Secondary Battery

2011

Jermy Alley

[CASE II:SECONDARY BATTERY ]

MBA-603-002 Meeting Time: Monday

Executive Summary

Gaining markets share is vital as demand for secondary batteries is expected to rise over the coming years. With lithium being the technology of choice, it is imperative to secure cheap and consistent sources of the metal to ensure the ability to create economical and reliable cells. This along with investments in research and development are instrumental in gaining market share. Only those producers with superior technology and manufacturing processes will be able to turn a profit. While Asian companies can rely on reputation and past success in the industry, U.S. manufacturers will depend on federal aid in an attempt to break into the market.

Lithium Supply

Globally, there are approximately 13.4 million tonnes of lithium reserves that are ready for lithium ion battery production. Nearly 80% of this supply is located in South America with nearly 50% is in Bolivia alone. With the increase in demand for lithium-ion technology, South America has been referred to as the "Middle East" for alternative energy which would make Bolivia, "Saudi Arabia." Bolivia is said to have 5.4 million tonnes of lithium in its reserves, compared to 3 million in Chile, just over 1 million in China and only 400,000 in the United States. http://tyler.blogware.com/lithium_shortage.pdf

Bolivia is sure to not let history repeat itself. Many precious metals and valuable natural resources such as gold, silver, oil and natural gas have been found and shipped out of the country. Yet Bolivia remains one of the poorest countries in the region. Moreover, many of the salt flats where the lithium is found are used by indigenous miners who do not want to see foreign companies take over their way of life.

For this reason, Bolivia is not too keen on giving up access to its lithium supplies. The President has already nationalized oil and natural gas industries and wants to closely control the lithium reserves. The problem Bolivia faces is they must get in the market as quickly as possible or else risk the rest of the world finding an alternative to lithium technology. In addition to a time constraint, Bolivia faces a lack of infrastructure and mining technology. They have managed to invested around $6 million in a pilot plant that is set to produce around 1.2 kilotonnes a year. However, one estimate states that the world demand could soar past 500 kilotonnes a year if electric cars become the norm. Obviously, Bolivia requires help from the industrialized world, but they are tenacious in wanting to retain as much of the profits for their impoverished nation as possible.

Bolivia's stubbornness hasn't stopped companies from Asia and Europe from trying, LG Chem of South Korea, Mitsubishi of Japan and Bollore of France have all placed bids for a pilot plant in the country. Having access to Bolivia's lithium reserves will be a major win for battery manufacturers with plans to dominate the market share for electric vehicle batteries. Lithium ion batteries have an advantage over nickel based batteries because they are lighter and hold a charge longer, making them more appropriate for automobiles than their nickel counterparts. Mitsubishi estimates that the demand for lithium will surpass supply in less than ten years if new sources are not located.

Unfortunately for battery manufacturers in the United States, gaining access to Bolivia's lithium reserve is even more daunting. Currently there is tension between the current Bolivian President and the United States, not to mention access to the lithium supply by the American company Lithco, was already struck down in the 90s by the previous president.

While Bolivia is the focus of the major battery manufacturers, they are not the only source for lithium. In 2010, Chile was the top producer of lithium with 7,400 tonnes, followed by Australia with 4,400 tonnes, China with 2,300 tonnes and Argentina with 2,200 tonnes. However, event with this production, some experts predict that without Bolivian lithium we could see shortages by 2015.

http://lithiuminvestingnews.com/2238/top-lithium-producers/

In conclusion, as demand for lithium increases, access to Bolivian Lithium will be increasingly important. Gaining access will be difficult, as political barriers will pose the biggest challenge. As a firm coming in to this region you have to weigh the advantages of having access to this resource to the cost of doing business in a country that has a history of not playing well with outsiders. Perhaps investing in alternative storage technologies based off of more abundant resources would make more sense. In fact Toyota is already researching Zinc-air technology in order to avoid the lithium mess all together.

LG Chem's Emergence

LG Chem, a division of LG Corp a South Korean based company, was a little late to the secondary battery market. It began its research and design sector in the battery industry in 2000, some ten years after their Japanese counterparts. Since then it has steadily increased market share by focusing primarily on small electronics, like cell phones and PDAs. Today it is among the leaders in market share by volume of cells sold and is looking to lead the electric vehicle market as well.

So how has LG Chem managed to take on Japanese producers like Samsung, Panasonic, and Sony? In 2010 amongst oversupply of secondary batteries, a price war arose, pitting manufacturers from Japan and South Korea. LG Chem and Samsung SDI the two largest producers from South Korea came out on top due to their speedy production, low cost of materials from China and the won's weakness against the yen . LG Chem was willing to lose profits in return for market share, making in nearly impossible for smaller companies to survive and forcing Japanese companies to take another look at their production process.

LG Chem is aggressively courting automobile manufacturers to produce batteries used in their electric and hybrid vehicles. In 2004 they won a contract with The United States Advanced Battery Consortium to develop battery technology that could be used in hybrid vehicles.

Large investments in research and development have also helped LG Chem. Using a proprietary system, they were able to create a