New L.E.K. Consulting Research Provides Strategic Recommendations for Players Across Supply Chain
BOSTON, MA (July 11, 2023) — While most battery manufacturing has taken place overseas until recently, domestic U.S. battery production is increasingly attractive – and may even be critical, according to new research from global strategy consultancy L.E.K. Consulting. In fact, the U.S. is expected to produce 260 GWh of lithium-ion battery cells by 2025, enough to account for 108% of U.S. lithium-ion battery demand.
Global demand for lithium-ion batteries is forecast to increase by 29% annually through 2025 and continue growing at 24% per year from 2025 to 2030. Driving this growth are battery electric vehicles (BEVs), accounting for 70% of global lithium-ion battery demand; battery energy storage systems (BESS), representing 8% of global demand; and consumer electronics, making up 22% of global demand.
U.S. automotive manufacturers are primarily responsible for building the emerging domestic battery production industry, accounting for 95% of announced battery capacity to date. Automotive original equipment manufacturers (OEMs) like GM, Stellantis, BMW and Tesla have formed joint ventures with major South Korean and Japanese battery manufacturers, including LG Energy Solution, Panasonic and Samsung, to operate facilities in the U.S., with many others either planned or underway. Ford was recently issued a $9.2 billion loan from the U.S. Department of Energy to build three battery factories in Kentucky and Tennessee. The factories are the product of BlueOval SK, a joint venture between Ford and South Korean battery manufacturer SK On.
“U.S. battery manufacturing is a rare opportunity for auto OEMs and battery manufacturers to benefit from an energy industry in transition, but they first must address some significant strategic challenges in minimizing downside risks and ensuring future business viability. Securing reliable raw material supply and ongoing investment will all be critical to success,” said Amar Gujral, L.E.K. Managing Director and co-author of Powering Up the US Battery Supply Chain.
Growth for BEVs and BESS is expected to dramatically increase due to strong government subsidies, more affordable costs and evolving use cases for storing intermittent renewable energy. With demand rapidly escalating, so is U.S. battery production. Heavy investment in battery manufacturing capabilities under the Inflation Reduction Act has put the U.S. on track to become a major producer of battery cells by 2025.
“The energy transition from fossil fuels to lower-carbon energy sources is well underway in both the power and transport sectors, and batteries are essential to achieving worldwide energy transition and climate goals. Battery energy storage systems are critical to store and dispatch intermittent renewable resources, such as solar, but demand is growing as other uses evolve. For example, BESS installed on home rooftops can help homeowners lower their electricity costs by storing power during the day, when electricity demand is low and prices are cheaper, for use in the evening, when energy demand peaks,” said Gujral.
As domestic battery manufacturing facilities are set up, L.E.K.’s research identified how market players can secure their place in this emerging ecosystem. Battery manufacturers, automotive OEM joint ventures and BESS integrators must make strategic decisions around securing raw material supplies, making the right technology choices, scaling appropriately and choosing the right partners. Industrial companies and financial investors should find low-risk niches to participate through services, digital tools and new technologies that enable productive deployment of batteries to end users.
“Battery factories are billion-dollar bets on the performance of a specific battery chemistry because it’s very difficult to switch chemistries once a factory is built. So, selecting the ideal battery chemistry is a pivotal strategic decision. In the long run, emerging battery technologies may become viable alternatives to current chemistries, but as the market scales up, there will be incumbent advantages for the leading chemistry since production techniques will already be optimized,” said Gujral.
For more information, please see Powering Up the US Battery Supply Chain.
About L.E.K. Consulting
We’re L.E.K. Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients’ businesses, uncovering opportunities and empowering them to master their moments of truth. Since 1983, our worldwide practice — spanning the Americas, Asia-Pacific and Europe — has guided leaders across all industries, from global corporations to emerging entrepreneurial businesses and private equity investors. Looking for more? Visit www.lek.com.