The Exchanges

Q Okay, so Both CapEx and OpEx drive a delta, but it's not huge, and it wouldn't explain the difference in, like, prices that we see coming out of China versus the West. So if it's not CapEx, it's not OpEx, what is it?

A And this is, yeah, and so this is the interesting thing, you know, I think the point that you made, it's not necessarily the obvious things that you're thinking about. It's more, a lot of it's down to operations. So yield is a big A big factor here. If you can't get a high yield, um, then you're wasting a lot of material, you're using all that energy, you're using all that labor, and you're not getting a product at the end of it that you can sell. And this is where kind of China has a huge advantage over the rest of the world. China has been manufacturing batteries since the early 2000. They've grown at the fastest rate of any other kind of, um, region in the world. And they have a workforce who has been working in those facilities for, you know, going on for kind of more than 15, 20 years at this point. So they have a lot of skilled workforce, skilled laborers, understand, who understand battery manufacturing, and understand, you know, how to, to use the equipment and how to get those kind of yields up quickly. Whereas if you look at the, you know, a couple of examples from, from the West, the most obvious one at the moment is, is going to be Northvolt. You know, Northvolt started manufacturing cells, um, on its plant, uh, around the end of twenty-twenty-two, I believe. So, kind of, we're coming up to two years now. And if the, you know, media reports are to be believed, they'…

AI assessment note: “a lot of it's down to operations. So yield is a big factor here.”

Q seen so much innovation, so much change on the cathode side, and so little on the anode side historically? Is it just a technically more difficult challenge to replace graphite in the anode, or is it that graphite is like, you know, we're starting from a better benchmark. Graphite is just like better as a starting anode material than NMC was for, for the cathode side? Like, why is it?

A It's a little bit of both. So I think, um, that there are certainly, there have been challenges in introducing new kind of anode chemistries. In particular, you know, silicon is, is, as I say, the kind of thing that, that everyone's interested in. The, the issue with silicon is that you get the very high capacity, um, but the cycle life takes a hit. So in order to Increase the cycle life to the point where you can actually use it commercially. There's had to be a lot of kind of innovation and, and, um, kind of engineering challenges to overcome, particularly related to swelling. So we've got companies now, you know, Volta's invested in one D battery science, um, over in Palo Alto. They've overcome the, uh, issues of around kind of cycle life using nanowires. You've got Group 14 and SILA up in Moses Lake, you know, both of whom encapsulate the silicon to try and kind of reduce cracking and issues related to cycle life. So there's, there's been a lot of innovation there that's got us, got us to this point. But on the cost perspective, Graphite's a really cheap material, and it's hard to beat that. And that's why, you know, when I talk about silicon potentially reducing the kind of cost further, it depends on the silicon solution you're using. You've got to have a silicon material that is inherently lower cost than, than graphite. And some people might adopt higher cost silicon ma…

AI assessment note: “It's a little bit of both. So I think, um, that there are certainly”

Q those prices, right? Like those are presumably spot prices. Is there a large spot market for LFP cells, for example, in China? And so it's like a decent chunk of them. Is that getting, is that flowing through to actual battery prices at significant volume here? Or is it like a thinly traded Spot market, where most of the market exists under long-term contracts that are at higher prices anyway?

A Yeah, so it's a great question, and, you know, it's, it's pretty thin spot market, if you like, if you think about the kind of bulk of, of battery demand is coming from the electric vehicle industry, and those are, you know, those contracts are really kind of long-term contracts, where you have more exposure to these, these kind of, the, the spot market, if you like, or kind of short, shorter term kind of Um, purchasing is in the stationary storage market in particular. So in, in China, and again, kind of crazy numbers coming out of China in terms of stationary energy storage costs, not just at the kind of cell level, but at the system level. At a system level, kind of, um, for a turnkey system, you're looking at something like a 135 dollars per kilowatt hour. So again, kind of crazy low considering that 18 months ago, the average price of a cell was about 135 dollars per kilowatt hour. You know, now you can get an entire storage system in China. But again, you know, even those kind of spot markets, In China, kind of getting to the, the, the, the 35, I'm sorry, the 50 dollar per kilowatt hour. It's low in China. Some people can access that. That's not a price that's necessarily going to be reflected if you're a stationary storage developer in, in Europe or the US. You're going to be paying higher than that, and you're not going to be as exposed to those, um, to those spot marke…

AI assessment note: “it's pretty thin spot market... bulk of battery demand is coming from the electric vehicle industry”

Q we've talked before on this podcast, everybody's talked about a kind of slowdown in growth. For EVs, basically everywhere outside of China. I mean, China doesn't seem to be slowing down at all. But is it that? Is that there was an, is that there was an overbuild of new capacity, and then demand softened just enough that now the market is flooded, or is it more nuanced than that?

A That, that's certainly a big part of it. Um, but it, it's a little more nuanced than that, you know, and, and again, kind of, for, for kind of context, if you go back to even 2020, um, Um, or for the last couple of years, in fact, there's always been a slight overbuild in manufacturing capacity, and demand kind of, you know, takes a little while to catch up. Um, so, you know, and that does depress prices, and that's certainly kind of part of the story now, but I think you've also got a kind of confluence of factors, so you've got this oversupply in manufacturing capacity, you've got a softening in the electric vehicle market as well, which I think the, um, kind of, as you say, the, the kind of, Signaling of that to the rest of the market is that, that demand isn't there, and therefore, if you want to maintain market share or, you know, gain market share, you've got to kind of reduce your prices. But you've also got other factors like low commodity prices. So we've got lithium, um, kind of, not at an all-time low, but, you know, very depressed, below kind of 20,000 dollars per metric ton. And, uh, you've also got another kind of factor which is Perhaps kind of, you know, less clear exactly how it plays into these low price prices, but we can get into it in a minute. And that's that a lot of the companies in China and the supply chain, cell manufacturers, and material providers h…

AI assessment note: “That, that's certainly a big part of it. Um, but it, it's a little more nuanced”

Q then you're competing just head-to-head against the same thing. Can you win by playing a different game and doing something entirely novel? Is that actually something that could work? It's, it's been, that was always the premise in solar, for example, and really first solar proved it to be true and everyone else proved it to be wrong. So I'm curious if you think batteries are the same or different.

A I mean, I feel like there's only one answer I can give here. You know, I've, I've been a technologist working on battery technology since kind of 2010 or so. And they've always been a big believer that the technology will kind of drive before the industry forward and help to kind of, you know, reduce costs. So I think the answer is, is yes, you can use technology to kind of, um, save the industry, you know, and, and differentiate what the West is doing compared to China. I think you're, you're right that if you're just kind of competing on LFP and it's a race at the bottom, then that's when you're going to struggle. And, you know, there's already been, uh, well, I think, I think you can already see that actually Some Chinese players think that, um, it would be cheaper to import LFP cells from China, pay kind of any taxes or whatever, and, and, you know, then have them deployed in the U.S. rather than manufacturing them locally. Now, I haven't looked at, you know, I haven't done that analysis myself, so I can't see kind of, or can't say exactly, you know, what the nuances there are, but the fact that some Chinese kind of companies think that it's, it's still cheaper to manufacture in China, And, uh, export to the rest of the world. You know, that, that kind of speaks volumes on that side of things. But I think, you know, what we see is that there's a lot of, there's, there has b…

AI assessment note: “I think the answer is, is yes, you can use technology to kind of”

Q least attempting to subsidize the hell out of this stuff, certainly in the U.S. through the IRA, um, and I think in Europe through a bunch of mechanisms as well. So there's an attempt to sort of replicate that, but it's in a different form. So what, in your view, what have those subsidies looked like in China, and how big a difference have they made in the cost structure?

A Yeah, and subsidies are definitely kind of Have had a big impact. Um, and it's, it's interesting in China, it's always difficult to, to understand, you know, the full extent of what the subsidies look like, but certainly the kind of most straightforward one is, is going to be kind of low land costs. So you'll often have kind of provinces that will provide land to, to manufacturers for free to get them to build a plant there and to kind of secure that industry. Um, you've then got the, um, Kind of, uh, direct, indirect subsidies, if you like. There was a, a long program of EV subsidies in China, where, kind of, EVs that were using Chinese-produced cells would get a higher subsidy, and the cell manufacturer would get a, a portion of that as well. So, not dissimilar to what we're seeing with the IRA now, in fact. Um, and that was a big part of, kind of, setting up the, the Chinese industry and getting Chinese Automakers to, to use Chinese kind of produce cells. Um, so that, that kind of has played a factor. Those subsidies were, were phased out, um, believe earlier this year or, or earlier in 2023. I can't remember off the top of my head, but we've seen those subsidies, you know, phased out. And now I think more what, what I'm hearing about is it's the kind of land subsidies. That's a big subsidy that, that Chinese cell makers are getting today. I'm sure there are kind of tied int…

AI assessment note: “certainly the kind of most straightforward one is, is going to be kind of low land costs.”