Recharge your portfolio with battery technology

The future of renewable energy and electric vehicles (EVs) is heavily intertwined with the growing battery technology industry. Batteries are an older technology but recent innovation, particularly spurred by EVs, is transforming the space.

Investing in battery technology holds appeal to a wide range of investors, from those focused on green energy to those looking for different growth themes to incorporate in a portfolio.

I spoke to Corentin Baschet, Head of Market Analysis for Clean Horizon, about the changing battery technology landscape. Clean Horizon are a consulting company dedicated to energy storage and are the data provider for Solactive, the index provider for ETFS Battery Tech and Lithium ETF.

The basics of batteries

As an older technology, battery technology is both familiar and unfamiliar. Traditional batteries used a lead-carbon system, while the form favoured for grid and EV use today is lithium-ion batteries which are typically safer, more efficient and cost-effective.

“A container battery storage system is fairly simple. It looks a lot like a server, there are racks and there are modules within those racks of energy storage. Then you need the inverters, transformers, you need all the integration of the work, the construction work,” Mr Baschet says.

In terms of lithium-ion batteries, he says, “lithium is the ion that exchanges from the cathode to the anode, so it’s the key to the system. It enables the currents to flow.”

Despite the name, lithium is not the major component in lithium-ion batteries, representing only 2% of the mass of the battery ion cell, other important materials include nickel, manganese and cobalt.

The primary demand at this stage is from the EV industry but demand for grid storage is anticipated to rise the greater the movement towards renewable energy.

“More than 50% of the world’s production of lithium goes to the EV industries. There’s one World Bank study that has looked at how much material we would need if we were to decarbonise the grid and transport entirely by 2050 and their conclusion was that we will need 85% of the resources of lithium worldwide,”

Mr Baschet views the key to growth in battery technology will be increasing penetration of renewable energy but until then, most innovation in this sphere is coming from the EV industry with a push to make battery technology cheaper with increased storage.

The growing EV industry

The idea that EVs are driving battery technology innovation and growth may come as a surprise in the Australian market. Australians have been slower to move on EVs due to low government support, costs (including the luxury car tax), access to power docking stations nationwide and misconceptions around travel range (1). Globally though, EVs are increasingly popular. Some countries, for example, Germany and the UK, even offer incentives and subsidies for those who purchase electric vehicles (2).

BloombergNEF predicts sales to rapidly increase from 2.7% of new cars sold representing 1.7 million cars in 2020, to over half of all passenger vehicles sold by 2040 representing 54 million cars (3). China is likely to represent the lion’s share of sales and development of electric vehicles, even as it has been forced to slow down activity during the COVID-19 pandemic. More than 55% of all electric cars sold in the world are Chinese sales (4) and the market there has been supported by government subsidies and regulations around certain percentages of automotive sales required to be electric. Chinese company BYD, a manufacturer of vehicles and battery technology, is responsible for the greatest portion of electric vehicles sold in the world (5).

More than the big names

Tesla is typically front of mind when investors think of EVs or battery storage but there are many other companies involved in the industry. Mr Baschet views Tesla as an integrator of components, similar to companies like Sumitomo, Brookfield, General Electric, Lockhead Martin and Toshiba.

Investors should be aware of the complete supply chain underlying battery technology, from mining to manufacturers, rather than just looking at the end integrating company. For example, he says, “Tesla also relies a lot on LG Chem, CATL and Panasonic.”

According to Mr Baschet, some established companies may find alternative business opportunities via battery technology.

“There's a couple of vehicle manufacturers which are interested in energy storage and will have future business doing energy storage just because they buy so many batteries, they might use them for a second life, for instance. So, taking the batteries from vehicles to put them into a container system and provide services,” he says.

At the end of the day, battery technology encompasses a wide range of companies and even industries. Investors can look at anything from components such as lithium, battery manufacturers or companies with more diversified capabilities not purely restricted to battery technology either directly, or via managed options such as ETFs.

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