It is expensive to build cars, especially electric ones with few signs they can be profitable outside selling carbon offset credits to polluters.

As Car and Driver magazine noted, the electric vehicle (EV) market is challenged as few consumers are interested and they are expensive compared with petrol or diesel cars. Traditional car companies have struggled to develop appealing brands leaving the way for Tesla and startups from China, such as Nio, to try to take advantage.

Electric vehicle market grows

But the future seems to lie in that direction, given a predicted 21.1% compound annual growth rate over the next decade driven by the expected fall in the cost of EV batteries – a large cost in the overall car – below $100 per kilowatt hour (KWh) by 2023. This would bring cost parity with internal combustion cars.

Investors’ confidence is not limited to Tesla’s remarkable, sevenfold rise in valuation in 2020 to more than $600bn. Three leading US-listed, China-based EV companies, Nio, Li Auto and XPeng, are all making sizeable net losses but equity investors valued them at about $70bn, $26bn and $33bn, respectively, at the end of last year.

As the Financial Times said: “China’s dominance in EVs is startling. [In 2019,] its manufacturers sold just under 1.2 million EVs, accounting for more than half of global sales. But Beijing’s ambitions are writ large: it wants 25% of all car sales in the country to be EVs by 2025, up from about 5% at present.”

That is why the main Germany-based car makers, Volkswagen and Daimler, and Tesla have entered China. This has helped boost the share prices of local Chinese manufacturers and international peers even with past missteps.

Polestar, a Sino-Swedish electric car brand jointly owned by Volvo Car Group and its parent company Geely, was reportedly in talks in November to raise $500m from investors at a $6bn valuation, according to news provider Bloomberg. Polestar’s first fully electric vehicle began production in 2020 in China but ran into production issues.

Others have found the space tricky, too.

Henrik Fisker, who designed the Aston Martin DB9 and the BMW Z8, previous company, Fisker Automotive, ended in bankruptcy. His new car company, Fisker, however, has more promise and last year merged with special purpose acquisition company Spartan Energy Acquisition Corporation to raise $1bn.

The firm is concentrating on design as he told Fortune magazine in July: “A lot of the hardware in vehicles is going to end up being a commodity, and therefore we are willing to share those parts with somebody else.”

Herbert Diess, chief exectuive of Volkswagen, added in a profile: “The danger is that electric cars, which contain far fewer parts than combustion engine models, will be commoditised.”

Volkswagen, therefore, is also looking at the customer data generated by vehicles that are ever more automated and connected to develop a broader range of mobility services.

This positioning is also helping drive China-based battery maker CATL’s corporate venturing investments, such as its lead role in autonomous trucking system developer Inceptio’s $120m round in November, while Dilip Sundaram, president of Mahindra Group – Americas, said electric micro mobility would be the big tech issue of this year.

Micromobility services, such as scooters, and fleet-owned car-sharing providers are likely to see economic benefits from improved battery technology, according to PitchBook’s report, Mobility 2.0: Implications of the Shift to Direct-to-Vehicle Platforms.

Seeding the supply chain

The expected growth in demand for mass-market EVs is in turn creating demand for battery makers. Dyson abandoned its plans to manufacture an electric vehicle in Singapore in late 2019, instead turning towards energy storage. It had acquired its solid-state battery technology in 2015 with the purchase of Sakti3. Oil major Total, meanwhile, is looking to boost its storage capacity after acquiring battery company Saft in 2015 for nearly $1bn.

CATL, China’s largest EV battery maker, had a price/earnings ratio of 155 for its shares listed in Shenzhen. EV battery manufacturer Farasis Energy had a blow-out $486m IPO on Shanghai’s Star stock exchange in July to close the first day at a $4.3bn market capitalisation and with Germany-based Daimler acquiring a 3% stake.

At the end of May, peer Volkswagen said it would spend $1.2bn on a 26.47% stake in China-listed Gotion High-tech and use its lithium-iron-phosphate batteries for the German company’s locally-made, all-electric ID Cars.

Volkswagen has committed more than €30bn to electrification of its vehicles, including $300m across two rounds of development funding for US-based QuantumScape’s solid-state, lithium-metal batteries.

Two-thirds of the investment came last June, just two months before QuantumScape said it would go public in a merger with special purpose acquisition company Kensington Capital to net another $680m.

“The solid-state battery will mark a turning point for e-mobility,” according to Axel Heinrich, head of Volkswagen group research, in June.

Likewise, US-listed car maker General Motors (GM) is planning more than $27bn in electric and autonomous vehicle product spending. The company also wants to bring its Ultium battery packs costs down by 60% with twice the energy density by 2025 using a lithium metal anode.

Wade Sheffer, managing director at GM Ventures, in the Global Corporate Venturing annual survey, said the big tech issues of the year would include “enterprise service solutions that focus on significant optimisation for running the business would be helpful alongside battery tech and advanced manufacturing and materials”.

This hardware, particularly the batteries. represents opportunities if the costs can be reduced and power and longevity increased. This is the opportunity US-listed electronics maker Apple spies for its planned mass-market personal EV, which is reportedly being built around a new design that could “radically” reduce the cost of batteries and increase the vehicle’s range, according to newswire Reuters.

And compared with GCV’s previous review of the industry, others are now also looking at more investments in batteries.

Funding the battery startups

Mercom Capital Group, a clean energy communications and consulting firm,  reported in that venture funding for battery storage companies in the third quarter was up 78%, with $661m in seven deals, compared with $372m in eight deals in the April to end-June period.

Outside QuantumScape’s $200m round by Volkswagen, the increase in funding was largely due to Sweden-based Northvolt’s $600m round (backed by Volkswagen as well as truck maker Scania and wind turbine maker Vestas).

Twenty-eight corporate and independent venture investors spread funding across five categories: lithium-based batteries, sodium-based batteries, metal-hydrogen batteries, energy storage systems and thermal energy storage. Other larger deals last year included Taiwan-based solid-state lithium ceramic battery maker ProLogium Technology’s $100m in April (backed by automotive manufacturer FAW Group), $71m for power management software provider Demand Power Group (backed by Star America Capital Advisors on behalf of unnamed construction companies) in March and Highview Power’s $46m from Sumitomo Heavy Industries to develop its cryogenic energy storage system.

Announced debt and public market financing for battery storage technology companies came to $2.1bn in nine deals just in Q3 2020 as special purpose acquisition companies (SPAC) took off, compared with seven deals bringing in $560m in the first nine months 2019, according to Mercom.

The final quarter saw more dealmaking, including QuantumScape’s flotation via a SPAC, while NextEra Energy, which briefly overtook Exxon as the US’s largest energy producer by market capitalisation, acquired eIQ Mobility from Schneider Electric’s SE Ventures

While this is effectively just a rounding error compared with the more than $140bn invested into ridesharing and food-delivery businesses since 2009, according to PitchBook, it is still good news for battery startups if the funding taps are turning back on.

Rama Ayman, CEO of MMG Capital, is advising Caltech electric battery spinout Sienza on its European development plans to improve energy density at lower cost than Tesla or Panasonic’s.

It is up against a host of other startups and established battery makers, such as Northvolt, Graphenano, Skeleton, Verkor, NawaTechnologies, SVolt, Enovix, Sila Nanotechnologies, Amprius, Enevate, Sion, SolidEnergy, ProLogium Technology, Gotion, CATL, EOS, Highview Power and Form Energy.

These startups, however, are not separated hugely by difference in performance, although Skeleton Technologies recently completed a $48.3m series D round that included existing investor Harju Elekter to develop a graphene ultracapacitor following on from France-based NawaTEchnologies’ €13m in February last year for its own carbon-based supercapacitors. (Ultracapacitors, or supercapacitors as they are also known, are an energy storage technology that offers high power density, almost instant charging and discharging, high reliability and very long lifetimes.)

As a tier-one car parts supplier’s corporate venturing unit head said: “We just could not find any [battery] startups working on truly next generation technology or chemistries.”

Even so, the expected 28% cost decline in lithium-ion batteries for every cumulative doubling in units produced globally is driving EV sales, which will increase once the cost of storage energy in batteries drops below $100/KWh and reach parity with the internal combustion engine.

Rethinking the business model and technology

Rethinking electric car batteries’ primary use as transit, however, could change the dynamics. If refuelling moves from in-transit to destination EVs then the battery’s main use could be storage and powering houses or providing grid-to-consumer backup to renewable energy power sources, such as solar and wind, whose costs continue to plummet but remain uncertain in output compared with nuclear.

The business model rather than the technology becomes the defining characteristic of the shift to renewable power and electric. Elon Musk, founder of Telsa and now the world’s richest man, identified this four years ago.

But this is not certain that EV car batteries will make good, long-term energy storage systems (ESS). And as the market grows for both, specialisation might be a result.

Japan-based Panasonic, which supplies batteries to Tesla and car makers including Toyota, is working with Norway-based Norsk Hydro and Equinor on developing a lithium-ion battery business. Al Cook, Equinor business development chief, in a TechCrunch article, said: “Battery storage will play an increasingly important role in bringing energy systems to net zero emissions.”

Lithium-iron-phosphate (LFP) is poised to overtake lithium-manganese-cobalt-oxide (NMC) as the dominant stationary storage chemistry within the decade, growing from 10% of the market in 2015 to more than 30% in 2030, according to an analysis from consultants Wood Mackenzie.

Wood Mackenzie said the use of LFP would come from the Chinese EV market before breaking into the global passenger sector. The chemistry is expected to retain more than 20% of EV battery installations through 2025.

Milan Thakore, senior research analyst at Wood Mackenzie, said: “Improvements in gravimetric energy density combined with cell-to-pack technology is the key to LFP now becoming a more attractive proposition in the passenger EV space. Not only will cost and safety be a benefit, but [original equipment manufacturers] will not have to worry about issues surrounding the supply of cobalt
and nickel.”

Tesla has done more than most to drive the battery industry towards lithium-ion, which is great for electric vehicle as a fast-discharge energy supply but struggles to hold capacity for long periods or in great density.

More than 97% of the world’s energy storage is through pumped hydro – using electricity to pump water up to a reservoir where it can be stored until released to drive a turbine to create even more electricity, according to the Financial Times.

Pumped hydro is limited by geography so other storage providers focus on similar principles to lift and drop concrete blocks or heated/cooled compressed air to store energy in purpose-built caverns and tanks.

Hydrogen produced through the electrolysis of water using electricity could emerge as a competitive solution for storing energy for longer periods of time as perhaps a side benefit from powering heavy industry and transport but there is a substantial loss of energy in the process, making it less efficient than batteries.

Other batteries can use cheaper raw materials than lithium-ion, such as iron, sulphur and zinc, or metals that naturally separate when heated to form a cathode and anode separated by a salt electrolyte.

Form Energy, a US-based grid battery spinout of Massachusetts Institute of Technology (MIT) and backed by Eni Next, the corporate venturing arm of Italy-based energy supplier Eni, recently raised more than $70m in its series C round to develop a sulphur-based battery storage for renewable electricity sources such as wind and solar.

This technology could offer 150 hours of storage compared with four hours for lithium-ion grid storage products.

Zinc-based battery developer EOS said its battery has capacity to discharge energy over three to 12 hours.

Thermal energy storage company Matla stores energy as heat in the form of molten salts for more than six hours
of storage.

And out of the UK’s Lancaster University comes a “metal-organic framework” that consists of metal ions webbed together into three-dimensional structures so special molecules loaded into the gaps are able to absorb sunlight and then change their shape when light or heat is applied. Tests showed that the material was able to store energy for more than four months and the same technology could be used for data storage and even drug delivery.

California Energy Commission, the US state’s primary energy policy and planning agency, and Chinese city Dalian have been exploring how to use large batteries based on vanadium, a raw material used by the steel industry to increase the metal’s strength, according to the FT.

Invinity Energy Systems, a US-based company used vanadium within redox flow batteries to win a tender from the California Energy Commission, while Rongke Power is building the world’s biggest vanadium battery at 800 MWh to help the Chinese province’s electricity grid better integrate wind power.

Powering the battery makers

This could be useful to other producers and utilities.

Christian Motzfeldt, the former CEO of Denmark’s state-backed growth fund, Vaekstfonden, in a debate with Uli Grabenwarter from the European Investment Fund hosted by Patrick Sheehan from ETF Ventures, said: “It is possible within 10 years to be 100% solar or wind and battery powered at a lower price than fossil fuels. Wind has already gone in the past decade from a small to large industry and we are waiting on solar but the key will be the returns.”

Spain-based Iberdrola, the world’s third-largest utility company, has promised to double its renewable energy capacity to 60 gigawatts over the next five years.

UK prime minister Boris Johnson last year said the country would install enough wind turbines to power every home by 2030 and set up a £1bn energy innovation fund to help commercialise new low-carbon technologies, such as a liquid air battery being built by Highview Power outside Manchester.

UK-based Zenobe Energy (formerly Battery Energy Storage Solutions) late last year raised £150m from Infracapital, the infrastructure equity investment arm of asset manager M&G, to support National Grid and other customers with at least 500 MWh of additional grid-connected batteries.

Founded by Nicholas Beatty in 2017, Zenobe Energy provides intelligent flexible power solutions to commercial electric vehicle (EV) fleet operators, such as buses and delivery vans, as well as utilities and industrial businesses.

Sourcing a battery plant close to renewable energy sources also makes it cheaper (and more sustainable) to produce the batteries themselves. Northvolt is setting up its main plant in northern Sweden to be close to hydro power supplies.

A spokesperson told PV magazine the Northvolt Ett plant would do both upstream and downstream processes – meaning raw material input and finished battery cell output – and “require more than 2 TWh per year if we build 40 GWh of battery capacity”.

Northvolt buys the battery raw materials (nickel, cobalt and lithium) directly from the mines and wants to complete a circular environment to include customer data management and recycling.

Others are exploring this option, too. France-based electricity provider EDF was part of the $5m round for PowerUp, which uses diagnostics-based technology to optimise the performance of lithium-ion batteries, and together they have set up a partnership for energy storage.

Adding more batteries does, however, creates recycling issues even if longevity is improved. Li-Cycle, a Canada-based lithium-ion battery recycling company, raised its series C round late last year from a consortium led by Moore Strategic Ventures.

A barrel of oil has been a remarkably efficient source of power and storage for a century. The world’s nascent move from molecules to electrons creates a new opportunity to define the standards for storage and power for the next decades and limit climate change.

Mining the future

For a century, oil has been a source of geopolitical power and money.

But, as Steve Levine wrote in his blog, Forget the oil wars,  “looming large among the resources and technologies vying for such a place is the advanced battery and the electrified economy it will create.

“Gigantic new fortunes will be earned over the coming years and decades in the businesses of manufacturing superbatteries, creating electric vehicles, and mining the metals and minerals that go into them.

“There is likely to be stolen plans, inventions, and star employees, and more serious tactics for access to cobalt and nickel.”

This can also play out for mining in space with its potential for land and resources. UK-based Metalysis won a European Space Agency (ESA) contract to develop the technology to turn moon dust and rocks into oxygen, which makes up nearly half by weight, leaving behind aluminium, iron, silicon and other metal powders for lunar construction.

The Lunar Gateway programme wants to return humans to the moon by 2024, with crews transported aboard Nasa’s Orion spacecraft with the ESA to build the main crew module for the lunar station.

There could be bases to mine asteroids as they pass by on the moon – or potentially further afield on Mars.

Last month, the capsule of Japan’s Hayabusa2 spacecraft passed through the atmosphere over the mining town of Coober Pedy in South Australia carrying the first subsurface sample from an asteroid.

The spacecraft traveled over 3.2 billion miles on its six-year journey to near-Earth asteroid Ryugu and back.