The race to develop battery technology is not simply a question of finding ways to make electric vehicles easier to charge and more convenient to drive over long distances. Those are just factors in a complex game of global industrial competition and co-operation. The key issue is the location of one of the world’s most valuable manufacturing sectors: vehicle construction.
EVs are coming. There are some 2.5m on the roads worldwide, and the International Energy Agency predicts that number will rise to between 40m and 70m by 2025, with the prospect of subsequent strong global growth driven by the combination of regulation of traditional combustion engine vehicle use and falling battery costs.
Tesla of the US gets most of the publicity for its smart models and its financial problems, but the global leader is clearly China, which is home to three-quarters of the current fleet.
With Beijing’s exceptional ability to mandate the type of vehicles drivers can use, that figure could rise dramatically over the next 10 years. While France and the UK tinker with targets for 2040, it is possible to see China requiring all new light vehicles to be powered by electricity by 2030. That would help the country improve urban air quality and energy security, which is jeopardised by sharply increasing oil imports.
EV batteries are built in vast gigafactories. China and Japan lead in the field and even Tesla’s operations rely on technology from Japan’s Panasonic. The plants need to be close to the main centres of vehicle production and the race now is to host the gigafactories that will serve the growing market. The chosen locations will shape the geography of the auto sector for decades to come.
Those in the car industry may have mixed feelings about the transition to EVs, but they are an unsentimental bunch. All the big automakers are beginning to produce models catering for different segments of the market. They are focused on the economics of supplying the demanding consumers of Europe and North America who want convenience, style and performance at reasonable cost. They will use Chinese and Japanese technology to produce the batteries because the cost of creating new alternatives is too high.
The question of where to build the vehicles, however, remains open but will in large part be determined by where the batteries are made; the two processes are likely to be located close to one another.
The commercial logic is to locate manufacturing in areas where demand is strong and supported by policy and regulatory incentives for consumers to shift from internal combustion engine vehicles. A skilled workforce is needed — as Tesla has found, the production of EVs is not simple. Land has to be available; a gigafactory typically requires a site covering many acres with room for expansion and excellent access routes.
Perhaps the most important requirement is an adjacent research base. A deep understanding of the technology involved is essential for the design of the power electronics and systems management of EVs and for the charging system, including the link between vehicle and grid.
Not many countries can meet this last requirement. Beyond the US and China, the main options are Germany, the UK and possibly France. Japan and India will try to compete with China for the Asian market.
As EVs penetrate the market, production of batteries will grow and their use will extend beyond light vehicles to other parts of the transport sector and the energy business, such as the power grid.
Batteries are set to be one of the great industries of the 21st century, with a host of small companies handling some of the technical challenges around the primary product. The extended supply chain will involve a large number of jobs.
Economics of scale and concentration suggest that no more than a handful of places will have gigafactories, and the outcome of the competition to house them will depend on a combination of public policy and private initiative.
The landscape of the battery industry is still evolving. The US and other countries may feel compelled to develop their own production technologies to limit Asian dominance of the market.
The UK government may be too distracted by Brexit to pursue a long-term industrial strategy that creates a market and provides the skills, land and regulatory changes to attract investors. And Germany may not yet be ready to accept that the technology of the internal combustion engine, which goes back to Karl Benz and Gottlieb Daimler, is being superseded.
The stakes are very high — billions in investment over decades and tens of thousands of skilled jobs. In the rapidly changing energy world the prospect of securing a place at the heart of the new battery market is a glittering prize. Failure to do so will represent a serious loss of industrial strength.