#Japan #Tokyo #Battery Market #McKinsey #Lithium Ion

Introduction

The battery market is on the brink of a monumental transformation, with predictions indicating that global demand will skyrocket to 6.8 TWh by 2035. In the latest white paper titled "Battery 2035: Establishing New Competitive Advantages," McKinsey & Company has analyzed the evolution of battery technology, manufacturing competitiveness, and supply chain dynamics.

Growth in Demand

As the world increasingly turns to electric vehicles (EVs) and energy storage solutions, demand for lithium-ion batteries is projected to exceed 1 TWh in 2024, eventually reaching approximately 1.6 TWh in 2025. McKinsey forecasts that the global battery demand will escalate to 4.2 TWh by 2030, with lithium-ion batteries expected to account for over 85% of this demand in 2035. Despite this positive trajectory, the industry is currently grappling with overproduction and intense price competition.

Surplus and Price Decline

By 2025, the global surplus capacity for lithium-ion batteries is estimated to reach around 900 GWh. The average price of battery packs is expected to decline by 20% in 2024, followed by an additional 8% drop in 2025, yielding a historical low of $108/kWh, which is less than half of the prices seen in 2018. This suggests that not all manufacturers will benefit equally from the anticipated market growth by 2035.

Shift in Competitive Focus

As the market evolves, the focus is shifting from sheer production capacity to the ability to produce low-cost, high-yield batteries and develop robust supply chains. The battery industry is entering a new competitive phase, where excellence in operational efficiency and material sourcing will be key determinants of success.

Key Insights from McKinseys Battery Accelerator Team

The insights presented in the white paper are attributed to the McKinsey Battery Accelerator team and authored by senior partners and collaborators. The paper emphasizes that the rise in battery demand will be driven not only by EVs but also by Battery Energy Storage Systems (BESS) supporting renewable energy.

Regional Distribution of Battery Demand

By 2035, mobility applications are expected to account for approximately 85% of global battery demand, while BESS will represent about 12%. Regionally, China is predicted to dominate the market with nearly 49% share, followed by the EU at 19% and North America at 14%.

Profitability Challenges amidst Growth

Although the market is anticipated to triple, battery manufacturers face challenges in maintaining profitability amid a backdrop of expanding demand and supply surplus. The competitive landscape requires companies to navigate the complexities of cost management and operational excellence to avoid losses from overproduction.

Importance of Scrap Reduction

Another significant aspect of manufacturing competitiveness is the scrap rate during the early stages of production. High scrap rates can exceed 70-80% for new production lines. Reducing scrap can yield more significant cost benefits than simply negotiating lower raw material prices.

Evolving Battery Technologies

Looking forward, the battery technology landscape is set to evolve further. While LFP (Lithium Iron Phosphate) batteries are expected to continue playing a crucial role due to their cost-effectiveness and thermal stability, the commercial rollout of solid-state batteries is likely to occur post-2030, subject to overcoming manufacturing challenges and ensuring high yields.

Concentration of Supply Chains

The battery supply chain remains heavily concentrated in specific regions, particularly China, which presents a challenge for U.S. and EU companies that currently have a meager share of essential upstream operations, such as refining and precursor materials. Establishing a resilient supply chain that balances local production with global sourcing will be vital for strategic competitiveness.

The Rise of BESS

An emerging trend is the rapid growth of Battery Energy Storage Systems (BESS), driven by the rising demand for reliable power sources in data centers and renewable energy applications. McKinsey predicts that by 2030, the cumulative installed capacity of BESS could reach 500-700 GWh, representing a second significant driver of battery demand, following EVs.

Keys to Success by 2035

The white paper outlines four core competencies necessary for companies aiming to establish a competitive edge by 2035:
1. Cost leadership through optimized material composition and efficient production.
2. Operational excellence to achieve high overall equipment effectiveness and yields promptly.
3. Localization of supply chains to enhance stability and reduce reliance on foreign sources.
4. A reliable technology roadmap that facilitates quicker market entry for advanced battery technologies.

Conclusion

Japan and other regions must focus on strategies to adapt to this evolving landscape and establish their positions within the new battery value chains. Addressing the complex balance of market demand, supply chain stability, and technological advancements will be critical for thriving in the upcoming decades. Authentically leveraging existing strengths in material technology and manufacturing processes will be the ultimate differentiator in achieving sustainable competitive advantages in the booming battery market.