xEV Benchmarking and Assessment

Prepared for McKinley Motors

Final Report
July 28, 2010

www.ricardo.com
RD.10/194705.3 © Ricardo plc 2010
Agenda

– OEM Benchmarking & Value Chain Analysis

– Technology Roadmap
– Scenarios & Demand Forecast
– Interview Summaries

RD.10/194705.3 © Ricardo plc 2010 2

OEM Battery Strategy Benchmarking - Overview

The OEM battery strategies mirror their cultural bias and view of xEV
market certainty
Current OEM xEV Battery Make / Buy Strategies

OEM European OEM 1 European OEM 2 US OEM 2 Japanese OEM US OEM 2

Vehicle
In-house In-house In-house In-house In-house and JV
integration

BMS
In-house In-house In-house In-house In-house
Design

Controls

Outsource (NiMH) Outsource (NiMH)

Pack Outsource or JV JV or Outsource JV
Mixed (Li-ion) Mixed (Li-ion)

Cells Outsource or JV Outsource Outsource JV or Outsource JV

Vehicle/PT In-house Mixed In-house In-house In-house and JV

Manufacturing

BMS
Outsource Outsource Outsource JV or Outsource JV or Outsource
Hardware

Outsourced (NiMH) Outsourced (NiMH)

Pack Outsource
Mixed (Li-ion) Mixed (Li-ion)
In-house JV

Cells Outsource Outsource Outsource JV or Outsource JV

Battery Strategy Efficient battery market Minimize investment, Prepare for Li-ion cell Leverage economies of
Vertically integrated
Rationale will develop remain flexible commoditization scale

RD.10/194705.3 © Ricardo plc 2010 3

OEM Battery Strategy Benchmarking - Overview

OEMs are pursuing a variety of commercial relationships with cell

suppliers and Tier 1's

OEM supply base relationships

z US OEM 1’s early investments in

OEM

EU OEM 1 US OEM 1 US OEM 2 EU OEM 2 JP OEM

battery makers Enerdel and Cobasys
bound them to outdated technology,
Joint Venture

now they seek to be cell agnostic

z The 18-month development cycle
AESC EV Energy
times of consumer electronics
requires a culture of rapid innovation
to remain competitive
z Consumer cell makers can support
the R&D overhead and infrastructure
Supplier

required to push Li-ion technology

forward
z Consumer products battery makers
have a proven track record in
delivering production scale
economies which are key component
Development

of anticipated future cost reductions

z A cell-agnostic strategy provides an
OEM opportunities to adapt to
uncertainties about form factor, cell
chemistry, technology, and efficient
manufacturing

1) Panasonic EV Energy has been renamed Primearth EV Energy after Toyota has taken a controlling share in the JV
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 4
OEM Battery Strategy Benchmarking

Japanese OEM has pursued a traditional Japanese equity cross-

holding strategy leveraging the success of the current HEVs
July 2010

Japanese OEM Battery Strategy (to 2020) Ricardo's Interpretation

z Key element/features of OEM strategy z OEM market view
– Plans for 8 new hybrids, extension of “HEV” brand in the US – HEV market leader, looking to
capitalize on position
– Sole source battery supply from PEVE / Sanyo
– As the HEV, NiMH market leader,
– Relying on consumer product technology advancement curve
a compelling internal case to stay
– Proven technology and economies of scale with NiMH batteries the course
– All HEV batteries produced in Japan z Underlying thinking / rationale /
motivation
z Key actions underway in terms of value chain integration – Current internal NiMH cost and
infrastructure pushes out Li-ion
– Internal NiMH battery R&D, also active in Li-ion, and “beyond lithium”
adoption vs. other OEMs
battery chemistries
– Continuous improvement
– OEM keiretsu company invested $120 million in Argentina lithium
mine (core business of affiliate) z Potential evolution
– OEM / Panasonic JV, PEVE for NiMH battery manufacturing – Commercializing ‘beyond lithium’
could be game changer
– Sanyo to supply Li-ion batteries for 2011 hybrid Minivan – Panasonic
acquired majority stake in Sanyo Dec 09 – Cell commoditization may lead to
additional battery suppliers
– BEV partner deal for manufacturing facility and joint development
contingent on IPO in 2010 CY; opportunistic, not part of core strategy

RD.10/194705.3 © Ricardo plc 2010 5

OEM Battery Strategy Benchmarking

EU OEM 2 battery strategy is driven around utilizing economies of

scale to drive down costs
July 2010

EU OEM 2's Battery Strategy (to 2020) Ricardo's Interpretation

z Key element/features of OEM strategy z OEM market view
– Leap frog, high volume EVs (also considering extended range EV) – Use BEVs to establish positive
brand identity
– Economies of scale
– End product, not battery technology
• Global volumes (via technology sharing agreement)
is the differentiator; build scale thru
• Pack production capacity 20% to 30% over matching vehicle global volumes generated by 3
capacity; extra battery capacity to supply other OEMs OEMs
– Retain used battery pack ownership to yield second life revenue z Underlying thinking / rationale /
– EU OEM 2 positioned as global xEV center of excellence; vertically motivation
integrated in a typical keiretsu arrangement – Leap frog Japanese OEM by being
z Key actions underway in terms of value chain integration xEVs image leader
– EU OEM 2 deeply involved in battery engineering down to cell level; – Local assembly of battery packs to
battery JV (AESC) with NEC Tonkin lower logistics costs & provide 2nd
life reprocessing centers
– EU OEM 2 EV integration proceeding, but slowly
z Potential evolution
– EU OEM 2 to provide swappable battery EV to Project Better Place
– Extend technology sharing to more
– Japan/US/UK BEV production. Local pack assembly by EU OEM 2
OEMs
– EV proliferation and/or refocus on
plug-ins

RD.10/194705.3 © Ricardo plc 2010 6

OEM Battery Strategy Benchmarking

US OEM 1's prior experience with non-consumer product battery

ventures has shaped their current strategy to be cell agnostic
July 2010

US OEM 1 Battery Strategy (to 2020) Ricardo's Interpretation

z Key element/features of OEM strategy z OEM market view
– High visibility EREV drives strategy to internalize core competencies – Cell commoditization is
(BMS and pack integration) inevitable
– History of investments in Enerdel and Cobasys, now looking to avoid – Moonshot product needed to
long term commitment to specific cell chemistry rebuild leadership
– Li-ion battery packs for EREV, PHEV, and some future US OEM 1 z Underlying rationale / motivation
hybrids assembled in owned US manufacturing site using LG Chem – Battery integration is a product
and other supplier’s cells differentiator
z Key actions underway in terms of value chain integration – Enerdel and Cobasys
experience made OEM wary of
– Us OEM 1 invested $31 million in 63,000 sq. ft. battery laboratory to
equity investments
test battery and cell performance and abuse tolerance
z Potential evolution
– Local battery pack assembly driven by operational considerations and
funding availability – US OEM 1 willing to share cells
with other OEMs to improve
– OEM auditioning new cells to develop a bullpen of potential suppliers
scale economies
– LG Chem plant under construction has higher capacity than PHEV
– Move from image building to
battery plant can consume
commercially viable xEVs

RD.10/194705.3 © Ricardo plc 2010 7

OEM Battery Strategy Benchmarking

EU OEM 1’s battery hedging strategy reflects reluctance toward

xEVs and belief that technology and capabilities can be acquired
July 2010

EU OEM 1 Battery Strategy (to 2020) Ricardo's Interpretation

z Key element/features of OEM strategy z OEM market view
– "We are witnessing an electro-hype… Electric cars will have a global – xEVs will not represent a
market share of 1 to 1.5% in 2020. “ Johan Euro July 2009 significant share of the market in
the short term but are an
– "We aim to boost the share of e-vehicles in our annual sales to 3
important future element
percent by 2018. In urban centers, this share could be a lot higher.“ -
CEO Johan Euro, July 2010 – Diesels are better carbon
• Plans to introduce full electric versions of minicar, compact and the sedan in the United States reduction technology in the near
by 2013. term (Euro-centric)
• Plans to sell the gasoline-electric hybrid version of its crossover large premium SUV in the US
later this year; this version is already on sale in Europe. z Underlying thinking / rationale /
• A hybrid version of the sedan is due in 2012 motivation
– Batteries to be manufactured by suppliers – Fast follower electrification
z Key actions under way in terms of value chain integration – The capabilities and technologies
can be acquired
– Recruited ex-Tesla CEO to run their battery research lab
– Ambitious goal to produce the
– Alliance with Sanyo to supply xEV batteries made in Japan
electric car for everyone
– Alliance with BYD for Li-ion batteries from China
z Potential evolution
– Varta JV in Germany to develop large Li-ion batteries
– If xEVs become important will be
looking to acquire competitive
technology
RD.10/194705.3 © Ricardo plc 2010 8
OEM Battery Strategy Benchmarking

US OEM 2’s strategy to make HEVs a core business while hedging on

PHEVs / BEV’s mirrors the project recommendation

US OEM 2 Battery Strategy (to 2020) Ricardo's Interpretation

z Key element/features of OEM strategy z OEM market view
– Developing HEV and PHEV and battery internal core – Li-ion cells are a commodity
competencies while utilizing partners for niche (BEV) vehicles – HEVs will be profitable core
– 2020 forecast sales mix 7 - 18% Hybrid, 2 - 6% PHEV, and 0.5 – products before 2020
2.5% BEV – OEM xEVs are powertrain
– Michigan Assembly Plant will run ICE, BEV, HEV, and PHEV C- derivatives of ICE vehicles
car on a single line – Flexible assembly is a hedge
for uncertain demand; niche
z Key actions underway in terms of value chain integration
vehicles are outsourced
– Building capability to engineer HEVs and PHEVs internally
z Underlying rationale / motivation
– BEV outsourced Azure Dynamics (integration, assembly) and
– Minimize OEM investment by
contain JC Saft designed/assembled battery packs
leveraging government, Tier 1s
– In-sourcing electric transaxle and Li-ion pack assembly to UAW
– OEM value add in internal
plants for HEVs "[Labor agreements require OEM] to provide jobs
engineering for P/HEVs
to the surplus labor that we have” –VP Marketing
– Still working with JC-Saft, Sanyo, Compact Power, and other
battery makers for future cells

RD.10/194705.3 © Ricardo plc 2010 9

Agenda

– OEM Benchmarking & Value Chain Analysis

– Technology Roadmap
– Scenarios & Demand Forecast
– Interview Summaries

RD.10/194705.3 © Ricardo plc 2010 10

Technology Roadmapping

Ricardo estimates pack levels costs will fall to ~$450/kwhr for

PHEVs and ~$375/kwhr for EVs in 2020

Pack Specific Cost Projections – PHEV / EV's (Li-ion)

$1,000
EV 5k, Anderman
Current cost
$900 estimates vary widely Ricardo expects
based on automotive Li-ion
PHEV High, DOE assumptions used batteries to follow the
$800 commercial battery cost
reduction trend with
Pack Specific Cost ($/kwhr)

offsets for technology

$700 and pack costs

$600 EV 50k, Anderman

PHEV/EV Time, Avicenne
$500 PHEV High, Tiax
PHEV
/EV H
IS GI Ricardo PHEV Estimate, 100k
PHE
V/E ~$450/kwhr
$400 VM
cKin Ricardo EV Estimate, 100k
sey
~$375/kwhr
$300 PHEV 10 USABC Goal
Commercial gr
ade Li-ion
$200 PHEV 40 USABC Goal
PHEV 100k, ANL Commercial grade Lio-ion
batteries expected to
$100 continue historical 5%
YoY reduction trend Industry
Targets
$0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year of Production
Sources: Ricardo Analysis, Anderman "Can Li-ion Batteries Support the Proliferation of Plug-in and Electric Vehicles? Status and prospects" from AABC 2010, Avicenne "Present and Future Market
Situations for Batteries" from 2nd International Congress Advanced Battery Technologies 2009, DoE "Annual Merti Review - Energy Storage R&D and ARRA Overview" from DoE Annual Merit Review,
June 2010, TIAX, LLC "PHEV Battery Cost Assessment" from DoE Annual Merit Review, June 2010, ANL "Factors Determining the Manufacturing Costs of Lithium Ion Batteries for PHEVs" from EVS24,
May 2009, IHS Global Insight "Advanced Automotive Energy Storage Report", McKinsey "Electrifying cars: How three industries will evolve" from AABC, 2010
RD.10/194705.3 © Ricardo plc 2010 11
Technology Roadmapping

Ricardo projects Li-ion HEV pack level costs will fall below NiMH in
the 2018 time frame, reaching ~$15/kw in 2020

Pack Specific Cost Projections – HEV (NiMH & Li-ion)

$60 Current data on
HEV battery packs Ricardo Assumptions
(specifically NiMh) • Volume production (> 100k/year)
is not widely • 40% cost premium for power cell relative to EV cell
available NiMH, Ricardo internal data
$50 • Power cell in 2010 has 30 PE
NiMH,Deutsche Bank • 0.5 PE/year improvement due to technology
improvement for no cost
Pack Specific Cost ($/kw)

• In 2010, EV cell costs represent 80% of pack cost

$40 • In 2020, EV cell costs represent 60% of pack costs
DB (NCA, LMO/LTO, LMO/C) • In 2010, HEV cell costs represent 50% of pack costs
• In 2020, HEV cell costs represent 45% of pack costs

DB (LiFe)
Li-ion,100k, ANL
$30
Industry
NiMH, Avicenne Targets

$20 USABC HEV Goal

Ricardo Li-Ion HEV Estimate

Based in extrapolation of ~$15/kW in 2020
Avicenne and Ricardo cost
$10 projections we expect Li-ion
to overtake NiMH cost in the
2018 time frame

$0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year of Production

Source: Ricardo Analysis, Avicenne "Present and Future Market Situations for Batteries" from 2nd International Congress Advanced Battery Technologies
2009, ANL "Factors Determining the Manufacturing Costs of Lithium Ion Batteries for PHEVs" from EVS24, May 2009, Deutsche Bank "North America,
Consumer Auto's & Auto Parts" March 2010
RD.10/194705.3 © Ricardo plc 2010 12
Technology Roadmapping

Several key factors contribute to the complex, rapidly evolving

nature of the automotive battery technology landscape

Automotive Battery Technology Complicating Factors

z There are 50+ press releases per week announcing technology advancements
z Highly sensitive community focusing on protecting IP and know how
z Difficult for OEMs to obtain clear view of technology landscape
– OEMs implement robust evaluation and development process prior to committing to production
Rapidly program
– Many new battery technologies will need to undergo the same development process that current
Changing Cell technology is going through. Likely to slow development times down
Technologies – Relatively small number of suppliers that can meet quality standards for a production program
z Manufacturing quality is a key element for battery pack suppliers, but generally not captured on spec
sheets
z New technologies generally presents new manufacturing process issues to be addressed which takes
time, thus new technologies must show significant promise in order to be pursued
z Development times are 2-3 years from ‘button cell’ to ‘cell’, and 2-3 years from ‘cell’ to ‘battery pack’
Long Lead z Button cells in development now, have the potential of being in production battery packs in 5 years
Times z With 10 year time frame, one and no more than two generations of technologies are possible

z Very little standardization in large format automotive battery cell or pack designs
Little z Very sensitive subject to battery cell suppliers as this is a step towards commoditization.
Standardization z Currently industry has a wide range of cell capacities, cell P/E ratio, cell form factor, and cell mechanical
size
z Very little industry consensus on best practices for designing a battery pack
Industry Best
z Ricardo has reviewed ~10 battery pack designs, and there is little in common across the packs
Practices not z Modularity currently limited to “unit cell” concepts and some “modules”
Defined z It is unclear if lack of commonality is due to lack of industry experience or IP issues
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 13
Technology Roadmapping

Industry has not yet converged on best practices related to cell and
module designs; Multiple approaches will likely be taken
Initial Battery Technology Roadmap (1/2)
2012 2012-2015 2016-2020 2020+
CAFE CAFE CAFE CAFE
Milestones EU 130 g/km EU 120 g/km EU 95 g/km
DOE funding 1M PHEV Goal

NCA, LFP, NCM, LMS, LTO Collection of relatively well defined chemistries under
development. Next generation of chemistries likely to be well
Next Generation Chemistry hidden and protected IP.

Cylindrical Form Factor

Prismatic Form Factor
Li-ion Cell
Pouch Form Factor
Technology
Advanced Separator
Advanced Electrolyte
Advanced Manufacturing
Cylindrical and prismatic form factors are both relatively well
accepted in the industry. Industry likely to be cautious on use of
pouch form factor before it is proven. Installed manufacturing base
likely to result in continuation of all form factors.
Advanced Separator & Electrolyte development may be either
revolutionary or evolutionary; advancements may impact just
performance and/or safety.
Manufacturing cells based on coating technology may be replaced
with revolutionary methods either with current cell technology or
concurrent with the next generation chemistries.

Timing of establishment of standard cell sizes difficult to anticipate,

Cell Size Standardization
but will be OEM priority as number of electrified vehicles increases

Air cooled modules Air and liquid cooled modules likely to continue due to various pack
thermal design points and lack of consensus on criticality of
Module Liquid cooled modules temperature on pack life. Only field experience will help mature.
Considerations
Plastic cell mechanical retention likely to remain due to ability to
Plastic Cell Mechanical Retention mass produce and established practices. Methods of mechanical
retention likely to be area of IP.
Source: Ricardo Analysis 2010 2015 2020
RD.10/194705.3 © Ricardo plc 2010 14
Technology Roadmapping

Battery management system and pack hardware are likely to evolve

with cell technology, but converge more quickly
Initial Battery Technology Roadmap (2/2)
2012 2012-2015 2016-2020 2020+
CAFE CAFE CAFE CAFE
Milestones EU 130 g/km EU 120 g/km EU 95 g/km
DOE funding 1M PHEV

Master Slave Architectures Master / slave architecture and single board solutions likely to be
used in near term on case by case basis. Cost vs Performance
Integrated Board Architectures trade off likely to result in multiple approaches.

Cost reduction pressures & increased field experience will result in

Fully Integrated specialist chips specially design chips with integrated functions for BMS systems.
Battery Production volumes will be required to make this happen.
Management 1st generation algorithms
Systems Field experience will enable improved SOC, SOH algorithms. More
advanced algorithms may be either software or hardware changes.
2nd generation algorithms

Passive Charge Balancing Improved energy efficiency demands will make active charge
balancing more appealing. Cost vs Performance trade offs may
Active Charge Balancing limit use of active charging strategies.

Stand alone Fans / contactors / shunts / disconnects etc. Pack hardware likely to be heavily leveraged from industrial
Pack Hardware applications and most likely to be commoditized first. With volume,
custom pack hardware and integration of multiple components into
Custom Pack hardware & component integration. single assembly is likely.

2010 2015 2020

Source: Ricardo Analysis

RD.10/194705.3 © Ricardo plc 2010 15
Technology Roadmapping

Both NiMH and Li-ion performance and cost metrics improved

significantly during their first decade of significant sales
Historical Trend Analysis
NiMH Li-ion
250% Energy Density (W-hr/L) 250%
200% Cost ($/kW-hr) 200%
Energy 150% 150%
Density and 100% 100%
Cost Trends 50% 50%
0% 0%
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
500% 1600%
Energy Density (W-hr/L) 1400%
400%
1200%
300% 1000%
Overall 800%
200% 600%
Performance/$ 400%
100%
200%
0% 0%
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
z Volumetric energy density improved nearly 100% during z Much broader design space which adds complexity but
the same time that costs dropped by nearly 60% also increases opportunity
z Overall performance improved nearly 4 fold when z Costs for consumer grade cells continue to decline at

performance per $ is evaluated 5% to 10% per year

z Price points for automotive cells are not well established
due to minimal production volumes
z Price and performance comparisons across
manufacturers and chemistries are difficult due to lack of
Source: Avicenne "Present and Future Market Situations for Batteries" presented at 2nd International Congress
Advanced Battery Technologies 2009
standardization
RD.10/194705.3 © Ricardo plc 2010 16
Technology Roadmapping

Li-Ion is expected to slowly replace NiMH for xEV applications due

to price decreases & specific energy and power improvements

Price Energy and Power Raw Material Costs Price Sensitivity

z Li-Ion high power forecast
to drop in price significantly
in the near term
z At least on a par with NiMH
forecast prices, potentially
lower
z With higher voltage and
energy density, Li-Ion is
superior to NiMH in
applications that require
higher energy, lighter
weight, and smaller
packaging
z Expectations are that
specific power ratings will
improve at a faster rate than
NiMH
z Cost equation for specific
energy and power
significantly in Li-Ion‘s
favour
z Nickel prices have been at a z Nickel is a much higher
all time low proportion of NiMH battery
– Expected to climb with costs than lithium is for Li-
global economic ion
recovery z As such NiMH costs are
~10 times more sensitive to
– 10-15% annual price
rises in nickel prices than Li-
increases forecast until
2015 Ion is to lithium prices due
to higher metal content
z Lithium supply is forecast to
out-strip demand in the
medium-long term
– Lack of scarcity value
moderates price rises

● Although almost all automotive market energy storage development is focused on Li-ion technology, but
industry data indicates that it will account for no more than 30-40% of xEV market by 2015

● This is largely a function of the pace of continued performance and cost improvements for Li-ion vs. NiMH
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 17
Technology Roadmapping

The unique characteristics of each battery technology fit some

applications better than others

Vehicle Battery Requirements Relative Comparison Battery Type Relative Comparison

Power Specific Pow er

Cost Pressure Energy Cost Specific Energy

Safety Cycle Life Elec. Control Cycle Life

Micro HEV Lead Acid

HEV NiMH Charging & Discharging
Charging & Discharging
PHEV/EV Li-Ion

z Micro HEVs likely to stay with VLRA technology due to cost pressures
z HEVs may use either NiMH or Li-ion Technology; cost likely primary factor
z PHEV / EVs likely to prefer Li-ion due to high specific energy of technology
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 18
Technology Roadmapping

For HEVs, the transition between NiMH and Li-ion technology will
be primarily based on cost

ILLUSTRATIVE

Relative Battery Costs Trends

Invest in Li-ion to learn, and gear up

Invest per current mfg contracts

or installed mfg capability

Invest per the long term

Time

Source: Supplier Business Advanced Automotive Energy Storage Report

RD.10/194705.3 © Ricardo plc 2010 19
Technology Roadmapping

Li-ion battery pack cost estimates are a strong function of pack P/E
ratio, production volume & pack size

Performance and Volume Costs Sensitivity Pack Size Cost Sensitivity

~$470/kwhr
120% 100% Li-ion Technology
100% = $/kWhr P/E 15 cell 50k/year production volume
100%
Relative Costs

90%
80%
Cell
60% 80%
Pack

% of Full EV cost in 2010

40%
70%
20%
0% 60%
0 5 10 15 20
50%
Power to Energy Ratio (kW/kWhr) ~$750/kwhr
40%
120%
100%= 5k/year production $/kwhr
100% 30%
Relative Costs

80% ~$1500/kwhr
20%
60%
40% 10%
20%
0%
0%
HEV PHEV EV
0k 20k 40k 60k 80k 100k 120k
1.5kwhr 6kwhr 24kwhr
Production rate (packs/year) P/E=30-40 P/E=15-25 P/E=5-10

● To reduce cell cost, future cell designs likely to be adjusted ● HEV battery package much more sensitive to cost of
to match required vehicle attributes pack hardware than PHEV and HEV battery packages.
● Drive to customize cells will be balanced with need for ● Increased pack sizes (PHEV to EV) makes pack
establishing production volume $/kwhr approach cell cost.
● Volume cost reduction appears to be achieved at >100k/year

Source: EPRI, Batteries for Electric drive vehicles – status 2005, Anderman 2010 AABC conference, Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 20
Technology Roadmapping

Successful implementation of well-understood high-level roadmap

for Li-Ion cell cost reduction will be the key industry differentiator

Li-ion Cost Reduction Levers

35%

15%
100%
10%
5%

35%

2010 Production Advanced Cell Material Prices 2020

Optimization Materials Standardization

Higher volumes enable,

Economies of scale,
increased purchasing power,
improving manufacture
and reduced “advanced
yield
technology” cost premium

Increased material Standard cells enables cross

performance requires supplier volume & standard
less material manufacturing equipment
Source: Supplier Business Advanced Automotive Energy Storage Report
RD.10/194705.3 © Ricardo plc 2010 21
Technology Roadmapping

Li-ion pack cost reductions are dependent on a combination of

volume and product/process maturation over time

Volume Time Synergy between EV /

Factors that contribute to Li-ion pack cost
dependent dependent PHEV / HEV battery
reductions
factor factor technologies

Increased pack / cell economies of scale 9 Moderate

Reduced R&D recovery costs per cell/pack 9 High
Reduced material costs (buying in bulk) 9 Moderate
Cell standardization (buying in bulk) 9 High
Reduced markup (making profit by volume) 9 9 Moderate
Manufacturing equipment standardization 9 9 High
Expansion of supply base to increase competition 9 9 High
Reduced pack / cell scrap rate 9 High
Reduced warranty costs 9 High
Improve materials (higher performance /kg) 9 High
Improved cell / pack designs for lower costs 9 High
Reduced “technology image” cost premium 9 High
“closed source” to “open source” supply base 9 Moderate

Li-ion Cost reductions within one xEV application are likely to have significant effect on
cost reductions associated with other xEV applications
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 22
Technology Roadmapping

EV/PHEV and HEV energy storage system cost breakdowns differ

due to pack composition; over time pack element content increases

Legend
Battery Pack Cost Breakdown (100k/yr volume)
Material
Mfg. (labor, depreciation, …)
Cell Module / Pack
Overhead (R&D, profit, warranty, …)

• ~50% of cost in cells

• ~50% of cost in pack
2010 • Cell costs split uniformly between material,
manufacture, and overhead
• Pack cost dominated by material costs
HEV
• Cell costs drop faster than pack costs, resulting
2020 in lower % of total system costs.
• Pack cost dominated by material costs

• 70%-80% of cost in cells

• 20%-30% of cost in pack
2010 • Cell costs split uniformly between material,
manufacture, and overhead
PHEV • Pack cost dominated by material costs

/ EV
• Cell costs drop faster than pack costs, resulting
2020 in lower % of total system costs for pack
• Pack material costs still dominate pack costs

0% 20% 40% 60% 80% 100%

Source: Ricardo Analysis of various published sources

RD.10/194705.3 © Ricardo plc 2010 23
Agenda

– OEM Benchmarking & Value Chain Analysis

– Technology Roadmap
– Scenarios & Demand Forecast
– Interview Summaries

RD.10/194705.3 © Ricardo plc 2010 24

Scenario Development

Detailed scenario assumptions have been developed to ensure an

intellectual rigour in predicting the potential xEV uptake

Scenario

z Consumers lose confidence in the xEV solution due to bad press during the early
product adoption phase (i.e. negative TV news features and Consumer Reports ratings)
False Start z Average pump oil prices rise at the historical inflation rate per year over the next 10
years thus discouraging any switch to the potential lower cost fuel for xEV’s

z Limited initial choice and high cost premiums for xEV’s together with little perceived
Business benefits for consumers cause slow start to sales
as Usual z Average pump oil prices rise more than the historical inflation rate plus one-major geo-
political crisis which causes a ~ 12-month period of volatility and elevated fuel prices

z Oil prices rise faster than historical inflation rate motivating the trend to xEV’s
Government/CARB/Café rules take more aggressive stance on energy conservation
Commuter z
and vehicle legislation such that OEM’s need more xEV‘s to meet tougher fleet targets
Convenience z Limited incentives for availability of charging infrastructure cause HEV and PHEV to
predominate for commute distances as a reliable economic alternative to ICE vehicles

z Average pump oil prices rise faster than historical inflation rate with further energy
Urban security/conservation legislation
Utopia z Government incentivizes megacity developments and rolls out charging infrastructure,
creating new urban environments to stimulate adoption and growth of xEVs

Source: Ricardo Analysis

RD.10/194705.3 © Ricardo plc 2010 25
Scenario Development

Consumers lose confidence in the xEV solution due to bad press

and failure of technology to meet expectations on range/reliability

False Start Scenario

z Early PHEV and EV vehicles fail to meet consumer expectations on range and reliability
Vehicles and z Battery development disappoints both in terms of weight and cost improvement
Technology z Limited xEV availability as large OEM technology investments do not pay off in the short run
and fewer manufacturers are willing to invest in the dedicated platforms required

z Average pump oil prices rise at the historical inflation rate per year over the next 10 years thus
discouraging any switch to the potential lower cost fuel for xEV’s
z Consumers are reluctant to purchase xEV’s due to their performance limitations and the
Costs unattractive total costs of ownership (high purchase price, uncertain resale market)
z xEV perceived as not value for money and the lifetime economy is not being realised; high
costs will be incurred to re-establish the market

z Complications persist in the convenience of charging EV's from slow infrastructure roll-out;
availability of private charging (on site, e.g. private car park) remains key decision criteria for
Infrastructure and potential EV buyers
Charging
z Additional costs required to install/update wiring at domestic locations to enable EV charging
deters consumers

z OEMs invest in development of advanced ICE platforms over xEV platforms to meet the
Legislation and CARB/Café targets in 2016 due to high costs and slow take up of the xEV vehicles
Environment z "Dirty" power generation slows "green" adopters where the overall lifecycle carbon effects are
not perceived to be as ecologically beneficial as promoted
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 26
Scenario Development

Limited initial choice and high cost premiums for xEV’s together
with little perceived benefits for consumers cause slow start to sales

Business as Usual Scenario

z Alternative technologies (advanced SI/drive-train, diesel, etc.) provide most of the same
performance (mileage) benefits as xEV at a significant discount
Vehicles and z Fewer xEV vehicle programmes are started leading to limited vehicle choice
Technology
z Due to size, load and range restrictions, xEV’s are taken up by a very small niche segment of
early adopters, predominantly in urban & sub-urban areas

z Average pump oil prices rise more than historical inflation rate together with one-major geo-
political crisis which causes a ~ 12-month period of volatility
z Purchase prices are more expensive than ICE versions which, combined with uncertainty about
Costs residual value limit sales potential to affluent early adopters
z The economic business case for EV’s is only viable after several years (estimated at 5-9 years,
depending on purchase price differential, driving pattern, fuel price etc.)
z Infrastructure is able to ramp up to support demand profile as the number of xEV do not create
significant challenges for the existing power generation supply
Infrastructure and z Electricity remains comparatively cheap and most PHEV charging will be done at home over
Charging night promoting sales predominantly to people with suitable facilities on site
z Availability of private charging opportunity (on site, e.g. private car park) remains key decision
criteria for potential EV buyers

z xEVs are not perceived as a suitable answer to the dependence on oil-based fuels and
Legislation and greenhouse gas emissions; OEMs continue to develop ICE platforms to meet CARB/Café target
Environment z Government incentives fail to significantly close the xEV price premium gap in the early years
z PHEVs are perceived as "green" toy with no significant environmental benefit
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 27
Scenario Development

Government/CARB/CAFE take more aggressive stance on energy

conservation; HEV and PHEV predominate for commute distances

Commuter Convenience scenario

z HEV and PHEV predominate for commute distances as a reliable economic alternative to ICE
vehicles, assisted by improved energy density technology towards the end of the decade
Vehicles and z Limited availability of PHEVs until ~2013 where most activity in the short term is expected in the
Technology B/C/D vehicle segment plus limited numbers in the luxury segment (e.g. Mercedes, Audi)
z Early PHEV expected to have a limited EV only range of 10-20 miles, increasing to ~20-30
miles by 2020; EREV equivalent figures are 40-60 miles, remaining at 60 miles until circa 2020

z Average pump oil prices rise at a higher than historical inflation rate which accelerates the
Costs switch to xEV’s as fuel costs more than triple over the decade
z Retail prices for HEV, PHEV are initially expected are more expensive than ICE versions

z PHEV functionality does not restrict driving range which reduces the initial infrastructure need to
domestic and final destination locations only with the anticipated A2B consumer use
Infrastructure and z EREVs are limited to very few models due to the required investment and dedicated vehicle
Charging platform, but provide a good option for customers with limited access to charging infrastructure
z Demand for fast charging as PHEVs and EVs proliferate sees more widespread adoption of
public charge infrastructure

z OEM’s focus on xEV‘s to meet more aggressive energy security/conservation vehicle legislation
as CARB/Café rules become more stringent and Government incentives and directives respond
Legislation and to a less stable oil supply
Environment
z PHEV’s and EREV’s build on "green" image of first hybrid models and offer compromise
between ICE and EV in addressing range anxiety
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 28
Scenario Development

Government incentivizes megacity developments creating new

urban environments to stimulate adoption and growth of xEVs

Urban Utopia scenario

z EV‘s are promoted as 2nd use vehicles mostly in the small city-car (A & B) segment which are
progressively introduced from ~2012
Vehicles and z EVs in the lower medium segments will be introduced in the form of the Nissan Leaf
Technology
z First generation EVs are expected to have an EV only range between 80-100 miles, lower
battery costs support an increase to about 100-150 miles range at the end of the decade

z Average pump oil prices rise faster her than historical inflation rate with further energy
security/conservation legislation
Costs z EVs are substantially more expensive than equivalent city cars; battery leasing schemes may
evolve spreading the acquisition costs over a longer time period
z High uncertainty about residual value leads to affluent early adopters as the initial target

z Megacity redevelopments create new urbanizations targeted at the EV and support a service
infrastructure beyond the dealership
Infrastructure and z Buyers may experience some infrastructure inconveniences in the early years but infrastructure
Charging development is mostly in line with xEV growth
z Availability of private charging opportunities remove consumer anxiety and encourage faster EV
adoption and sales further benefit from local traffic initiatives for convenience and ease of use

z EVs are perceived as the new benchmark; "Green" conscious consumers increasingly focus on
lifecycle carbon effects and grid de-carbonization efforts
Legislation and z Government incentives support the infrastructure roll out to promote EV adoption
Environment
z Infrastructure initiatives for EVs remain in place for majority of decade supporting the supply
push from the OEM side; these may be reconsidered as market penetration grows
Source: Ricardo Analysis
RD.10/194705.3 © Ricardo plc 2010 29
Forecasting

Our forecasts for 2020 xEV penetration range from 8% to 45%

market share compared to a current 2010 level of 3%

2020

8% 45%
share share
1 False Start 12% 27% 5 Urban Utopia
share share
16%
share

2 McKinley
Baseline Commuter
4
Convenience
Business
3
as Usual

Source: Ricardo xEV Market Penetration model

RD.10/194705.3 © Ricardo plc 2010 30
Forecasting

Inputs to the forecasting model have been developed for each

scenario

Scenario Government Technology

Fuel prices Gov’t purchase subsidies mandates cost
z Remain flat at $3 / z $2500 PHEV-10 z CAFE levels off after z Battery pack
gal z $7500 PHEV-40 / BEV 2016 costs decline by
3 to 4% YOY
False Start z Expire end-2011

z $2.36/gal in 2010 z $2500 PHEV-10 z CAFE levels off after z Battery pack
rising to $3.34 in $7500 PHEV-40 / BEV 2016 costs decline by
McKinley 2020
z
z Incentives expire for OEM model 5 to 6% YOY
Baseline achieving 100k volume
z Consumers discount benefits by 75%

z $3 / gal rising to $5 z $2500 PHEV-10 z CAFE continues to z Battery pack

/ gal by 2015, then z $7500 PHEV-40 / BEV increase, but at reduced costs decline by
Business tailing off to ~$4 / z Expire end-2013 levels (~2% YOY) after 3 to 4% YOY
gal by 2020 2016
as Usual

z Steady increase to z $2500 PHEV-10 z CAFE continues to z Battery pack

$6.50 / gal by 2020 z $7500 PHEV-40 / BEV increase rapidly and costs decline by
Commuter z Expire end-2013 high credit provided for 4 to 5% YOY
PHEVs and BEVs
Convenience

z Steady increase to z $2500 PHEV-10 z CAFE continues to z Battery pack

$6.50 / gal by 2020 z $7500 PHEV-40 / BEV increase, but market costs decline by
Urban z Charging infrastructure heavily demand for efficient 5 to 6% YOY
vehicles out-paces
Utopia subsidized (less range anxiety for
BEVs) requirements
z Credits extended through 2020

Source: Ricardo Analysis, Chris Tuckfield

RD.10/194705.3 © Ricardo plc 2010 31
Forecasting

Under difficult economic conditions, BEVs fail to penetrate the

market, HEVs grow, and PHEVs remain viable

U.S. xEV Forecast – “False Start” Scenario

35%

30% xEV Total

xEV U.S. Market Share

HEVs
25% PHEVs
BEVs
20% Actual Forecast
PHEV market share
15% HEVs continue to grow market grows faster than HEVs
PHEV and BEV demand fall share, achieving 6.6% in 2020 did 1999 - 2005
dramatically as incentives expire
10%
7.9%
6.6%
5%
1.3%
0% 0.05%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BEV market share is very low and
Calendar Year not growing

z Government BEV and PHEV purchase incentives expire in 2011, CAFÉ requirements remain flat after 2016
z Retail gasoline prices remain steady at $3 dollars (in constant 2010 dollars)
z Battery pack and xEV hardware costs fall at 3-4% YOY

RD.10/194705.3 © Ricardo plc 2010 32

Forecasting

The McKinley baseline future scenario enables a small but growing

BEV market late in the decade

U.S. xEV Forecast – “McKinley Baseline” Scenario

35%
xEV Total
30%
xEV U.S. Market Share

HEVs

25% PHEVs
PHEV growth stalls after the
BEVs
incentives expire, but start
20% Actual Forecast growing again at the end of
HEV market share continues the decade as cost
to grow as the result of an reductions are realized
15% expanding product lineup
12.1%
10% PHEV/BEV Demand 9.7%
rises rapidly when
incentives are available
5%
2.1%
0% 0.2%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BEVs remain a niche vehicle at
Calendar Year best, with some growth

z Government PHEV and BEV incentives are not considered at face value and expire after 100k units per OEM
z Real retail gasoline prices rise slightly to $3.34 / gallon in 2020 in line with the EIA forecast
z Battery pack and xEV hardware costs fall at 5-6% YOY

RD.10/194705.3 © Ricardo plc 2010 33

Forecasting

In the ‘Business as Usual’ scenario, regulation and external events

maintain a growing xEV market after incentives expire

U.S. xEV Forecast – “Business As Usual” Scenario

35%
xEV Total
30%
xEV U.S. Market Share

HEVs

25% PHEVs HEV popularity growth flattens Increasing CAFÉ requirements and the
BEVs as fuel prices retreat fuel price spike restart PHEV sales
20% Actual growth after incentives expire
Forecast

15% PHEV/BEV Purchase incentives 15.5%

expire resulting in a dramatic
drop in sales 12.0%
10%

5% 3.3%
0% 0.3%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BEVs establish a toe hold in the
Calendar Year US market, but Leaf fails to
achieve its target volumes
z Government BEV and PHEV purchase incentives expire in 2013, CAFÉ requirements increase slowly after 2016
z An oil shock in 2015 causes gas prices to spike at $5, but then slowly settle down to $4 in 2020
z Battery and xEV hardware costs fall at 4 – 5% YOY

RD.10/194705.3 © Ricardo plc 2010 34

Forecasting

Rising real fuel prices as the result of world events, a fuel tax, or
carbon regulation causes steady growth in xEV sales

U.S. xEV Forecast – “Commuter Convenience” Scenario

35%
xEV Total High and rising fuel prices
30%
xEV U.S. Market Share

HEVs push consumers to fuel

efficient vehicles of all types 26.9%
25% PHEVs
BEVs
20% Actual Forecast 19.1%
Government incentives and
15% rising fuel prices create a
2013 demand bubble PHEV sales growth remains
strong after 2014
10%
6.5%
5%
1.3%
0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
After the bubble bursts in 2014, BEV sales
Calendar Year grow and could support 4-5 different
products in the US market by 2020
z Government BEV and PHEV purchase incentives expire in 2013; post 2016 CAFE increases at aggressive rate
z Fuel prices increase at a steady rate up to $6.50 / gallon in 2020
z Battery and xEV hardware costs fall at 5 – 6% YOY

RD.10/194705.3 © Ricardo plc 2010 35

Forecasting

Under the most favorable economic conditions, xEVs could account

for more than 45% of the US market by 2020

U.S. xEV Forecast – “Urban Utopia” Scenario

45.2%
xEVs begin to dominate the
35% US Market
xEV Total
30%
xEV U.S. Market Share

HEVs
Government incentives and cost
25% PHEVs reductions overcome the cost 24.2%
BEVs advantage of HEV over PHEVs
20% Actual Forecast
16.8%
15%

10%

5% 4.1%

0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
BEV becomes the predominate
Calendar Year powertrain among sub-compact cars

z Government BEV and PHEV incentives continue through 2020; CAFÉ targets increase aggressively
z Fuel prices increase at a steady rate up to $6.50 / gallon in 2020
z Battery pack and xEV hardware costs fall at 6 to 7% throughout the decade

RD.10/194705.3 © Ricardo plc 2010 36

Forecasting

Sustained BEV adoption in the US market during the next decade

depends on purchase incentives and high fuel prices

U.S. BEV Forecast

4.5% Scenario
False Start
4.0%
McKinley Baseline Steadily rising fuel prices lead to
continued sales growth
3.5% Business as Usual
BEV U.S. Market Share

Commuter Convenience
3.0% Urban Utopia

2.5%

2.0%

1.5% Expiration of incentives causes

an immediate drop in demand
Temporary fuel price spike in
1.0% ‘Business as Usual’ scenario
Without incentives or high fuel
0.5% prices BEVs fail to achieve viability

0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Calendar Year

RD.10/194705.3 © Ricardo plc 2010 37

Agenda

z Process & Timeline

z Recommended Battery Strategy
– PHEV / BEV Implementation Actions
– HEV Implementation Actions
z Supporting Findings
– OEM Benchmarking & Value Chain Analysis
– Technology Roadmap
– Scenarios & Demand Forecast
– Interview Summaries

RD.10/194705.3 © Ricardo plc 2010 38

Interview summaries

The long-term outlook for Li-ion is positive, but the industry faces an
oversupply challenge as it looks to realize its full potential

Executive summary from selected interviews

Market Forces z There will be overcapacity and falling prices for Li-Ion batteries in the next 5
years as the xEV market growth is slower than expected

Costs and z Timing varies widely for costs to fall below $300/kWh; components will
Commoditization
commoditize first, followed by whole cells, finally modules of multiple cells

Investment and
Exclusivity z The benefits of exclusive (cell) supplier relationships are reduced as make/buy
opportunities in battery pack design/assembly develop
Impact of
Chemistry and z Li-Ion is expected to displace NiMH in the next decade for xEVs and its supply
China
could become dominated by Chinese cell manufacturers

Supplier
Relationships z There is disagreement where pack assembly lies on the value chain; if not an
OEM then suppliers will need to be robust to carry the warranty liability
Technology
Breakthroughs
z Improvements will happen first in safety and reliability; during the next decade,
and Timing Li-Ion cell chemistry performance will evolve in steps led by consumer cells

RD.10/194705.3 © Ricardo plc 2010 39

Interview Summaries

There will be overcapacity and falling prices for Li-Ion batteries in

the next 5 years as the xEV market growth is slower than expected

Market forces
z Li-Ion battery packs have not penetrated conventional hybrids as quickly as expected
z 1kWh NiMH packs are too expensive and oversized; there is opportunity to move to smaller
higher power Li-Ion packs for parallel hybrid systems to realize potential cost benefits
z Despite high reliability of HEV‘s, market perception is that they remain unreliable; thus market
What will drive the take up will remain slower than expected
demand for automotive
battery packs? z There is much greater uncertainty for PHEV's as consumers have not yet considered the "which
type of EV/PHEV/HEV suits my needs" question. Consumers are confused and do not want to
make an expensive and wrong choice; PHEV market will stay smaller than expected
z Anticipating cost reductions, CARB and EPA standards for 2017 to 2025 are likely to
incorporate tougher targets that will reflect HEV‘s performance to push the xEV market

z The vehicle battery industry will go through a quick growth cycle, similar to the solar cell
industry. Capacity will be built, supply will outstrip demand and prices will fall.

What will the supply z One cycle of supply overcapacity and falling prices are expected within the next 5 years
and demand balance – Announced Plug-In vehicles are unlikely to hit the markets in the tens of thousands soon
for vehicle traction – Most OEMs will want to diversify across different cells, however there will be suppliers who
batteries look like in the fall short of technical and automotive requirements
next ten years? – There will be consolidation of cell suppliers within the next 5 years
z OEM's are investing in-house rather than investing in Tier 1 plant for battery pack assembly, as
skills are not yet sufficiently present in the supply base to do battery integration

Source: Ricardo interviews

RD.10/194705.3 © Ricardo plc 2010 40
Interview Summaries

Timing varies widely for costs to fall below $300/kWh; modularity

within packs will commoditise with cell form factor standardisation

Costs and Commoditization

z Below $300/kWh is achievable; views on timing vary between 3 and 7 years depending where
the volume occurs e.g. Chinese sources may be first to this target
Where do you see z One interview subject felt Li-ion batteries could achieve $200/kWh of useable energy before
battery costs falling to 2020. Others felt this is less likely
over the next 10 years?
z There is a lot of opportunity for cost reduction once production increases; huge improvements
remain in cycle times, scrap rates, and automation

z The pack is unlikely to be a fully commoditized item, however the components within the pack
(connectors, transducers, etc) will quickly achieve sufficient scale for commoditization
What parts of the z Component parts of the cell (e.g. separator film, electrode sheet) will quickly move to
battery pack will be commodities once a dominant chemistry for automotive cells is determined
commoditized first and
last? z BMS electronics hardware well understood technology and not unique to automotive
z When cell form factors become standardized, then modules within the packs could be
commoditized

Source: Ricardo Interviews

RD.10/194705.3 © Ricardo plc 2010 41
Interview Summaries

The benefits of exclusive (cell) supplier relationships are reduced

as make/buy opportunities in battery pack design/assembly develop

Investment and exclusivity

z There are more opportunities in the package and structure of the battery to increase power and
energy density without compromising on lifetime and reliability
Where on the value
chain are the best z Stars will emerge in the market from those with a strong brand for the supply of turn-key battery
opportunities for packs and ease of integration for the OEM
investment in the z It is not easy to have a long term competitive advantage in component technology (anode,
traction battery cathode, separator) because you can’t build a strong enough IP position
industry?
z Greater investment is needed in pack simulation and analytical capability; most of this activity is
currently taking place within OEMs. Scale economies could create opportunities here

z Battery suppliers and OEMs formed exclusive arrangements due to uncertainty and to secure
the IP, however exclusive relationships may be detrimental in future
How important are z An exclusive deal with a battery company protects the supply but becomes a liability when
exclusive supply oversupply hits the market.
arrangements in the z OEMs and suppliers will develop many-to-many relationships; the OEMs will have a primary
development of traction source and a back up, where the supply base is likely to standardise at the pack level
batteries?
z Exclusive arrangements are not just about securing quantity, but also quality in this market to
ensure performance, lifetime, safety; in the longer term, exclusive arrangements are less likely
to be beneficial or necessary

Source: Ricardo Interviews

RD.10/194705.3 © Ricardo plc 2010 42
Interview Summaries

Li-Ion is expected to displace NiMH in the next decade for xEVs and
its supply could become dominated by Chinese cell manufacturers

Impact of Chemistry and China

z NiMH is not regarded as a technology for the future, although it is taking Li-Ion longer than
expected to displace NiMH as the chemistry of choice for hybrids, due in part to the lower than
Where are investments expected pricing of NiMH cells
in new NiMH z Manufacturers are trying to establish which chemistry offers the greater benefit and are thus
development for introducing Li-ion on low volume applications
forward model HEV use
z Investment in Li-Ion is very high such that soon it will be difficult for NiMH to compete on power
occurring?
and (future) price
z Lead Acid batteries will still be used as they have advantages in power, cost and low
temperature performance for some applications with low energy storage needs

z China sees batteries as very strategic; comparing the automotive battery market to the solar
market, it took Chinese suppliers 5 years to demote to #3 a major European supplier that had
taken a decade to reach #1 in the market
– China suppliers will move faster for EV batteries because they start with a strong consumer
Li-ion battery industry
How does China fit in to
the future state of the z China will be a big player in electric mobility; so far they have concentrated on developing
proven technology; within the next three years, more new technology is expected from China
battery industry?
z Most of the capacity deployments have been in China and they will be hard to beat on cost
z Chinese suppliers don‘t have a history of quality control which may impact life and may damage
export credibility; however as the solar industry, Chinese suppliers will ramp quality to rival the
best US/EU suppliers

Source: Ricardo interviews

z Sophistication of Chinese battery system solutions is lagging US and EU implementations
RD.10/194705.3 © Ricardo plc 2010 43
Interview Summaries

No consensus on optimal pack assembly strategy; if not an OEM

then suppliers will need to be robust to carry the warranty liability

Supplier relationships

z It is not clear yet what the business model looks like between OEMs and suppliers to share cost
savings and warranty liabilities; cell suppliers won’t be able to handle the liability
What arrangements do z It is also not yet clear who is the battery maker; a solution provider has certain advantages with
you expect to see smart battery controls, these can guarantee a certain battery lifetime.
between OEMs and
suppliers to share cost z Warranty liability is the driving force; suppliers will need to be strong enough to back the
warranty.
savings and warranty
liabilities? z Dominant battery companies in the next decade will be established names and some new
players; new smaller players may be acquired by a larger company to gain the financial security
to fund development and cover the warranty exposure

z As Li-ion technology matures, it will develop as NiMH has, with only one global supplier having
enough scale to remain profitable
How do you see the
z Battery suppliers will need to be robust to ensure lifetime to an OEM, thus technology and
battery supply market
financial strength could make consolidation happen sooner than expected
evolving - open source
vs. exclusive supply? z Batteries either become a commodity with several suppliers in the market, or if there is a clear
differentiation then an exclusive arrangement will be preferred with battery makers who can take
care of warranties and liabilities

Source: Ricardo interviews

RD.10/194705.3 © Ricardo plc 2010 44
Interview Summaries

Improvements will happen first in safety and reliability; during the

next decade, Li-Ion cell chemistry performance will evolve in steps

Technology breakthroughs and timing

z System optimisation to maintain durability with a simpler design and reduction of complexity
z New battery pack architectures to increase energy and power density to maximise output

Where do you see the z Battery management is a true driver of differentiation and will make big differences in capacity
major breakthroughs and lifecycle management
coming (performance, z Improvements will happen first in safety and reliability rather than technology
useful capacity, mfg
z Recognition and emergence of good chemistries which become cost competitive will be
process, etc.)?
adopted first
z Suppliers like A123 are not unassailable, however what they have is not easily replicated; they
may not be vulnerable but they will need to keep innovating

z There will be no fundamental change of chemistry in the next 10 years; Li-Ion chemistries will
consolidate and form factors will simplify
What is the timeframe z Evolutionary improvements will appear first; nano structures, ceramics, and silicon will debut
that new chemistries first in consumer cells if at all
and cell standardization
become unavoidable z Standardisation will be driven by volume from HEV demand and the first formats to achieve
for cell suppliers? high volume in the field will be de facto standards
z In the next 3 years OEMs will begin sharing common cells in high volume, this will drive
economies of scale and create standard commodity cells with or without industry specs

Source: Ricardo Interviews

RD.10/194705.3 © Ricardo plc 2010 45