The humble battery is rewriting the rules

2/10/2017

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Last week, James Dyson announced a further billion pounds investment in a new electric car, sensing a huge market alongside Nissan’s Leaf and Elon Musk’s Tesla. And he’s serious – so far he’s committed £2.5 billion and taken over a disused airfield to make it happen.

Sarah Reakes,Managing Director, writes:

Should we be surprised? Since 2015, Dyson and his team of 400 engineers have got close to perfecting a new electric engine, while £1bn was invested into battery technology last year. The latter is key: it’s vexed engineers for a century, but cracking the next levels of battery technology will quite simply change the transport world radically, and impact many businesses too.

The issue of power has always affected how businesses, markets and society in general function. When you think about it, power in the right place at the right time moves us forward, literally and otherwise. From steam boilers to internal combustion engines, the power to turn power-station turbines, car and train wheels is a huge, fundamental enabler. Oil worked well because of its energy density (the sheer bang for the buck in a litre of petrol) its range of uses and its ability to be stored in a tank for weeks until the second we need it.

To displace it requires a power source that can create a seismic change in the market – no easy task. As Shell’s former CEO Jeroen van der Veer put it: to succeed any alternative energy form needs to be convenient, cheap and clean. And even in recent years, doubts have lingered around whether such a fundamental change is yet feasible.

Indeed, the Tesla and Leaf struggle on two of van der Veer’s criteria: both need regular charging (fine for commutes but trickier on long drives) and they’re high-priced versus conventional alternatives. Yet both are leading their segments and the market overall is growing rapidly.

Helped along by subsidies, electric vehicles (EVs: battery-only or hybrid) were 29% of Norway’s 2016 new-car sales, while the global EV market grew 38% year on year. Volvo and Jaguar-Land Rover have both recently announced they will produce only EV’s from 2020. The companies that foresee and prepare for dramatic change are the ones best placed to benefit, and Dyson are counting on arriving in time to reap the rewards.

Did BP and GM see this coming?
The cars won’t look much different on the outside, but the battery that comes close to petrol and diesel in energy density, convenience and price will upset the fundamentals of a multibillion pound fuel and engine market that has survived for over a century, and change our landscape as we remove gas stations and install more charging points. Many specialist suppliers will be lost in its wake, and yet some will thrive.

The Toyota Prius hybrid began as a small side-project over 25 years ago – the strategy team thought that some of the questions that were ‘worth a small bet’ were: how to find the price/size/performance sweet spot for batteries, how to switch a petrol engine on and off fast and smoothly, and how to build that complex power train. Within five years it became the strategy.

The Prius was launched in 1997 and was not an overnight success but for a decade or more hybrid technology has been a cornerstone in Toyota’s supply-chain, their IP and their business. They laid the groundwork in the face of future change and challenged assumptions about the viability of hybrids. Now they’re well-placed to stay the course as the market evolves. In fact, I’d say any automaker not currently building hybrids is in trouble.

Change is in the wind
Experts have shown that the forward price of new wind power has fallen fivefold recently due to efficiencies and advances in designs, making it now cheaper than new nuclear. Solar panel prices have also plummeted for the same reason. Cost-effective larger batteries – some using new technologies – are quietly rewriting the rules here too, addressing a key renewables issue by covering the dark and windless periods, saving wind and sun power until it’s most needed.

Adding batteries to a home’s solar panels cuts grid consumption at peak times (cold nights) and saves money, but, even more importantly, grid-scale batteries smooth output fluctuations and increase predictability, a key attribute that can make big renewable energy projects more viable. The power produced is less directly weather-dependent: it can be modelled and predicted, which gives traders and customers confidence to sign up for it.

As power companies and governments struggle to cover for mothballed coal and oil plants and peaks generated by weather, grid-scale battery storage also now competes strongly against new gas-powered power plants.

So the humble battery is currently rewriting the rules in your car, your house and in massive established markets, upsetting fundamental assumptions. But the companies that challenged these assumptions early, and didn’t rest on their laurels, are the ones that are now prepared to ride the wave.

Our clients say that using a third party to look at both competitors and the wider market almost always brings up surprises. Have you checked your business assumptions lately?

 

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