+++ WHAT'S NEW While we are in the midst of one of the hottest summers wecan recall, and it's not even August yet, our thoughtsnaturally turn to global warming, air pollution, andefforts being made to deal with these problems. Thankfully,one major cause of air pollution: gasoline-powered InternalCombustion Engines (ICE), is about to make an exit and willbe replaced with power plants of a much cleaner andeconomical nature. We don't know which technology will winout: Hydrogen, Hybrid fuel/electrics, Plug-in electrics,Fuel cells, or something more exotic. But for now we'repunting on the plug-ins. There are already a number of niche players making rapidstrides towards bringing commercially viable plug-inelectric vehicles (PEVs) to the market, most notably TeslaMotors of the USA. They finally started deliveringproduction vehicles earlier this month. But it won't beuntil the Japanese, German, and US auto majors enter themarket that PEVs will really start to make their mark. Ouropinion is that once the neighbors start seeing earlyadopters zipping around town in urban rockets costing justone yen per kilometer to power, and with almost zeroemissions, it won't be long before there is a stampede toelectric car dealers. Think flat screen TVs orrecords-to-CDs. We believe the conversion period from ICEto hybrids or PEVs will be almost as rapid. Most worrying for the auto makers is whether they should beoffering range-extended dual-source (electric and gas)hybrid power plants or just go straight to plug-inelectrics. Commonsense would say that the answer to thisconundrum is in the characteristics of each driving market.In Asia, the average driver has a short start-stop commuteand is likely to be able to use PEVs early on, even if theystill have relatively limited battery range. In Westerncountries, however, although the weekly commute may berelatively short, people also like to drive their vehiclesfor recreation, and so hybrids may fit better.
Thus, it is the Japanese who will be first off the startline. Mitsubishi Motor's i Miev will be available tofleet and commercial operators this time next year and tothe general public around 12 months later. Interestingly,Mitsubishi will simultaneously release the car in severalother markets, including Australia -- a nation that wethought would surely have required extended range vehiclesfirst. The other major PEV player from Japan is Fuji Heavy, withtheir R1e, also due sometime next year. But Mitsubishi is farthest along in marketing, and is placinga big bet on the new vehicle pulling it out of the pond ofred ink in which the company has floundered for the lastfew years. In case you want to buy one, the i Miev willsupposedly retail for around JPY4m, but should actuallycost JPY3m after government subsidies kick in. Mitsubishireckons it can get manufacturing costs down sufficientlythat the vehicle will be selling for around JPY2m by 2011-- and accordingly the company has created a sales targetof just 2,000 units next year and around 10,000 vehicleswithin two years. The big hurdle for all car makers has of course been thebatteries, and Toyota in particular has been stressing how"untried" and "early stage" Lithium Ion (Li-ion) batteriesstill are. As if to emphasize this point, Toyota haslaunched an R&D lab dedicated to developing a wholenew type of air battery that it hopes will supecede theLi-ion. However, with all the battery manufacturing tie-upshappening recently, including Toyota's own with Matsushita,we think the major Japanese auto companies are in fact muchfurther along in their development than they are letting on. The first indications that this may be so arise from thefact that Mitsubishi has already increased its estimatesfor the i Miev vehicles, from an initial 120km/charge toaround 160-200km/charge now. The company appearsincreasingly confident that its new batteries will stand upto commercial use -- and in fact gave Edmunds.comjournalists a test run just recently. Another indication that things are heating up is theinvolvement of METI in the establishment this month of twobattery/electric specific organizations. The first is aLi-ion batteries standards organization which includes thenation's 9 top auto and motorcycle makers, 6 battery makers,and Tokyo Electric Power Co. The standards will covertesting, safety, charging methods, and general performance. The second organization is a raw materials procurementgroup which consists of around 30 top miners, productmakers, and trading houses, all of whom are seeking toensure a steady supply of 14 so-called rare metals -- mostnotably including lithium, titanium, manganese, and nickel.Three of these four elements (Li, Mn, and Ni) are in highdemand for Li-ion batteries. This got us to thinking. If Mitsubishi's i Miev is a hit, and demand significantlyexceeds supply, then it wll be a free-for-all in 2010 byother makers trying to play catch-up. This will mean atremendous ramp up in the demand for electric motors,sensors, and in particular, batteries. We then startedwondering about the supply chain behind Li-ion batteriesand whether stratospheric growth might cause the industryto either strangle itself for a while -- or worse still,whether a few key foreign suppliers could create chokepoints similar to what the world is currently experiencingwith oil. No doubt, this is a similar set of concerns to thoseMETI is trying to address with its Raw Materials Forum. So far as we can see, the supply of Lithium itself is notparticularly endangered nor restricted. At present Lithiumcomes from both mining of Lithium-rich ore and also theevaporation and processing of ordinary sea brine (saltwater). Brine as a source is nowadays most popular becauseit is cheap, and currently the two main suppliers globallyare Chile and China. The Japanese mining companies are wellconnected both in South America and also in Australia (fortheir ore-based product). A more volatile and difficult material to source is cobalt,which is used for battery cathodes. Right now, most cobaltin Japan comes from the processing of nickel ore and theonly domestic supplier of the stuff is Sumitomo MetalMining -- a good monopoly for them to be holding. SumitomoMetal says that it will increase its production of cobaltby 80% next year to cope with increased demand. Likeeveryone else, they source their raw materials from theDemocratic Republic of the Congo, which produces 40% of theworld's supply, followed by Canada, Zambia, Russia, Braziland Cuba. The good news is that a number of Japanese companies havereported recently being able to replace cobalt with manganese,a much more common and cheaper element. So our assessment is that the supply of the raw materialsfor Li-ion batteries is relatively robust, and althoughexposed to price increases, it is still not so unstable soas to threaten Japanese supplies. Overall, not just for autos, the production of Li-ionbatteries by Japanese companies is predicted to risedramatically over the next five years. Matsushita saidearlier this month that it plans to increase its investmentin Li-ion battery production facilities to the tune ofJPY100bn (US$940m) over the next 2 years, so as to be ableto pump out 75m batteries for all shapes and sizes permonth, up from the mere 25m a month it produces currently.The new plant will make Matsushita the world's 2nd largestmaker, after Sanyo. In case you were wondering, Sanyo produces 90m Li-ionbatteries a month, and owns 26% of the global JPY968bn(US$9.13bn) market.
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