The next chip shortage will be a battery shortage

And that’s not the only threat facing a rapidly electrifying auto industry

These days, high-profile EV announcements have become routine. Visionary leaders at industry giants GM and VW are pledging to electrify their entire product lines. Ford, the company that started the modern auto industry, is now using its most iconic brands, the Mustang and F-150, to jump-start their move to electrification. Nearly every other OEM around the globe has made similar commitments to electrify. The future of the automotive industry is electric, and there’s no going back.

We started Voltaiq almost a decade ago with the mission to accelerate the global transition to battery power, so for us this is all very exciting. At the same time, we can’t help but notice that these announcements are coming at a time when the industry is mired in a semiconductor shortage that will cost over $100Bn before it’s over, and wonder if history isn’t about to repeat itself. From where we sit, the auto industry must confront a couple of hard truths:

• Hard truth #1: There won’t be enough batteries to power all the vehicles OEMs have promised to launch in the near future.
• Hard truth #2: Most OEMs don’t understand the batteries they’re putting in their vehicles today, and are in for some unpleasant surprises.

It’s simple math — not enough batteries

Let’s put some numbers behind Hard Truth #1. OEMs have announced plans to launch 450 new EV models through 2022. Let’s say each one hopes to sell 100,000 units of each model by 2024 (for comparison, Tesla sold over 350,000 Model 3s in 2020), and also estimate an average pack size of 75 kWh (where the VW ID.4 pack is 77 kWh, and the Mustang Mach-E has pack options at 75 and 98 kWh). Where does that leave us?

Simple multiplication tells us these new vehicles alone will require around 3.4 TWh of lithium-ion batteries by 2024. To put that number in context, total global lithium-ion battery production in 2020 was only 755 GWh, and is projected to reach around 1.45 TWh by 2025. And a good chunk of those will go into things other than EVs (what’s powering the device you’re reading this post on?). Even if all those batteries were to go into vehicles, we’re looking at a shortfall of nearly 2 TWh(!) by 2024.

The bottom line is that the math simply doesn’t pencil out — the industry is headed for a major battery squeeze.

Batteries are complicated — and OEMs don’t understand them

To evaluate Hard Truth #2, one need look no further than the regular drumbeat of EV battery fires and recalls (GM, Hyundai, Ford) and delayed launches (VW, Lucid, Rivian), that form an ominous counterpoint to the sunny parade of new EV announcements.

The fact is that these companies are under tremendous market and regulatory pressure to launch EVs now, but they haven’t made the requisite investments in the infrastructure and institutional expertise needed to ship these vehicles on time and with the quality and reliability their customers expect. To be fair, the industry has had over a century to develop core competency around combustion engines, whereas they have only a few short years to transition to battery power. And batteries are complicated. It won’t be easy to get there, but OEMs have no choice — it’s truly existential.

What’s a car company to do?

These OEMs aren’t stupid — many have seen this battery shortage coming and in response have announced plans to bring battery production in-house or pursue tightly coupled joint ventures (VW, Toyota, Ford, GM, Stellantis, Tesla). Scaling up these efforts quickly will be difficult, as ramping up a new battery factory tends to be slow and costly (more on that in a future post). Another option is to go to Tier 2 or 3 battery suppliers that the industry has historically avoided due to (justifiable) concerns about quality.

Solving these problems will require, among other things, rapidly putting in place world-class capability around battery data analytics across the full product lifecycle, as embodied in a new software category called Enterprise Battery Intelligence (EBI). EBI addresses several of these issues, with benefits that include:

• Rapidly qualifying new battery vendors to ensure quality cell supply
• Accelerating battery factory production ramp to requisite quality and yield
• Protecting product launch schedules
• Optimizing quality and financial performance for battery-powered products

Notwithstanding these hard truths, we at Voltaiq are all-in on electrification, and we’re rooting for the industry. And as the creators and leaders of the EBI category, we’re here to help. Let’s get moving.