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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Europe Joins Race For Cheaper Batteries With New Gigafactory

Gigafactory

Everybody is making batteries these days, it seems. The EV revolution is coming, and as none other than Glencore’s Ivan Glasenberg said last week, it’s coming faster than we had expected.

The latest news confirming this came from Germany. At the start of this week, Daimler broke ground on a US$559-million (500-million euro) battery factory in Kamenz, Germany, claiming it will be one of the largest and most modern battery factories in Europe.

The carmaking giant has made clear its intentions for superfast growth in the EV segment. In March this year, at the annual shareholders’ meeting, Daimler announced plans to speed up its EV expansion and have a lineup of 10 all-electric models by 2022. The acceleration of the program probably had something to do with the fact that the carmaker could not hit its own emission reduction targets for 2016, in spite of fitting its fleet with more energy-efficient engines. Yet more than that, it’s a clear acknowledgement of the revolution that Glasenberg was talking about.

Now, the EV business will require investments of US$11 billion. Another US$1 billion is slated to be used for batteries—the new gigafactory and the existing battery-making division, ACCUmotive. But the aim is not to just have enough batteries to fit on all new electric cars, the aim is to make them affordable.

Bloomberg’s Caroline Hyde reported earlier this week that Daimler’s gigafactory is the first step in a direction that Europe has been slow to explore. The continent only accounts for 2.5 percent of the battery-making market, and this has to change in order for Europeans to be able to take advantage of not just e-cars, but new energy storage systems. Energy storage systems are big in Europe, as they are elsewhere, with gigafactories reducing battery costs and ultimately the prices of the entire system, allowing utilities to store energy produced from renewable sources, making them much more commercially viable. Related: What Is Behind The Surge Of Russian Oil Exports To India?

The implications of these cost reductions are essential for cars as well: if the cost of a battery for an electric car falls by 40 percent, which gigafactories could achieve by 2021, according to Bloomberg New Energy Finance, then e-cars will become much more affordable since the battery cost represents a large chunk of the price tag. In fact, electric cars could become more affordable than the ones powered by internal combustion engines.

Affordable cars and affordable energy storage systems are the two pillars of the future energy world, and it looks like the construction of these pillars is accelerating thanks to the constantly falling battery prices.

In Europe, e-car and hybrid sales in 2016 reached 222,200, 14 percent more than in 2015. In the U.S., all-electric and hybrid car sales hit 159,000 last year, a 38-percent improvement on 2015. Bloomberg forecasts that plug-in cars will represent 35 percent of all new car sales in 2040, with growth starting slowly over the next few years and intensifying from the mid-2020s onwards. It’s safe to say that cheap and reliable batteries will be the driver behind this growth.

The low cost has been getting a lot of praise, at the expense of reliability, however, and reliability is no less important. Lithium ion batteries can be overcharged (which can kill them) and they can’t work in extreme temperatures. Hopefully, battery developers will focus equally on reliability and cost as they work on the batteries that will power the cheap electric cars and energy storage systems of the near future.

By Irina Slav for Oilprice.com

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