Gigafactory + Europe + Electricity Crisis = Problems Ahead…
Image credit: Dr Cecile Pera
I am amazed by the hype created by Battery Gigafactory announcements but the lack of reflexion on their profitability and the consequences they can have on the general European economy, especially considering the energy crisis. Let's explore some orders of magnitude…
How much Electricity will be needed?
Gigafactories use a lot of energy to produce the Battery as they need a lot of steps and processes. It is mainly the drying process and the solvent recovery that need the highest among of Energy. While many studies try to quantify the environmental impacts of Battery production through Life Cycle Assessment (LCA), few discussions focus on the economical and strategical impact of the Energy consumption of these Gigafactories.
Our objective here is to estimate the required energy to manufacture a Battery within a gigafactory (not considering raw material extraction, etc.). As usual, Tesla is the car manufacturer for which it is the easiest to find information…
Let’s consider the Tesla Gigafactory 1 in Nevada as a case study. As of end of 2021, Tesla Gigafactory 1 consisted in 13 production lines with a total output of about 35 GWh of Lithium-cells annually. Assuming that Tesla is free from Natural Gas supply, we consider Electricity the only source of energy. The Nevada Governor’s office of economic development analysis of the Economic Impact of Tesla estimated the electricity bill of the Tesla Gigafactory to be about USD95,000,000 / year. With a cost of 5.54 cents per kWh (also given in this same report), we can estimate that the Tesla Gigafactory 1 uses about 1,700 GWh for a production of about 35 kWh annually. This allows us to estimate that about 50 kWh of energy is necessary to manufacture 1 kWh of Battery.
Please note that any argument that would consists in considering potential Renewable Electricity by Tesla itself would result in increasing the necessary cost of energy needed per kWh. So for now, let’s work on a simple basis which anyway corresponds to the lower energy cost.
50 kWh of Electricity for each kWh of Battery… How does that sounds compared to literature? The article [“A Flexible Model for Benchmarking the Energy Usage of Automotive Lithium-Ion Battery Cell Manufacturing”, Jinasena et al., Batteries 2021, 7, 14] estimated the Northvolt Gigafactory energy requirement at 44.6 kWh / kWh. Similarly, [“Life Cycle Analysis of Lithium-Ion Batteries for Automotive Applications”, Dai et al. Batteries 2019, 5, 48] in their LCA used an energy consumption of 47 kWh per kWh of produced Battery.
Consequently, it seems pretty consistent to consider an energy consumption of about 50 kWh per kWh Battery capacity produced…
Quickly, we understand that the price of Battery manufacturing is highly influenced by the price of energy which is mainly the price of electricity…
Electricity Bill on Gigafactory
Assuming a consumption of 50 kWh_electricity / kWh_capacity, it is easy to estimate the cost of the Electricity crisis on the European Gigafactories.
In February 2022, the market price of Electricity in Germany was about 65€ / MWh leading to an Electricity cost of 3.25€ / kWh of Battery - pretty negligible compared to Nickel, Lithium and the other raw material prices.
As of today (Aug/Sept 2022), the cost of electricity in Germany is around 650€ / MWh meaning about 30€ additional cost per kWh of Battery which is far from being negligible.
Think about Elon: he has the Gigafactory 1 in Nevada costing 6€ of Electricity / kWh of Battery (probably less than that due to the support of the Nevada state) vs the Berlin Gigafactory costing 30€ / kWh or even more…. When comparing similar Gigafactory production (let’s take Gigafactory 1 = 35 GWh as a reference) this would mean a cost difference of about 1 billion EURO!
Does that number seem unrealistic to you? Keep in mind that the Nevada Governor’s office announced an electricity bill of about USD95M for the Nevada Gigafactory 1. If you now multiply by 10 the price of electricity (which is roughly what is currently happening in Europe), you end up to nearly a billion dollar (or euro, we have about parity right now) of loss!
Electricity Cost Loss across Gigafactories in Europe
Figure 1- History of the Electricity Price in Germany. Data available here.
Let’s compare the Electric bill for various Gigafactory Scenarios
The 2021 Electricity price in Germany is taken as a reference for comparison at 65€ / MWh (Fig. 1)
The Nevada Electricity price is considered for comparison at 130€ / MWh following the data public price available here
The 2022 Electricity price is taken according to the following map:
Figure 2 - Price of Electricity in Europe at end of August 2022, image from the Hellenic Regulatory Authority for Energy (RAE)
Knowing that you need about 50 kWh of Electricity to manufacture 1 kWh of Battery Capacity, we estimate the price of Electricity per GWh of Gigafactory as the following:
Figure 3- Cost in Electricity to manufacture 1GWh of Lithium of Battery depending on the location of the Gigafactory
It is very clear from these estimations that the profitability of the multiple Gigafactories as they are today planned in Europe is at risk in many countries. Another way to represent yourself the burden of the Electricity cost is to look at the Electricity cost needed to manufacture some typical Battery Pack Sizes. We have chosen for this illustration:
A large Battery Size of 120 kWh used for example in the Mercedes EQS 450+ (120 kWh gross capacity, 107.8 kWh usable) with a 800 km range
A medium Battery Size of 85 kWh used for example in the Tesla Model S (80.8 kWh usable) with a 500 km range
A small Battery Size of 34 kWh used for example in the Chinese Ora White cat with a 360 km range (NEDC)
For these estimations, we have considered the price of Electricity in Europe given in Fig 1. and the 2021 German Electricity Price of 65€/MWh as previously explained. The price for the Electricity market was taken as about 130€/MWh following the price market on Sept 2022 for Nevada on the website saveonenergy. The price in China was chosen as the price for Electricity for Industry in Shanghai to be 126€/MWh (870 RMB) according to ceicdata
Figure 4 - Comparison of the cost of Electricity to manufacture some typical Battery Packs
Of course, the additional cost highly depends on the size of the Battery Pack. For example, considering the Mercedes EQS 450+, an additional cost of about 3600€ (4000 - 400) has been added to the Battery Pack if made in a German Gigafactory in Sept 2022 (compared to Sept 2021), only due the cost of electricity for manufacturing.
There is no need for a long estimation to understand that car manufacturers would have a strategic advantage to have their Gigafactories in Sweden rather than in Germany. It also reinforces the cost advantage of EV manufacturing in the USA and in China compared to Europe…
Of course, in addition to this extra cost in Electricity, car manufacturers need to now deal with a very high price for the Lithium. As a comparison, the price of the Lithium was about 12 UDS/kg in March 2021 while today in Sept 2022 it is about 76 UDS/kg (price given on the LME). What does it means for a Battery Pack? As an order of magnitude, a Tesla Model 3 60 kWh (NCM90:5:5) contains about 35 kg of Lithium Hydroxide. This corresponded to a cost of 465 USD in March 2021 but is now jumping up to 2660 USD meaning a cost increase of about 2000€.
In addition, OROVEL would like to stress that most of the future Gigafactories announced in Europe have been planned to produce NCM Battery chemistry with very few Gigafactories able to produce both NCM and LFP.
NCM only: Envision AESC, VERKOR, Vokswagen, Italvolt, LG Chem Poland, Northvolt
Both NCM/LFP: Britishvolt. acc, CATL, SVOLT, Tesla (NCA)
Very recently, the cost of the raw materials - especially for Nickel - have seriously jeopardised this choice of chemistry. In March, according to S&P Global Market Intelligence, NCM Batteries were up 150% over a year with a price of about ∼$78/kWh in February (company to ∼$36/kWh for LFP chemistry).
What does that mean?
This article illustrates the enormous challenge that Electric Vehicles manufacturers will face in 2023 in Europe. Of course, one can still come back on the details of this article and prices may change from one day to another, but until the Energy Price Crisis is solved in Europe, there will be a lot of tension and stress at OEMs to keep their loss under control. Many OEMs have already increase the price of their cars. This is what Tesla has recently done. In June 2022, Tesla increases their price in Germany for the Model 3 long Range AWD by 2500€.
Some other OEMs may not be able to increase further their price but will face either margin problems or will have to delay or cancel investments.
There is a high risk that several Gigafactories planned in Europe will be withdrawn. For example, the Battery Cell factory of Mercedes with Farasis Energy that was a big announcement in 2020 but was recently cancelled with a comment from Farasis saying “the dynamic market development has led to a shift in priorities".
Please keep in mind that Battery and EV businesses are very quick to communicate about hype announcements, but “more surprisingly” no one talks about cancellations when fancy plans do not become reality….
