Do auto makers have to become battery makers?

Automakers, such as Hyundai, are seeking to bring battery production in house to decrease costs?

Can automakers profit from outsourced batteries?

Can automakers afford lithium?

Today, lithium is already available on the high end of the luxury hybrid market. Soon, however, lithium battery packs will be available in many other hybrids, plug-in hybrids and electric vehicles.

Still, can automakers derive a profit from lithium-powered vehicles?

Certainly on the high end, automakers are very capable of deriving profits from battery-powered vehicles. Of course, such vehicles represent only a tiny percent of yearly auto sales.

On the conventional side, with sedans and cars making up a greater portion of yearly auto sales, profit margins are more and more difficult for automakers to realize. Consequently, automakers are adding extra amenities and high tech features to increase vehicle pricing points. If costly batteries are added to this equation, will these cars become even more difficult to derive a profit, as well as too expensive for consumers?

Before the launch of the third generation Toyota Prius, high level executives announced that the king of hybrid cars would be powered by lithium, only to recant those statements as Toyota claimed that such batteries would simply be too expensive compared to NiMH. Certainly, compared to every other automaker, Toyota invested much more money into NiMH technology. So, considering the lack of competition, perhaps there was simply no real reason for Toyota to rush into lithium.

As Hyundai prepares to offer the new lithium-powered Sonata hybrid – without ever embracing NiMH technologies -  company insiders claim that Hyundai is contemplating bringing battery development in house to reduce a layer of costs.

Now, certainly, automakers can offset some of the development costs of battery-powered vehicles with the extra marketing capabilities such vehicles can provide. Yet, if battery-powered vehicles ever move beyond niche-status, will profits become harder and harder for automakers to achieve?

The bulk of the battery research, including consumer studies, suggests that automakers are going to have a tough time converting the public to plug-ins because of costs and/or limited capabilities, such as range. That almost certainly seems to suggest the thinnest possible profit margins to compete in terms of sales.

Or, if automakers can bring more and more battery production in-house, there is greater profit potential. Of course, there is also more complexity, potentially huge R&D and supply chain costs, etc.

Do auto makers have to become battery makers to succeed at electrification?

Only time will tell, of course, and different automakers are certain to try various approaches that could possibly lead to entirely different business models. One thing, however, seems certain. Without some major technological innovations in the battery industry, automakers will be required to be more innovative than ever.


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