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EV battery capacity glut could benefit consumers

A price war by 2013 could result in cheaper electric vehicles for consumers sooner than expected but cause smaller battery companies to struggle.

Shown is a battery cell produced by U.S. battery manufacturer EnerDel. The U.S.-based company already has relationships with Nissan and Think Global among others.

Makers of lithium ion electric-vehicle batteries worldwide are outpacing EV automakers in terms of manufacturing capacity.

This is likely to result in a temporary idleness on the part of some factories by 2013, according to a report released today by Bloomberg New Energy Finance.

The report (only available to BNEF subscribers) shows it's simply a matter of doing the math based on manufacturers' reports and commitments worldwide from both the auto and battery industries.

Automakers are expected to produce roughly 839,000 plug-in EVs worldwide by 2013, which in turn will drive lithium ion EV battery demand to 18 gigawatt-hours by 2013. While that will be seven times the demand of 2009, battery makers worldwide have been ramping up for more than that. In expectation of the long-term growth of the EV battery industry, companies have been both building new facilities and expanding existing ones. By 2013, the world will have the capacity to produce 35 gigawatt-hours' worth of batteries, but only need 18 gigawatt-hours that year, according to the report.

There will not be an actual glut of batteries. Manufacturers will likely only meet the demand of their contracts with automakers. But this temporary capacity glut will result in a drop in EV battery prices from the increased competition, and a subsequent reduced output of battery manufacturing facilities that could end up costing battery manufacturers more per kilowatt-hour short-term, according to Bloomberg New Energy Finance.

EV batteries currently cost $800 to $1,000 per kilowatt-hour for automakers to buy and are predicted to reach $350 per kilowatt-hour by 2020. But this over-capacity could cause a blip that pushes those prices lower sooner.

That's great for consumers. They could see a drop in plug-in EV prices sooner than the original predicted pace. But it could also end up putting smaller battery companies that can't cope with the blip out of business, according to the report.

It could be especially bad for manufacturers outside of Asia that don't have the support of an alliance with an automaker, a large parent company, or a government to support them during the temporary price war. Some may turn to lithium ion battery storage, an industry expected to boom over the next few years, to keep them going.

"In the short term the larger, mainly Asian, conglomerates can cope with limited demand and compete by lowering prices, but smaller pure-play battery makers will be left vying for an increasingly limited number of supply contracts," Ali Izadi-Najafabadi, lead analyst on the report, said in a statement.