From Gigafactory to Giga-Business

Ever more peo­ple are choos­ing to buy elec­tric cars, also thanks to addi­tion­al incen­tives for the pur­chase of new vehi­cles. It is now time for the indus­try to act and to estab­lish bat­tery fac­to­ries rapid­ly in many parts of the world, includ­ing Europe. Known as gigafac­to­ries, they require huge lev­els of invest­ment. But how and where can they become prof­itable busi­ness­es? A team of experts from Porsche Con­sult­ing has com­pared the asso­ci­at­ed oppor­tu­ni­ties and risks. Its com­pre­hen­sive analy­sis focus­es on mod­ern bat­tery tech­nolo­gies, effi­cient pro­duc­tion process­es, and the right sites and scal­ing for sus­tain­able pro­duc­tion in Europe.

EU countries are focusing on electromobility

Bat­ter­ies play the same role in elec­tric cars as engines do in con­ven­tion­al cars. They are of cru­cial impor­tance for both the range and the charg­ing speed. In the year 2021 they account for up to 40 per­cent of the over­all cost of the new car. This makes elec­tric mobil­i­ty com­par­a­tive­ly expen­sive. Their size, which is direct­ly relat­ed to the range, is also an impor­tant fac­tor in the deci­sion to pur­chase an elec­tric car. Nev­er­the­less, the Euro­pean Union (EU) saw a record num­ber of newly reg­is­tered elec­tric cars in 2020, as report­ed by the Euro­pean Auto­mo­bile Man­u­fac­tur­ers’ Asso­ci­a­tion (ACEA). Pre­mi­ums are still on offer to attract new cus­tomers because EU coun­tries are plac­ing a spe­cial empha­sis on elec­tric mobil­i­ty in their efforts to meet the Euro­pean Green Deal’s cli­mate goals spec­i­fied in late 2019.

“By 2030, Europe alone will need twenty Gigafactories to meet local needs.” Frank Seuster, Partner at Porsche Consulting, expert in the fields of product and technology

Elec­tric cars gen­er­al­ly have bat­tery sizes of 50 to 100 kilo­watt-hours. By 2030, bat­tery pro­duc­tion capac­i­ties will have to exceed 1,000 gigawatt-hours to meet the needs of Euro­pean car­mak­ers. The indus­try, there­fore, faces the dual chal­lenge of reduc­ing its costs while build­ing large-scale bat­tery fac­to­ries in Europe. These gigafac­to­ries will have to oper­ate eco­nom­i­cal­ly and sus­tain­ably. That is the only way to ensure suf­fi­cient avail­abil­i­ty of elec­tric cars in every price class.

“World­wide demand for trac­tion bat­ter­ies is like­ly to increase more than ten­fold by 2030,” says Frank Seuster, Part­ner for Prod­uct and Tech­nol­o­gy at Porsche Con­sult­ing, in explain­ing the cal­cu­la­tions by his team of experts. “By 2030, Europe alone will need twen­ty gigafac­to­ries to meet local needs.” Which bat­tery tech­nolo­gies are pro­duced, which pro­duc­tion process­es are used, and which site loca­tions are cho­sen will be cru­cial fac­tors for the busi­ness suc­cess of these com­pa­nies and their investors. Accord­ing to Seuster, more than 50 bil­lion euros will need to be invest­ed Europe-wide by 2030 for bat­tery cell pro­duc­tion alone.

Choosing the right battery technology  

From the customer’s per­spec­tive, elec­tric cars have to per­form well com­pared to con­ven­tion­al car mod­els with com­bus­tion engines. Many elec­tric cars offer advan­tages in terms of accel­er­a­tion and dri­ving com­fort. How­ev­er, most cus­tomers are cur­rent­ly inter­est­ed pri­mar­i­ly in being able to drive long dis­tances with­out breaks, i.e., in hav­ing to stop less often at charg­ing sta­tions. One solu­tion is to have more pow­er­ful bat­ter­ies with high­er ener­gy den­si­ties. A bat­tery of the same dimen­sions would then have a greater range. Devel­op­ment work is there­fore con­cen­trat­ing on increas­ing the ener­gy but not the space. On top of that, bat­ter­ies have to cost less. Both of these goals can be met with the help of tech­no­log­i­cal advances.

Pro­duc­ers and sup­pli­ers are there­fore devot­ing inten­sive efforts to improv­ing extant lithi­um-ion tech­nolo­gies. Over the past two decades, they have man­aged to lower bat­tery costs by around 80 per­cent. Step-by-step replace­ment of expen­sive cobalt with nick­el has played a promi­nent role here. Both of these met­als bind lithi­um in the lay­ered struc­ture of cath­odes. The high­er per­cent­age of nick­el has also helped to triple the ener­gy density—which is respon­si­ble for the battery’s size and weight—within the same peri­od of time. To fur­ther increase the range, a num­ber of pro­duc­ers are study­ing how to enhance the chem­istry of nick­el-rich cells, with a spe­cial empha­sis on safe­ty and life span.

“For short-distance travel, lithium iron phosphate cells can accelerate the transition to electric mobility.” Lukas Mauler, Manager at Porsche Consulting, expert on battery technologies and the battery market

“Ener­gy den­si­ties can be fur­ther improved by rais­ing the per­cent­age of sil­i­con in the anode. Research is focus­ing on ensur­ing a suf­fi­cient­ly long ser­vice life,” says Lukas Mauler, Man­ag­er at Porsche Con­sult­ing and an expert in the field of bat­tery tech­nolo­gies and the mar­kets for these high-pri­or­i­ty prod­ucts. Mauler notes that depend­ing on the vehi­cle seg­ment, it can also make sense to use other chem­i­cal com­po­si­tions of lithi­um-ion cells. “For short-dis­tance trav­el, lithi­um iron phos­phate cells can accel­er­ate the tran­si­tion to elec­tric mobil­i­ty because the cost ben­e­fits of this tech­nol­o­gy appeal to car buy­ers with a strong inter­est in price,” he sug­gests, adding that long ser­vice lives are also attrac­tive for com­mer­cial vehi­cles and pur­pos­es.

Prospec­tive Gigafac­to­ry builders should there­fore choose the right future-ori­ent­ed tech­nol­o­gy for the vehi­cle sec­tor they expect to serve. Mauler notes it is essen­tial for the prod­uct range to be flex­i­ble in order to address dynam­ic devel­op­ments on the mar­ket. This also applies to the post-lithi­um-ion tech­nolo­gies of the future such as solid-state bat­ter­ies. Pro­duc­tion of this tech­nol­o­gy is expect­ed to start with­in the next ten years.

Efficient and flexible production processes

The pro­duc­tion spaces at Gigafactories—where elec­trodes are man­u­fac­tured in mul­ti­ple steps, mount­ed in cell form, and acti­vat­ed for later use—are under­go­ing dynam­ic devel­op­ment on a con­tin­u­ous basis. Con­sid­er­able cap­i­tal is need­ed to set up this type of fac­to­ry: between two and four bil­lion euros depend­ing on antic­i­pat­ed annu­al pro­duc­tion fig­ures. Accord­ing to the cal­cu­la­tions in Porsche Consulting’s tech­nol­o­gy-based cost model, the high­est sin­gle invest­ments go to machin­ery and plants and account for around 10 per­cent of bat­tery costs.

“Eliminating solvents that harm the environment means you can also eliminate the need for costly drying periods that require high levels of energy.” Dr. Fabian Duffner, Senior Manager at Porsche Consulting, expert in battery production and battery cost analysis

Oper­a­tions at exist­ing Gigafac­to­ries have been made more eco­nom­i­cal by speed­ing up process­es and there­by low­er­ing pro­duc­tion costs. Addi­tion­al effects are expect­ed in the near future. New process tech­nolo­gies like dry-coat­ing the elec­trodes promise fur­ther reduc­tions in cost. “Elim­i­nat­ing sol­vents that harm the envi­ron­ment means you can also elim­i­nate the need for cost­ly dry­ing peri­ods that require high lev­els of ener­gy,” says Dr. Fabi­an Duffn­er, Senior Man­ag­er at Porsche Con­sult­ing and the expert team’s spe­cial­ist in pro­duc­tion and costs. “This has a valu­able dou­ble effect because you not only lower costs but also improve vehi­cle life-cycle assess­ments.”

All man­u­fac­tur­ing process­es can be made more effi­cient and sus­tain­able by avoid­ing or min­i­miz­ing rejects. That also applies to the defect rate in bat­tery fac­to­ries. The solu­tion con­sists of early warn­ing sys­tems that pre­vent defects from aris­ing in the first place. Smart fac­to­ry strate­gies that dig­i­tal­ly con­nect all the machines and plants can help by enabling reli­able prog­nos­tics. If pro­duc­ers incor­po­rate these types of enhanced process­es in the ini­tial plan­ning stages for their Gigafac­to­ries and com­bine them with inno­va­tions, they can help achieve afford­able and envi­ron­men­tal­ly-friend­ly elec­tric mobil­i­ty, reduce invest­ment costs, and remain com­pet­i­tive over the long term. Porsche Con­sult­ing advised LG Chem, a South Kore­an bat­tery maker and leader on the glob­al mar­ket, on set­ting up its bat­tery fac­to­ry in Poland. Kyong Deuk Jeong, Pres­i­dent of LG Chem Wrocław Ener­gy, report­ed that “with the main­te­nance approach of Porsche Con­sult­ing, we are able to increase our out­put by 14 per­cent.”

Advantages and disadvantages of individual sites

The cell fac­to­ries of the future will be among the largest pro­duc­tion build­ings in the world. The respec­tive com­pa­nies favor dif­fer­ent sites for their invest­ments. North­volt has picked Swe­den, Volk­swa­gen has cho­sen Ger­many, and LG Chem has opted for Poland. Prox­im­i­ty to the auto­mo­tive pro­duc­tion facil­i­ties scat­tered across the EU is not the only fac­tor to play a role. Oth­ers include the avail­abil­i­ty of skilled work­ers, the antic­i­pat­ed costs for ener­gy and per­son­nel, and the avail­abil­i­ty of renew­able “green” power.

The com­pre­hen­sive site com­par­i­son by Porsche Con­sult­ing has shown that some EU coun­tries do espe­cial­ly well in meet­ing two of these cri­te­ria but no sin­gle coun­try cur­rent­ly leads in all three. Man­u­fac­tur­ers, there­fore, select their sites to fit their mar­ket posi­tions and strate­gies. “New­com­ers pre­fer coun­tries with a suf­fi­cient pool of bat­tery experts in order to catch up in terms of exper­tise, where­as estab­lished mar­ket lead­ers opt-in part for cost ben­e­fits in wages and ener­gy,” says Dr. Fabi­an Duffn­er. Cell mak­ers are also using renew­able power for their Gigafac­to­ries as a way to stand out, which gives them a fur­ther com­pet­i­tive advan­tage. “In addi­tion to zero-emis­sion dri­ving, cus­tomers and the pub­lic in gen­er­al care about the resources con­sumed in their vehicle’s pro­duc­tion process and bat­ter­ies make up a large share of that,” explains Dr. Duffn­er.

Forecasting models help set the course

Can Gigafac­to­ries ful­fill their cru­cial role in achiev­ing cli­mate-neu­tral mobil­i­ty and there­by soon become giga-busi­ness­es? Out­stand­ing oppor­tu­ni­ties do in fact await far­sight­ed and strate­gi­cal­ly mind­ed investors and man­u­fac­tur­ers. “Dynam­ic devel­op­ments in bat­tery tech­nol­o­gy are gen­er­at­ing enor­mous mar­ket poten­tial on a trans-indus­try basis. Not only the auto­mo­tive indus­try but also and espe­cial­ly the machin­ery and plant engi­neer­ing sec­tors can ben­e­fit from entire­ly new pos­si­bil­i­ties,” says expert Lukas Mauler. In order to assess inno­va­tions on an over­all basis, the Porsche con­sul­tants col­lab­o­rate with a net­work of indus­try experts and researchers. Togeth­er the spe­cial­ists use reli­able fore­cast­ing mod­els devel­oped specif­i­cal­ly for this pur­pose in order to eval­u­ate mar­ket poten­tial. “If the indus­try choos­es the right course now in build­ing bat­tery fac­to­ries, cars with elec­tric dri­ves will cost less than those with com­bus­tion engines by 2025,” pre­dicts Mauler on the basis of his lat­est cal­cu­la­tions.

How battery costs can be cut in half

Porsche Consulting forecasts how innovations and market developments will influence battery costs. The company uses its own assessment models – which incorporate technical and commercial factors – to derive the level of future costs. If cell-level battery costs determined in a case study are currently at 95 euros per kilowatt-hour, by 2030 they can be cut to 55 euros by optimizing the cells and manufacturing processes and by selecting the right production site and size.

Cell costs can be optimized by reducing the amount of materials used. One promising strategy consists of progressively reducing the share of costly cobalt and replacing it with nickel and manganese. This gives the cells a more favorable chemical composition. Higher shares of silicon increase the cell energy content and thereby lead to more efficient use of other battery materials. In both cases, researchers are still working intensively on achieving sufficiently long battery service lives. Costs can also be lowered by improving cell and electrode design.

Innovations in production processes help to further reduce cell costs. New electrode dry-coating processes do not require environmentally harmful solvents, which also eliminates the need for the energy-intensive and expensive drying steps that account for a large part of the factory’s energy costs. To reduce costly rejects, smart factory approaches help to identify and eliminate their causes before they arise. Higher process speeds in numerous production steps also help to make better use of expensive machinery and plants.

In addition, battery costs can be lowered by utilizing site-specific advantages. Locations with low energy, personnel, and construction costs offer potential here. However, each company needs to weigh this potential against further criteria like a sustainable energy supply and the availability of skilled workers. As the demand for batteries rises, manufacturers gain more freedom to scale their factories in intelligent ways and to achieve economies of scale. Higher production capacities enable them to coordinate the manufacturing process in more favorable ways, which in turn allows more efficient employment of the requisite high investment costs.

10 important questions about batteries

1. Are there enough raw materials to produce the batteries for all electric cars?

In principle, the world has sufficient reserves of raw materials like lithium, nickel, and cobalt. One challenge lies in how soon supply chains can be set up to meet manufacturers’ and customers’ sustainability criteria. Car makers are signing long-term supply contracts with certified raw material companies. Direct investment in raw material mines is another strategic option to hedge both volume and price risks. A large share of future raw material needs will be met by processes that recover used materials and return them to circulation.

2. How can we reuse battery components?

Batteries contain large amounts of valuable reusable metals. The industry is trying to establish a closed-loop to reduce the amount of newly mined materials. Carmakers are working with raw material suppliers on pyro- and hydrometallurgical processes to enable economic recovery of high shares of the cobalt and nickel. In connection with the European Battery Alliance, the EU also proposed a new regulation in December 2020 with binding specifications for recycling batteries. As of 2026, 90 percent of the cobalt, nickel, and copper and 35 percent of the lithium have to be recovered from used traction batteries. As of 2030 these values will rise to 95 and 70 percent, respectively. The first pilot recycling plants in Europe have already started operating, such as the Volkswagen facility in the northern German city of Salzgitter. It will be processing around 3,600 car batteries a year, with higher volumes expected as of 2025 when the number of old batteries rises.

3. How often do electric cars need new batteries?

As a rule of thumb, a traction battery should still have at least 70 percent of its original capacity after 1,000 full cycles of charge and use. For conventional electric cars that should correspond to over 200,000 kilometers, which is roughly the service life of a combustion engine. Cars with especially stable lithium iron phosphate batteries can drive 500,000 or more kilometers. Leading car makers are currently guaranteeing 160,000 kilometers or offering battery leasing models.

4. What is meant by a battery’s “second life”?

There are a number of models by which batteries can be put to a second use. When batteries drop below 70 percent of their original capacity, comparatively healthy cells can be used in other vehicles as replacement parts. They can also start a second life in stationary applications for purposes such as stabilizing power grids or storing renewable energy temporarily for those days with little wind or sun. Batteries can therefore help achieve not only the mobility transition but also the energy transition.

5. What role does the battery play in an electric car’s life-cycle assessment?

Batteries are responsible for more than half the CO₂ emissions in producing electric vehicles. A battery-powered car can only make up for this “greenhouse-gas debt” compared to conventional cars during its period of use. To do so, an electric car needs to drive 40,000 kilometers charged by renewable energy, according to a study by the ADAC (Germany's largest automobile association). If the battery was produced with green power, its debt is considerably smaller and can be made up sooner.

6. How long does it take to charge a battery?

Several factors play a role here, including the charging station’s output current and speed, the car’s level of technology, and the amount of charge left in the battery. If an HPC (high-power charging) station is available, a Porsche Taycan battery for example can be charged from 5 to 80 percent in less than half an hour. Equipment provided for home use enables cars to be charged overnight.

7. Where can batteries be charged?

In addition to charging at home and at low-power public stations, as of spring 2021 there are already around 3,500 public HPC (high-power charging) stations in Europe. This network will be rapidly expanded over the coming years. Volkswagen is working with Ionity and other partners to raise the number of European HPC stations to 18,000 by 2025.

8. Does Europe have sufficient technical expertise to produce batteries?

Asian manufacturers have led the way in industrialized mass battery production over recent decades and therefore have a head start in expertise. The industry in Europe is working on catching up. Nearly all European carmakers have launched battery development centers. Some, including Volkswagen AG and Groupe PSA in France, are planning their own battery cell production facilities. Europe’s strong machine and equipment sector is also helping to build expertise. The Bühler Group, for example, is a leader in the mixing technology for battery materials, and Manz AG offers turnkey solutions for battery cell production.

9. Which battery technology will come out ahead?

All the major manufacturers are currently relying on lithium-ion technology. Today, this technology is the one best able to meet customer demands. Further improvements are expected in the future from post-lithium-ion technologies. These include solid-state, lithium-air, and lithium-sulfur batteries, although all are presently still in the research stage. Industrial production of solid-state batteries for certain vehicle sectors is expected to get underway within the next ten years.

10. Where can batteries be used apart from cars?

Dynamic advances in battery technology are also making electrification more attractive in other sectors. In addition to cars and stationary energy storage, research is focusing on agriculture, construction, trains without overhead lines, shipping, and aviation. The technical and commercial demands placed on batteries differ greatly for different products. Battery use will therefore depend on how the technology progresses and will become useful at different points in time.

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Text first published in Porsche Consulting Magazine.