Battery production market consolidating faster than expected

A Roland Berger study back in 2010 predicted that six to eight global players in rechargeable battery business would survive through to 2017, but the analysts say the process of consolidation is progressing quicker than expected. "Over the last two years, the industry has seen a number of new players filing for bankruptcy. And the wave of consolidation can only build in strength over the next five years as companies along the entire value chain are confronted by low profits and tight margins. The reason: enormous pressure on prices, slow market growth, strong competition and the need to keep investing in innovation," a press release by the analysts states. Roland Berger Strategy Consultants have released a report on these issues titled "Lithium-Ion batteries – The bubble bursts". The report argues that "both OEMs and battery producers will have to pursue new strategies in order to compete in a tough marketplace". "The tremendous hype around Li-Ion batteries has left us with a bubble," explains Wolfgang Bernhart, Partner at Roland Berger Strategy Consultants. "Government support and far too optimistic growth assumptions about electromobility have led to major overcapacities. What is more, the ambitious drive to achieve economies of scale as fast as possible has triggered a fierce price war between the established market players in Asia and new players in the US." The report suggests that , in many cases, producers of large-formal Li-Ion batteries will not be able to generate sufficient earnings to cover their costs of capital, because automotive OEMs have forced significantly lower prices on their battery suppliers. According to the study, OEMs will be paying between EUR 180 and 200 per kWh for large-format battery cells until 2014/2015. "In this environment, battery producers can't generate sufficient cashflow to make vital investments in new and more efficient production systems and in the R&D needed for next-generation batteries. Yet this spending is important for driving down material costs," says Wolfgang Bernhart. The report predicts that, thanks to tight margins and a lack of investment, only a few of the big suppliers of Li-Ion batteries will survive, with players from Korea and Japan probably among them.