Two major US suppliers of lithium-ion batteries, the power source used in electric vehicles (EV), are feeling the sting of slow EV sales. With full electric cars generating less than 1% of total vehicle sales, Texas-based Valence Technology saw its shares sink yesterday after filing a voluntary petition for Chapter 11 bankruptcy protection last week. Meanwhile, Massachusetts-based rival A123 Systems reportedly has enough cash to keep it operating for about five months and is trying to raise about $40 million to keep going.
In fiscal 2012 Valence saw its revenue drop to $44.4 million from $45.9 million in 2011. It also reported an operating loss of $9.6 million in 2012 compared to $9 million in 2011. Debt levels reached $82.6 million at year end March 31.
So why are these lithium-ion battery makers teetering on the brink? One key factor is that the cost of lithium-ion batteries used in EVs is high, which also means that the cost of the finished vehicle passed on to the consumer is higher than a standard car. As many analysts suggest, the cost of lithium-ion batteries will need to come down significantly before the mass market will adopt the cars on a larger scale.
One day before Valence filed for Chapter 11, a Reuters article cited a McKinsey & Company study that predicts that the cost of lithium-ion batteries used in EVs could drop by more than 70% by 2025 due to the rising cost of oil, stricter fuel economy regulations, and technology borrowed from the likes of Apple. This means a complete battery pack could drop from between $500 and $600 per kilowatt hour to about $200 by 2020 and $160 by 2025. This falls close to a prior US Advanced Battery Consortium prediction that the cost of lithium-ion batteries would need to reach $150/kWh for sales to pick up in the mass market.