes in anode, separator and electrolyte cost assumed in add. potential 10.20$ /kWh • Add. cell manufacturing process Innovation pressure
improvement: potential ca. 10.15$ • Unless HCMA material is introduced, further price reduction potential of CAM materials is limited and margins remain at unacceptable level • Cell price forecast 2018.2020:
• Also cell manufacturer need (and will) improve processes and yield rate 200$ / kWh (incl. approx. 15%
margin for both CAM and cell

CAM cost share 1) Based on a high-density 50-50 mixture of NCM 111 and LiNiO Source: Industry reports, experts interview, Roland Berger analysis C IMPLICATIONS
The value chain is therefore expected to further consolidate (1/2)
TODAY (2012)
Raw materials > Oligopoly
> Some selected new players > New recycling companies
> Business models integrating recycling > Dominated by Asian > New players (from specialty chemical
sector ) especially for Automotive and Separators,
> Partially specialized precursors sourced > More integration of precursor
> Some cathode Precursors
> Cathode manufacturing by cell manufacturer only for top 2.3 with cell manufacturer large chemical business Source: Roland Berger C IMPLICATIONS
The value chain is expected to further consolidate (2/2)
TODAY (2012)
Battery cells / > Some JVs
> Massive consolidation (cost
pressure, innovation) ("LiB manuf.") > Established players
> Auto-Cell manuf. JV's as exemption
research spin-offs with public & IPO funding leaving the market > Mainly by OEMs ( JVs Increased outsourcing, but still
dominated by in-house assembly
> Selected supplier – > Some cell manufacturers try to deliver larger part of system (incl. electronics) > Limited LiB alone Source: Roland Berger


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