The Battery Wars Have Begun

Batteries are supposedly lasting longer. But – if they are – I haven’t noticed much of an improvement.

The battery in my mouse still runs out every three weeks. In my remote control device, every month.

In my car, every two to three years, same as a couple of decades ago.

I’ve stopped buying flashlights. On the rare occasions I took them out of storage during power outages, they didn’t work. So why bother?

Batteries stunk 30 years ago. They still do.

The technology is overdue for a major overhaul.

Of course, you could have said the same thing 20 years ago.

Yet the industry is littered with failed battery startups over the years.

One of the bigger ones is A123 Systems. It made lithium-ion batteries for vehicles and the electric grid.

A123 Systems had one of the biggest IPOs of 2009. But the market for electric vehicles grew more slowly than expected. The company was forced into bankruptcy and its assets eventually sold off.

Technology runs in cycles. The Internet technology that drove the dot-com industry over the cliff at the turn of the century wasn’t quite ready yet. It needed to mature. Once it did, it gave rise to dozens of large and profitable companies.

President Carter tried to launch a clean tech revolution but, again, the technology wasn’t ready. But now – decades later – we’re seeing some pretty amazing things.

Just this week, for example, Tesla (TSLA) announced that its cars will be able to go 620 miles on one charge within the next year or two.

So, where are we in the battery technology cycle?

I believe we’re entering the stage where big, game-changing improvements take place.

The technology is ready. And the marketplace is primed.

The best example of what’s going on?

Look at what Elon Musk is doing.

A Tesla for Everybody?

Tesla cars are a triumph of vision and technology. Of course, they’re a high-end luxury product. Tesla sold 17,300 of its cool cars in 2014 and 14,500 so far this year (through August).

By comparison, Toyota sold 428,606 cars last year in the U.S.

It’s a niche market. Not everyone can afford a Tesla car.

But a Tesla home battery? Now that’s a different story.

Tesla just announced a new line called Tesla Energy. Its inaugural product is the “Powerwall Home Battery.”

 

It can take a home off the grid. Or it can integrate with the grid and act as a backup.

It uses Tesla’s lithium-ion technology. And recharges using solar power.

Like regular batteries, they can be used together. Up to nine can be stacked.

Elon Musk, the cofounder of PayPal, SpaceX and Tesla, says his battery packs can transition power usage in the U.S. to renewable energy. Of course, that’s based on massive adoption of his new batteries. Some 160 million battery packs would do the trick, he says.

Musk is one of this country’s most successful disruptors and visionary entrepreneurs.

But his own plans – as ambitious as they are – could be in danger of being disrupted by other battery-tech startups.

A New Type of Battery

A young company, 24M, is working on a new type of lithium-ion battery that it says is “the most significant advancement in lithium-ion technology in more than two decades.”

Tesla depends on traditional lithium-ion battery manufacturing. 24M founder Yet-Ming Chiang describes the manufacturing process this way…

It takes a thin wet coating of the electrode material, applies it to a thin metal foil and then dries the electrodes in big drying ovens. When the thin electrodes are finally dry and hardened, they are snapped together to make a cell and the liquid electrolyte is added.

The problem, says Chiang, is that this method is complex, takes a long time, and has limited ways to scale up.

Chiang’s technology is different. It starts with the energy storage material – the electrode – in a semi-solid, fluid state. 24M’s manufacturing process removes the big dryers and vastly reduces the number of steps.

Its simpler manufacturing process takes one-fifth of the time of a conventional battery. And they’re cheaper.

Lower-cost lithium-ion batteries run about $200 to $250 per kilowatt-hour. Tesla says it can lower that price by about a third. 24M says its batteries will go for less than $100 per kilowatt-hour by 2020.

Potassium Technology to the Rescue?

But who says you have to stick with lithium-ion technology? Startup KAir is using a “potassium air” technology. It’s 98% energy efficient and simple to manufacture.

The company’s goal is to make batteries that are half the price of Tesla’s and produce three times the storage capacity.

To do so, its batteries would have to be able to be charged and discharged 1,000 times. Right now they’re up to150 times.

The company has a ways to go.

It’s clear that startups see an opportunity here. It’s clear they think Musk is vulnerable.

I agree. I think Musk has miscalculated here. Committing to traditional lithium-ion technology limits his options and how much he can improve on the technology’s cost and efficiency.

Granted, these new technologies still have to be proven. I’m not even tempted to invest until I see these batteries tested over and over again in the field.

But, listen, I’d be foolish to count Musk out. He has a big head start on his competition. He has the financial resources to realize his vision.

And his technology is proven, unlike his emerging competition. Proven but limited… will that prove to be his Achilles’ heel?

I suspect so. But only time will tell. It’s going to be fascinating to see how things unfold.

Invest early and well,

Andrew Gordon
Founder, Early Investing