Electric car and energy storage maker Tesla (TSLA) announced back in April that it would soon have million mile car batteries. This like many Tesla claims was met with skepticism by some and ignored by others. A recently published paper reporting Tesla sponsored battery research by Jeff Dahn and his team at Dalhousie University in Halifax, Nova Scotia, suggest that this time Tesla's claims may be real. Investors long or short Tesla shares as well as investors in the wider electric car and energy storage sectors should look closely at this work and what its publication implies.
As a practical matter, the batteries Tesla is currently using in its electric cars appear to be fully adequate in terms of life for consumer passenger cars. A battery good for 500 charge/discharge cycles and delivering a range of 300 miles per charge will run an electric car for 150,000 miles without replacement - and if many partial charge cycles rather than repetitive full discharge cycles are used, for a much greater distance. Commercial vehicles with higher utilization are a different matter.
One of the "digs" made about Tesla's million mile battery claim was that consumer electric cars generally are not used for a million miles so having a battery that will outlast the car by a wide margin would be a waste and of no real competitive advantage. Semi trucks, taxis, buses and other commercial vehicles on the other hand do see million mile careers and for such vehicles a long life battery is attractive. A similar argument applies to grid storage applications. In both commercial vehicles and grid energy storage, the full capacity of the battery tends to be cycled - not just the 10-20% daily cycling seen in typical urban private BEVs where full battery capacity is used only for occasional long trips. What is more, in a commercial application, either vehicular or energy storage the economics drive cycling the battery as frequently and as fully as possible to maximize the battery's economic utility.
What an exceptionally long life (high cycle life) battery does is to improve dramatically the economics of commercial vehicle and energy storage battery applications. An electric semi truck offers excellent operating economics due to the much lower cost of electricity compared to diesel fuel. This economic advantage disappears however if the battery has to be replaced. The same thing applies to a robo-taxi, a bus or a large grid storage battery. A long life battery, a battery capable of many thousands of full charge / discharge cycles makes these commercial applications economically compelling.
Before looking at a couple examples it is important to understand what is and what is not being reported from this Tesla sponsored battery research. Jeff Dahn and others involved in this work have presented a very specific and detailed recipe for making NMC532 high nickel content lithium cells with exceptional cycle and shelf life. The following figure from the above linked paper compares the cells newly reported by Dahn et.al. with data from commercially available NMC532 cells. These new cells have dramatically better cycle life, even under very severe cycling conditions and elevated temperature.
A very detailed description of the chemistry and manufacture is included, so that according to the paper, these cells can be reproduced by other researchers (and battery companies) and serve as a benchmark. Essentially Dahn (and Tesla) are throwing down the gauntlet and saying to the industry, "If you can't do at least this well, you probably should not bother playing the game." At the same time, the NMC532 cathode material is not cutting edge in that it still contains substantial amounts of cobalt which carmakers are working hard to eliminate for reasons of cost and supply chain reliability. It is reasonable to assume that Tesla's internal work is more advanced and focused on a lower or even zero cobalt formulation of cathode materials.
Now, let's consider what the cycle life demonstrated by this Tesla sponsored battery work implies for real-world applications. From the figure, these advanced batteries can be charged from 0% to 100% state of charge, then discharged to 0% state of charge, even at 40C (104F) 3,500 times and still retain 90% of original capacity.
A semi truck with this type of battery and 300 mile range per charge could be operated 100,000 miles a year in a desert climate, every year for a decade (1,000,000 miles) and still retain 90% of initial battery capacity, even if the battery were cycled from 0% to 100% to 0% on every charge cycle. Of course cycling the battery less than 100% on each cycle would allow the battery to last even longer (see figure above). Such a battery will essentially last the entire service life of typical semi truck. Dahn and Tesla have just demonstrated the technology for the million-mile battery claimed by Tesla back in April.
Now consider the problem of grid storage. A grid storage facility can expect to achieve better temperature control than can a moving vehicle. So, again referring to the above figure, cycle life of these new cells is at least double, even under extreme cycling conditions if the temperature is limited to 20C (68F). A grid storage facility operating with lower cell temperature could cycle the energy storage battery from 0% to 100% to 0% every day for 20 years and still have 90% or so battery capacity available. To put this in context, for a grid storage battery costing $150/kWh installed and cycled 7,300 times (365 days a year for 20 years), the battery amortization per kWh is $150 / 7,300 = $0.0205/kWh.
If the "battery cost" of storing electricity is just a couple of cents per kWh stored, the possibilities for harvesting cheap wholesale electricity at times of over capacity for later use or sale are tremendous. The following screen-shot shows the electricity distribution nodes in the CAISO (California Independent System Operator) system where (blue circles) the 15-minute-ahead electricity price is negative for wholesale customers. This is a typical afternoon situation [9/10/2019 @ 2 pm]. At the Anaheim node, a wholesale customer is actually paid over 8 cents per kWh to take energy.
For a "bigger picture", here are all the CAISO distribution nodes with wholesale price 3 cents per kWh or less. This covers almost all CAISO distribution and electricity supply across much of the western US.
Let's consider for a moment a Tesla "UltraCharger" station for recharging Tesla electric semi trucks. With a set of long-life grid storage batteries, the station can harvest low cost energy from the grid when prices are low or negative. In some cases a cleverly sited station will actually be paid to take energy. Even a randomly sited station should be able to time its taking of energy from the grid into storage so as to pay less than 3 cents per kWh for grid energy. Even if all the energy the station supplies to Tesla semi-trucks passes through the grid storage system, Tesla's cost for energy delivered to customer trucks will be a nickel a kWh (and much less in many cases) before station operating costs. Tesla has promised to recharge customers' Tesla semi-trucks for 7 cents a kWh, something that starts to look financially viable with very long life grid storage batteries.
Long-life batteries with great cycle life will enable commercial electric vehicles and economically compelling grid storage applications and Tesla knows how to make them. So what? Didn't Jeff Dahn just spill the beans and tell every Tesla competitor out there exactly how to make these batteries, too? What does publication of this research - complete with the detailed "how to" recipe - say about the state of Tesla's battery technology.
First off this work involves NMC532, a cathode material with a 5:3:2 ratio of nickel, manganese and cobalt. These are not cutting-edge cells from the standpoint of cobalt use and going forward any serious player in electric cars/trucks or grid storage will be looking for a much lower cobalt solution. Many players are looking to NMC811 which contains half the cobalt and Tesla has said that their current NCA cathode material uses less cobalt than even NMC811. No serious player is going to go after Tesla using these NMC532 cells. The cells and the method for making them will be used largely for the purpose Jeff Dahn and his colleagues put forth in their paper - as a benchmark for others developing more advanced cells. The "trick" for Tesla competitors (and perhaps for Tesla, too) will be to make cells as good as those described, but with cathode formulations using much less, or preferably no cobalt.
An important question for investors is what will it take for competitors (or even Tesla) to achieve batteries with these excellent long-life characteristics, and do so with minimum/no cobalt and at competitive cost? To answer this, we need to look at what innovation is disclosed in connection with these exceptional batteries. Presumably it will be replication of the key innovation, but with low or cobalt free cathode formulations, at low manufacturing cost that will yield competitive lithium batteries for vehicles and for grid storage.
The key innovation disclosed in this work is cathode material with particles each comprised of a single crystal and covered with a nano-scale protective coating. These cathode particles are of small (2-3 micron) size and each is a single crystal of LiNi0.5Mn0.3Co0.2O2 with a titanium-based nano-coating. According to the study authors, it is the single crystal structure of the individual cathode material particles that is critical because single crystal cathode particles resist cracking under repeated full charge/discharge cycles far better than do particles consisting of multiple, randomly oriented crystal grains. One of the big challenges for all the players will be creating single crystal cathode powder with consistent particle size and evenly applied nano-scale coatings in high volumes and at low cost.
It is in the manufacture of these precision, single crystal cathode powders that I believe an exceptional investor opportunity lies. But first an important note:
Disclosure: I am not a professional investment advisor and I am currently long Nano One (NNOMF), the company whose involvement I am about to relate. Nano One is a small-cap company with shares currently priced at about $1 and fewer than 70 million shares outstanding. Investment in Nano One or any similarly small company that is currently not profitable and with very small revenues is a risky proposition. Investors should not invest in Nano One or any very small-cap company funds that they are not willing to put fully at risk.
Manufacturing cathode powder with precision sized, single crystal, coated particles is a far from trivial problem. And huge amounts of these cathode materials will be needed. For instance, for Tesla/Panasonic to make 35GWh of cells at the Nevada GigaFactory will require something like 50,000 tonnes/year of cathode powder similar to the weight of the WWII battleship Missouri. It is one thing to make such powders in the lab, or by complex grinding-sizing-roasting-grinding-sizing-roasting... processes as is current industry practice. Making huge amounts of these powders economically is going to be a challenge and the manufacturing economics will really, really matter. The reason most cathode powders are not single crystal is the cost of processing. It's cheaper to roast and grind fewer times and live with polycrystalline cathode powder - even if the cells don't last as long.
There is a small company, Nano One, that is focused on developing low-cost, precision cathode material processing. Nano One's business model is to license its process to major industry players. I believe this combination of having a (potentially) silver-bullet process and licensing the process rather than manufacturing cathode material at scale offers exceptional leverage for investors because quite small capital investment by Nano One and hence by Nano One investors will potentially yield significant, long-term royalty income from the manufacture of vast quantities of cathode material.
The Nano One process works for most lithium ion cathode materials and the company is currently working with China's Pulead (supplier of 15% of world LFP cathode material) to scale the Nano One process for LFP. The company is also working with VW (OTCPK:VWAGY) to again scale its process for a different but undisclosed cathode material. Nano One states it is also working with several other unnamed auto and battery / battery materials companies.
What this should be telling investors is that Tesla competitors have at least one process technology source for making precision, single crystal cathode material and that companies like VW will be very much "in the game" when it comes to battery development competitive with Tesla. Investors should also appreciate that long-range semi trucks, robo-taxis and at-scale grid storage are all on the way now that we have a demonstrated path to the required long-life batteries.
Information from Tesla sponsored battery research has been publicly disclosed that shows both that exceptionally long-life lithium batteries can be made, and how others can make such batteries. A reasonable presumption is that Tesla has (possibly, but not necessarily with partner Panasonic) this kind of long-life battery technology in hand for use in, among other things, its coming semi-trucks.
Investors should also realize that the "how to" for long life batteries has just been given out to Tesla competitors. There is however a catch. The cells and manufacturing process described is for a cathode material with substantial cobalt content and these specific cells will probably not be competitive in the vehicle and grid storage market going forward due to the cobalt content. Realistic competitors (and Tesla itself) will need to replicate this work with cathode formulations having much less or no cobalt to remain competitive.
Small cathode process development company Nano One is interesting both as an investment opportunity by itself and also as indication that at least some Tesla competitors (VW and its platform partner Ford (F) in particular) are suiting up with key cathode making technology to compete in this arena.
Disclosure: I am/we are long NNOMF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: These writings about the technical aspects of Tesla, electric cars, components, supply chain and the like are intended to stimulate awareness and discussion of these issues. Investors should view my work in this light and seek other competent technical advice on the subject issues before making investment decisions.
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