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Will Tesla’s batteries hurt Korean battery makers?

A look at what happens when Tesla makes own batteries, sells them

Tesla Model 3 sedan (Tesla)
Tesla Model 3 sedan (Tesla)


Electric vehicle pioneer Tesla wants to make its own batteries, as they account for more than 40 percent of auto parts.

Its ambition became official after Joerg Steinbach, economy minister for the state of Brandenburg in Germany, confirmed that Tesla will manufacture powerful batteries with “completely new technology” at Gigafactory Berlin.

So here’s the question: When Tesla starts producing its own batteries and even sells them to other automakers, will it hurt Korean battery giants who together command 34.5 percent of the global electric vehicle battery market as of the first half of this year?


Game changer


First, what is this “new battery technology” Tesla has up its sleeve?

In recent years, the automaker acquired several battery companies and absorbed their key technologies, including Maxwell Technologies and its dry battery electrode coating tech.

With Maxwell’s dry coating technology, Tesla can make batteries potentially cheaper and more powerful than those from Korean firms.

The dry coating technology coats cathodes and anodes -- two of the four key components of lithium-ion batteries, along with electrolytes and separators -- with thin films.

In contrast, Korean battery makers currently use a wet coating technology, which coats cathodes and anodes with a liquid solvent.

However, this liquid material requires an extra drying procedure, translating into more time and money.

“The dry coating technology can reduce costs significantly in the manufacturing process,” said Sun Yang-kook, an energy engineering professor at Hanyang University.

“Compared to wet coating technology, dry coating technology can boost production capacity 16 times and cut costs 10 to 20 percent,” a Samsung Securities official said.

What’s more, the dry coating technology can make more powerful batteries.

The dry coating technology offers thicker layers of cathodes and anodes, which can increase the energy density of batteries, according to industry experts.

Based on the technology, Maxell aims to introduce batteries with energy density greater than 350 watt-hours per kilogram in the early 2020s.

The energy density of NCM (nickel cobalt manganese) 811 batteries, which LG Chem supplies for Tesla Model 3 sedans manufactured in China, ranges between 230 and 240 watt-hours per kilogram, according to Samsung Securities.

LG Chem said it does not have the dry coating technology to apply for mass production of batteries.


Inevitable divorce


Apparently, Tesla is preparing for a divorce from its current battery suppliers -- LG Chem, Panasonic and CATL.

So which company will take the biggest hit?

In short, Korea’s LG Chem and China’s CATL have little to worry about, while Japan’s Panasonic is in serious trouble.

Though it’s undeniable that LG Chem will lose market share when Tesla starts using its own batteries, the impact will be minimal.

According to market tracker EV Volumes and SNE Research, though LG Chem only accounted for 14 percent of Tesla’s total battery supply in the first quarter, it stood as the No. 1 battery supplier in the same period, deploying 10.5 gigawatt-hours of batteries and controlling 27.1 percent of global market share.

“LG Chem supplies batteries to almost every automaker in the world. Even if Tesla leaves LG Chem, it won’t be much of a concern as it has established a stable business portfolio,” a SNE Research official said.

LG Chem’s order backlog for batteries is currently valued at more than 150 trillion won ($126.3 billion).

An official pointed out that it’s actually Panasonic that will be in a vulnerable position.

“China’s CATL has a strong domestic market, but Japan’s Panasonic relies on Tesla more than 90 percent.”


Can’t have it both ways


Though it’s clear that Tesla can’t hurt LG Chem, one ultimate question remains.

What if Tesla starts selling its batteries, and even takes customers away from LG Chem?

Thanks to Maxwell’s dry coating technology, Tesla has the capacity to make batteries potentially cheaper and more powerful than LG Chem’s.

However, experts say it’s highly unlikely for automakers to buy Tesla’s batteries, even if they are better than LG Chem’s.

“There is a possibility that Tesla will offer its own batteries to automakers because the more batteries it makes, the cheaper they become. However, automakers won’t buy batteries from Tesla no matter how good they may be because Tesla is basically their competitor in the auto market,” said Hwang Sung-ho, a mechanical engineering professor at Sungkyunkwan University.

“If an automaker decides to develop a new EV and load it with Tesla’s batteries, then the automaker has to share and exchange so much detailed technological information with Tesla for several years for the optimization of batteries. European automakers, who can make cars better than Tesla, won’t risk exposing their know-how. Only Chinese automakers or those who don’t have a technological lead against Tesla will consider supplying batteries from the company.”

Hwang also added that there is a strategic reason Korean battery makers don’t make electric vehicles.

“Korean battery makers have sufficient ability to make their own EVs. However, the moment they do, they instantly become competitors to their clients. The change in relationship can cause disruptions in their battery sales.”


Fundamental limits


Despite its dry coating technology, experts point out that Tesla’s technological advancement is merely a structural one.

“Tesla might have succeeded in improving batteries’ energy density or efficiency with Maxwell’s dry coating technology, but unless it learns how to tweak raw materials inside batteries fundamentally, it won’t be able to increase energy density in a significant level,” said Lee Ho-geun, a professor of automotive engineering at Daeduk University.

“Tesla, which apparently has trouble assembling its cars properly, has five to 10 years to catch up to Korean EV battery makers. Even SK Innovation has a three-year gap with LG Chem.”

According to Lee, those who can innovate on the raw materials of batteries will become the true winners.

“Third-generation EVs carry 800 kilograms of batteries to travel more than 600 kilometers on a single charge to compete against internal combustion engine vehicles. However, due to the heavy weight of batteries, EVs have a hard suspension, unable to provide the same comfortable driving experience sedans provide. This is why EVs need new batteries made of new materials that can offer the same driving range but with one fourth of the weight.”

By Kim Byung-wook (kbw@heraldcorp.com)
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