European company Continental may be best known for its range of car tyres, but it also happens to be the second-biggest manufacturer of car components in Europe. So when it announced a joint project with South-Korean SK Innovation back in 2012 to develop, produce and distribute lithium-ion battery packs for electric cars, the industry sat up and took notice.
Yet just two years after announcing the partnership and one year after agreeing a €270 million, five-year investment in a battery technology development, the German-based company has now announced that it is considering ending its battery research program by the end of this year. Its reason? Electric cars aren’t taking off as quickly as it would like.
But we suspect the real reason isn’t just because of electric car adoption rates. It’s because of the intense competition in the lithium-ion battery marketplace and its rapid rate of innovation.
As Bloomberg details, the components manufacturer has written down €77.9 million ($97.4 million) of the venture’s value in the third-quarter, following lengthy internal discussions on the financial viability of the project.
Continental hasn’t officially killed its battery partnership yet, but has said that it will make an official decision by the end of the year.
“The market for battery cells is less attractive than we thought two to three years ago,” said Continental AG’s Chief Financial Officer Wolfgang Schaefer. Despite a growing electric car market, rapid innovation and leaps in battery power, cost, and energy density mean that “people are delaying their purchase,” he continued.
It’s not clear from Wolfgang’s statement if Continental no-longer believes electric cars will be a viable transportation solution for the future, or if the economics of developing and building electric car battery packs from scratch is simply uneconomical in the face of dramatically falling battery pack prices. Given battery prices have fallen dramatically in the past few years from more than $500 per kilowatt-hour to an estimated $200-250 per kilowatt-hour, we’d suggest the latter.
Then of course, there’s the pressure facing Continental’s venture from Tesla Motors. With construction now underway on Tesla’s massive Gigafactory — which some pundits claim could reach a battery cell cost of $100 per kilowatt-hour within ten years — we suspect Continental can’t justify the expenditure in the face of such tough competition.
Combine Tesla’s promised massive-scale lithium-ion battery production in what it claims will be the world’s largest lithium-ion battery production facility with the expertise of Gigafactory partner Panasonic, throw in tough competition from existing battery producers like LG Chem and Samsung SDI, and we suspect Continental is all too aware of how much competition lies in the lithium-ion battery world.
Do you agree? Is Continental scared of the competition? Or is this simply a financial decision borne out of practicality? Leave your thoughts in the Comments below.
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