EV Virtual Industry Cluster

Interviews with battery and power electronics and controls manufacturers are mixed regarding the value of proximate R&D and manufacturing capacity. One interviewee suggested that this close relationship was critical to “put out fires” and quickly move products to market in response to customer demands. Another interviewee cited advances in communication technology as effectively bridging much of the distance gap. Interviewee agreed that technology could not fully bridge the distance gap, but disagreed as to the relative costs at issue.

Advanced batteries, power electronics and controls, and electric motors are likely to seek standardization due to the economies of scale that can be generated. The success of standardization can be observed with the 18650 laptop computer battery, which has become standardized and can be affordably produced. Some experts disagreed about the value of all forms of standardization, arguing that manufacturers would be hesitant to completely standardize because differentiation between products is critical in this space.  It is likely that a mature advanced vehicle battery market will be characterized by a high level of standardization.

Like the traditional internal combustion vehicle, the anticipated mass production for the electric vehicle is expected to drive very large economies of scale and benefit substantially from network effects and agglomeration. High capital and upfront R&D costs, particularly in advanced battery development, mean that the industry will depend heavily on economies of scale for profitability. According to one interviewee, for success in this industry, the successful companies will be global due to the enormous upfront costs of manufacturing equipment and R&D.

Interviews with battery producers indicate that these products are very expensive to ship due to their weight and careful handling requirements. Therefore, it is attractive for battery pack assembly operations to be located within a 300-mile radius of their customers, the automakers. According to one industry expert, shipping these batteries across international boundaries is untenable. It is not tenable for the cells to be shipped overseas long-term-they are fragile, heavy, and expensive. Without the cell development, we are not really in the game.” Electric motors were cited as less expensive to ship, but equally beneficial to have within a day’s shipping distance. Power electronics and controls were not noted to have transportation-related benefits.

While the mature automotive industry may tend to drive innovation away from its core, as witnessed by the emergence of electric car commercialization efforts outside of Detroit (e.g. Tesla in California or BYD Co. in China), the advanced automotive battery, power control electronics, and electric motor industries that support electric vehicle development are entering a growth phase that will tend to re-concentrate innovation. Each of these industries was classified as “nascent” by the interviewees. While these industries have seen maturity in previous applications (electric motors for stationary applications, power electronics for various small electronics, advanced batteries for laptops), the system requirements of electrified transportation differ radically, and those requirements must be brought to manufacturing scale and incorporated into the vehicle interface. This spotlights the opportunity and challenge that the emergence of the EV presents.