Electric-vehicle competition is heating up. Alliances are forming in the nascent electric-car wars. Future battles may be brutal, but the new joint ventures demonstrate that old, internal-combustion-car companies are preparing for an all-electric future.
“With this investment, Ohio and its highly capable workforce will play a key role in our journey toward a world with zero emissions,” said GM CEO Mary Barra in the company’s news release. “Combining our manufacturing expertise with LG Chem’s leading battery-cell technology will help accelerate our pursuit of an all-electric future.”
Don’t forget, Tesla (TSLA) joined with Japan’s Panasonic (6752.Japan) on Elon Musk’s so-called gigafactory—the plant which makes batteries for Tesla’s electric vehicles, or EVs.
Car makers like joint ventures for technology-sharing reasons, but EV batteries are expensive, too. The GM-LG venture is planning $2.3 billion in spending. Musk pegged the cost of Tesla-Panasonic’s gigafactory at up to $5 billion.
Tesla announced that facility years ago, around 2014, so the EV pioneer appears to have a lead on the competition. That is to be expected. Tesla, after all, only makes EVs. There are other battery suppliers, besides LG and Panasonic, for car makers to choose from.
BMW (BMW.Germany), for instance, purchases its EV batteries from Samsung (005930.Korea). Toyota Motor (TM) owns the majority of its battery supplier while Panasonic owns a minority stake in that subsidiary named Primearth. Ford Motor (F), for its part, also has a relationship with LG Chem.
More EVs are coming. The industry is betting big on batteries like the joint venture and Barra’s quote indicates. But the bet isn’t certain to pay off. Batteries plus an electric motor are still more expensive than an engine plus a gas tank. Of course, the cost of electricity today is less than the equivalent cost of gasoline. Car owners get paid back slowly, over time, for picking an EV.
The industry wants to crack the $100 per kilowatt-hour barrier for battery costs to make EVs more cost effective. “We can [bring cost down] by bringing innovation and research,” said LG Chem CEO Hak-Chel Shin in a Thursday CNBC interview adding, “there is a productivity element.” Productivity comes from producing more EVs. That way, car companies such as GM can spread required battery investments–which can be imposing–over more vehicles.
Costs for batteries are a closely guarded secret. But customers can buy a Tesla Model 3 in several configurations. The 50-plus kilowatt battery pack would cost more than $5,000 if batteries cost $100 per kilowatt. That version of the Model 3 gets about 190 miles per “battery-tank” of energy. The extended-range version costs about $9,000 more and has a battery back about 20 kilowatts larger. There is margin in the range upgrade for Tesla, but that example can help give investors a sense of how much batteries cost now.
Of course, that calculation is a rough approximation. Investors—and car buyers—however, are going to have to get accustomed to doing calculations like this.
Barra was also asked about the Cybertruck during the television interview. She wouldn’t comment on design, instead saying electric trucks will be a significant part of the market “if we stay focused on the customer.” She confirmed GM plans to have an all-electric pickup truck in the fall of 2021, right around the time Cybertruck will be on sale.
Trucks, along with sedans, will be another front in the EV wars.
GM stock is down 0.5% in Thursday trading. Tesla stock is off 0.8%. The S&P 500 and Dow Jones Industrial Average are both down slightly.
Write to Al Root at allen.root@dowjones.com
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GM and LG Pair Up for Electric Vehicles. Here’s What That Means For Tesla. - Barron's
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