The Lithium Ion Battery and the EV Market: The Science Behind What You Can’t See February 2018 Kimberly Berman Jared Dziuba, CFA Colin Hamilton Special Projects Analyst Oil & Gas Analyst Global Commodities Analyst BMO Nesbitt Burns Inc. BMO Nesbitt Burns Inc. BMO Capital Markets Limited [email protected] [email protected] [email protected] (416) 359-5611 (403) 515-3672 +44 (0)20 7664 8172 Richard Carlson, CFA Joel Jackson, P.Eng., CFA Peter Sklar, CPA, CA Autos/Mobility Equipment & Technology Analyst Fertilizers & Chemicals Analyst Auto Parts & Retailing/Consumer Analyst BMO Capital Markets Corp. BMO Nesbitt Burns Inc. BMO Nesbitt Burns Inc. [email protected] [email protected] [email protected] (212) 885-4060 (416) 359-4250 (416) 359-5188 This report was prepared in part by analysts employed by a Canadian affiliate, BMO Nesbitt Burns Inc., and a UK affiliate, BMO Capital Markets Limited, authorised and regulated by the Financial Conduct Authority in the UK, and who are not registered as research analysts under FINRA rules. For disclosure statements, including the Analyst’s Certification, please refer to the back of this report. 17:00 ET~ Contributors KIMBERLY BERMAN JARED DZIUBA, CFA COLIN HAMILTON Special Projects Analyst Oil & Gas Analyst Global Commodities Analyst BMO Nesbitt Burns Inc. BMO Nesbitt Burns Inc. BMO Capital Markets Limited [email protected] [email protected] [email protected] (416) 359-5611 (403) 515-3672 +44 (0)20 7664 8172 RICHARD CARLSON, CFA JOEL JacKSON, P.ENG., CFA PETER SKLAR, CPA, CA Autos/Mobility Equipment & Technology Analyst Fertilizers & Chemicals Analyst Auto Parts & Retailing/Consumer Analyst BMO Capital Markets Corp. BMO Nesbitt Burns Inc. BMO Nesbitt Burns Inc. [email protected] [email protected] [email protected] (212) 885-4060 (416) 359-4250 (416) 359-5188 Table of Contents The Lithium Ion Battery and the Electric Vehicle Market → The Science Behind What You Can’t See ...................... 2 Cutting the Gordian EV Battery Knot ............................................................................................................................ 2 Top 5 Proprietary Takeaways: ...................................................................................................................................... 3 Report Synopsis ............................................................................................................................................................ 3 The Technology – Challenges of Battery Chemistry ................................................................................................ 3 EV Adoption Is Also Dependent on the Following 5 Factors: .................................................................................. 6 The EV Landscape – China Leading the Way ............................................................................................................ 7 Report Framework.................................................................................................................................................... 8 The Battlegrounds – The Many Ways to Invest in the EV Space ............................................................................. 9 Part I – The Increasing EV Market – 10% Penetration by 2025 ................................................................................. 10 1. Regulatory Pressures to Reduce Emissions ....................................................................................................... 12 2. Increasing Investment in Charging Infrastructure ............................................................................................. 16 3. China’s Very Big Push Into Electrification .......................................................................................................... 18 4. Battery Technology Now More Robust and Expected to Improve .................................................................... 21 5. Battery Costs Are Declining ................................................................................................................................ 22 6. The Tesla Effect – Making EVs a ‘Must Have’ Item ............................................................................................ 25 7. EV Cost of Ownership Nearing ICE Today ........................................................................................................... 28 8. Reducing Range Anxiety .................................................................................................................................... 28 Battleground #1 → OEMs Race to Get BEV/PHEV on the Road ................................................................................. 30 Part II – The Science Behind the Numbers ................................................................................................................. 47 The Term “Lithium-Ion Battery” Describes a Number of Different Chemistries ................................................... 48 Battleground #2 → Improving the Battery Chemistry .............................................................................................. 53 The Lithium Ion Battery Landscape........................................................................................................................ 54 Part III – A (Very) Deep Dive on NMC Cathode Chemistry .................................................................................... 60 1. LITHIUM COBALT OXIDE (LCO) ............................................................................................................................. 65 → Why Can’t It Be Used in EVs? – It's Too Explosive ............................................................................................. 65 The LCO Chemistry Will Not Be Used in BEVs Anytime Soon................................................................................. 69 2. LITHIUM MANGANESE OXIDE (LMO) .................................................................................................................... 70 → Low Capacity and Impractical in High Temperature Regions ........................................................................... 70 3. LITHIUM NICKEL OXIDE (LNO) .............................................................................................................................. 74 → The Birth of Nickel Rich Chemistries (NCA and NMC) ....................................................................................... 74 4. LITHIUM NICKEL MANGANESE COBALT (NMC) ..................................................................................................... 79 → Mixing Nickel, Manganese and Cobalt – Not That Crazy .................................................................................. 79 Part IV –Range Anxiety and the Consumer Experience ........................................................................................ 85 1. The Effects of Climate on Battery Performance ................................................................................................ 85 2. Charging Challenges – Another Impediment to Adoption ................................................................................ 92 Battleground #3 – Race to Reduce Range Anxiety .................................................................................................. 101 Part V – The Supply and Demand of Key Raw Materials .................................................................................... 104 1. Lithium: Strong Demand Led by EV Momentum, But Supply Response Looms ............................................. 106 2. Cobalt: Solving for Complex Supply-Constraints .............................................................................................. 112 3. Nickel: Driven by Stainless Steel, Not Batteries (for now) ............................................................................. 116 Battleground #4 → Race to Secure Key Raw Materials .......................................................................................... 121 Scientific Literature References ................................................................................................................................ 123 1 Note: This report was reviewed by a materials chemist to ensure the accuracy of the science cited within. The Lithium Ion Battery and the Electric Vehicle Market → The Science Behind What You Can’t See The purpose of this report is provide investors with a deep understanding of one of the major gating issues to electric vehicle (EV) adoption → the current state of lithium ion battery electrochemistry. When we surveyed what was being written on the EV space we found that there was a major thought vacuum around the understanding of the internal workings, the design limitations, and the implications of various chemistry alternatives within a lithium ion battery cell. At some level, the development and evolution of this technology is analogous to the refinement and development that took place for the four stroke internal combustion engine (ICE), although likely at an accelerated rate. Although there are other power storage technologies available, the lithium ion battery is what is powering today’s electric vehicles and we believe will likely be the dominant technology for the next 5-10 years. Cutting the Gordian EV Battery Knot Lithium ion battery chemistry is very complicated and understanding the design challenges, limitations and trade-offs OEMs face is necessary to put EV adoption rates into context.