The NAATBatt conference last week in Louisville nominally focused on the impact of plug-in electric vehicles on the grid.  But its real focus was on the importance of using stationary, grid-connected energy storage technology, both as a way to mitigate the impact on the grid of new PEV load and as a way to bring down the cost of advanced automotive batteries. 

The cost reduction effect of grid-connected energy storage on advanced automotive batteries stems in part from the ability of grid-connected storage systems to use aftermarket automotive batteries, thereby providing those batteries with a potentially significant residual use and value.  But more importantly, using advanced batteries in PEV’s that are not uniquely designed for automotive use, but are also usable for other large-scale collateral applications--such as grid-connected energy storage--will allow PEV makers to take advantage of economies of scale that can significantly drive down PEV costs.

So given the theme of the NAATBatt conference, it was ironic that on the first day of the conference Bloomberg ran an article about Toyota, Daimler and BMW testing battery packs assembled by Tesla Motors.  Tesla battery packs rely on small format, 18650 lithium-ion cells of the type used in computer laptops and other consumer electronics.  According to Bloomberg, the huge cost advantages of using small format cells that are produced in high volumes for use in collateral applications is what is driving the interest in using them for vehicle applications.

The article cites Tesla founder Martin Eberhardt comparing large format cell costs at about $700-$800 per kilowatt hour to small format cell costs of about $200 per kilowatt hour.  While Mr. Eberhardt’s figures do not reflect the costs of incorporating those cells into packs, he is nevertheless pointing to potential cost savings of about 400% on the most expensive component in plug-in electric vehicles.  Given that the federal government has spent hundreds of millions of dollars over the last two years funding incremental improvements in lithium-ion technology, Toyota’s interest in a battery strategy that offers the prospect of dramatic cost savings is easy to understand.

Of course, Toyota and NAATBatt are talking about exactly the same thing.  The fastest, surest way to bring down the price of PEV’s in the near term is to power them with batteries that can leverage scale in collateral energy storage markets.  Using battery cells that are not custom designed for cars may involve a modest loss of battery performance in vehicle applications.  But the elephant in the PEV room, and indeed the elephant in the room of most of the advanced energy storage market, is price, not performance.  The hard truth is that if prices cannot be brought down, and brought down quickly, there may be no market.

Where Toyota and NAATBatt differ is in the cell formats and collateral markets they are looking to leverage in order to bring down costs.  For Toyota and other foreign automakers, small format cells and the consumer electronics market may seem an obvious choice.  But it is far from clear that that is the best choice for the domestic, U.S. market.

The manufacture of small format, 18650 lithium-ion cells is a mature industry that has long since been lost to Asian manufacturers.  If small format cells become the format of choice for vehicles, those cells will almost certainly be made in Asia, not in the United States.  Expertise in pack assembly and related battery technology will grow up in Asia around the cell manufacturing and the possibility of using the PEV market to grow domestic employment and to leverage American innovation and technological expertise will be lost.

To achieve some of the most important advantages of vehicle electrification for the United States, it is necessary that large format cells become the technology of choice for PEV’s.  Large format cells have the additional advantage of likely being the better choice for vehicle applications from the standpoint of performance and safety.  But to match small format cells on price, large format cells must similarly find a large, collateral market in which to take advantage of economies of scale.

All of this, of course, brings us back to the theme of the NAATBatt conference and to its focus on using large format, automotive grade batteries in grid-connected applications.  This is more than just an interesting idea and must be more than the subject of just a few ARRA-funded demonstration projects.  Developing a large-scale collateral market for automotive grade batteries is essential to the future of vehicle electrification in the United States and to the future of the U.S. advanced battery and automobile industries. 

For large format batteries, that collateral market is almost certainly grid-connected, distributed energy storage applications.  Developing that market will require the involvement and cooperation of federal, state and local governments and of public utility commissions.  Developing that market is essential and must become a top priority of national energy policy over the next few years.