Lithium-Ion Battery Oversupply to Drive Prices Down Around 20%

Post date: Aug 31, 2010 11:57:19 PM

by Michael Graham Richard, Ottawa, Canada

Photo: GM

A Significant Drop Predicted

It's all about supply and demand: According to Hideo Takeshita, an analyst at the Institute of Information Technology Ltd. in Tokyo, the price of lithium-ion batteries could drop by about 19% in 2010, while another analyst, Shiro Mikoshiba of Nomura Holdings, said that the worsening oversupply may push prices down as much as 25%. While it's always important to take market predictions with a grain of salt, if lithium-ion battery prices drop by anywhere near 1/5th, it's going to have a positive impact on theelectrification of transportation. Read on for more details about the price war.

Photo: GM

The price drops highlight how battery makers in Japan and South Korea, accounting for 75 percent of global production, may be sacrificing profit for market share as automobiles with no gas tanks are projected to help triple sales of lithium-ion cells in six years. Cheaper batteries may lead to lower costs at carmakers such as Nissan Motor Co., whose all-electric $32,780 Leaf sedan is scheduled to go on sale in November. (source)

From Boom to Bust

This isn't too different from what recently happened with the supply of silicon for solar panels. For a while the supply was constrained, which made prices go up. This encouraged more producers to join that market because profit margins were high, but after a while all these new entrants created a glut and prices went down. The least efficient companies got out of that market, leaving behind lower prices and more efficient producers.

The big winners were consumers, with access to cheaper solar panels and a faster rate of innovation because of the increased competition. I wouldn't be surprised if the same happened with lithium-ion batteries. These booms in various industry sectors can be bad for the losing companies and their shareholders, but they are usually good for consumers.

Via Bloomberg