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ELECTRIC MOBILITY: TECHNOLOGY

Peter Yu, CFA

Summary
We expect EV battery prices to fall quickly as manufacturers advance along the
learning curve of the two main cost drivers: chemistry upgrade and economies of
scale. Our analysis shows that EV battery price can fall from about USD290 per kWh
in 2015 to USD97 by 2020, and USD75 by 2023. We expect USD100/kWh to be the
price point to trigger mass adoption of EV cars by consumers as the price of the 200mile driving range battery pack (50kWh) could fall to the USD5,000 level from
USD14,500 currently. Post 2020, when we expect the battery price to be below
USD100/kWh, the passenger EV market should be competitive vs. ICE cars even in
the absence of government subsidies. The electric bus is already competitive against
conventional diesel, with compelling economics even without generous subsidies
(savings on fuel costs outweigh upfront cost of electric buses).
We expect battery makers to introduce higher-rated-capacity batteries through
chemistry upgrades at two- to three-year intervals. Among the major battery makers,
we expect faster battery energy density improvement from LG Chem and Samsung
SDI, who are improving on NCM chemistry in large format battery cells. Panasonic’s
NCA cylindrical battery for Tesla started from the highest energy density (Wh/L) and
specific energy (Wh/kg) among all battery makers by leveraging its mature notebook
PC cylindrical battery production base and introducing advanced NCA chemistry. It
has lowest price per kWh of USD160, by our estimate, which is about 45-50% lower
than the competition. However, we expect the price gap to narrow quickly and in the
next three years as LG Chem and SDI introduce higher energy packed battery at
reduced costs. BYD and most other Chinese EV battery makers produce LFP
battery, which is a safe battery that doesn’t require intensive safety testing. However,
due to the inherent limitations of LFP in increasing energy density, we expect
Chinese makers to migrate to NCM battery over the next several years.
On top of chemistry upgrade, we believe advancements in economies of scale and
learning curve will also bring down the price/kWh of EV batteries. Overhead costs
such as depreciation, R&D, etc., can be spread over a much larger volume of battery
cells; production line speed can rise with improving yields; and raw material cost can
fall with larger volume discounts, etc. About 35GWh pa capacity by about 2020
seems to be a magic number that all major battery makers have in mind.
We expect the EV market to grow in three phases. The first phase will be driven by
the Chinese government in 2015-2016 thanks to strong policy support. With policy
support and compelling economics, electric bus sales are growing quickly in China.
The passenger plug-in electric car market is also growing quickly and China has
become the largest market in the world. The resulting mass production of EV
batteries should help EV battery makers to achieve economies of scale earlier and
become aggressive in building more production capacities.
In the second phase of EV market growth, we expect the affordable 200-mile-range
all-electric EV to become the main driving force during 2017-2019. It would have
reduced range anxiety and charging problems, but would still need subsidies to be
price competitive. In the third phase, when the USD100/kWh mark is achieved in
2020, we think EV can become competitive against ICE cars even without
government subsidies, and enter an accelerated growth phase with an S-shaped
penetration curve in the car market.
Our auto research team expects the VW emissions scandal to accelerate the shift
away from diesel into electrified propulsion. Until 2020, the economics of plug-in
passenger cars are likely to remain unattractive, and our analysts expect HEV and
micro/mild hybrids to pick up much of the slack. We expect HEV batteries that
emphasize higher specific power (W/kg), drawing on high load-current handling (for
car acceleration), to become mainstream xEV technology, especially among
Japanese car makers. This is unlike batteries for full battery EV (BEV) cars, where
higher specific energy (Wh/kg) is the priority for long-range driving.

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BNP PARIBAS

17 NOVEMBER 2015