Western cell production faces yield rate challenge

There is “no guarantee” that new battery cell manufacturing under development in Europe and the US can reach parity with existing Chinese facilities, warns Aaron Wade, head of battery costs at consultancy CRU.

And that could damage their ability to produce cost-competitive product even with incentive support, and especially given other challenges around energy and labour costs.

“The newer Western manufacturers will need to sufficiently improve the yield rates for the cell production to match the levels achieved by the Chinese,” says Wade. “We see, to begin with, ramp rates maybe 50pc in a factory, whereas China operates at 95pc+, so it will be a challenge to get those ramp rates to increase as quickly as possible to enable this cost competitiveness.”

Initial experience suggests to CRU that “US production is significantly more expensive than the Chinese, especially during a ramp-up rate of a factory”. “But with the tax credits, cost-competitive cells could be produced towards the mid to end of this decade for both NMC and LFP cells,” Wade predicts.

“We expect a short period of pain where yields are very low — making batteries may be simple, but it definitely is not easy. But these rates will increase pretty quickly to enable cost competitiveness for US and Europe in those factories.”

And these new players will, in CRU’s view, reap a certain benefit from being later to the party. “We believe that the US and Europe will ramp up faster and quicker than China did, because we can learn from what the Chinese did,” the analyst suggests.

But there could be a two-speed market, between firms working with partners that have experience in battery making and those starting from scratch. “We have different levels of factories,” says Wade.

“Some are JVs with existing companies, which will ramp up at a faster rate. But, if we have companies that are going it alone, we expect them to go slower,” he continues.

“The US, especially, is dominated by [South] Korean companies; these guys have been building batteries even before many of the Chinese ones,” adds Sam Adham, CRU’s head of battery materials. “They would have these optimised production parameters behind them; they have the technical know-how.

“The bottleneck or the limitation in the short term when ramping up a gigafactory for the [South] Korean companies is training the local workforce and just getting equipment over there,” he continues.