Powering up: A map of the electric vehicle landscape

With virtually every original equipment manufacturer (OEM) entering the electric vehicle (EV) race, the question of battery health and longevity is front and center as lenders begin crafting underwriting and remarketing strategies. In fact, the EV battery pack constitutes about 30% to 40% of the overall value of an electric vehicle, Lea Malloy , head of EV battery solutions at Cox Automotive Mobility , told Auto Finance News . “It’s a high-value asset that needs inspection, valuation and servicing, and all of this is new when compared to combustion engines.” New technologies are emerging to test and monitor the health of EV batteries. Cox Auto, for one, acquired Spiers New Technologies — a service provider for EV battery lifecycle management — in September 2021 as the company prepares for the forthcoming influx of EVs into the wholesale market. Simply put, understanding an EV’s battery health will help lenders more accurately determine a vehicle’s value when it reenters the market and, in some cases, even increase the value of the vehicle, Malloy said. “We are delivering battery health reports as part of our Manheim condition reports at select auction locations, driving buyer confidence and higher transaction prices for used EVs,” she said. “Early results of close to 1,000 vehicles tested across five OEMs, [and] seven models [indicate] the batteries are performing well, with less than 4% of vehicles received scores lower than a 3 on a scale of 1-5. “We are seeing a 1% to 4% increase in sale price over the average sale price,” Malloy added. As battery advancements accelerate and the industry continues to power up, lenders will need to stay on top of the evolving market to minimize portfolio risk. Stop 1: Who’s who in EV battery production The top EV battery producers are primarily headquartered in Asia, but as the global EV market is expected to grow rapidly — with 145 million EVs dominating the road by 2030 compared to 10 million in 2020, according to the International Energy Agency — automakers are taking note. They are therefore making moves to shift battery production and processing closer to home, with an emphasis on battery health and range. In fact, the following six companies were responsible for supplying 87% of the batteries and battery materials of the EV passenger vehicles in 2020: BYD , with headquarters in China and Los Angeles, produces LFP batteries and supplies Ford Motor Co . The company also partners with Toyota Motor Co. to jointly develop EVs, as of Q4 2021. Contemporary Amperex Technology Co. Ltd. (CATL) is a Chinese battery manufacturer and technology company that specializes in making LFP batteries. CATL supplies and collaborates with BMW AG , Stellantis NV , Tesla , Toyota, Volkswagen and Volvo . LG Energy Solution , headquartered in South Korea, produces NCM batteries and is expanding its EV battery offers with cobalt- and nickel-free LFP batteries. LG Energy Solution supplies General Motors , Stellantis and Tesla. Panasonic is headquartered in Japan and supplies Tesla and Toyota. In 2020, the company debuted its 4680 cylindrical battery, which purportedly stores five times as much energy and costs half as much to build as the 2170 lithium-ion cells Tesla currently uses in the Model 3 and Y, which are also provided by Panasonic. Panasonic produces LFP batteries and Nick-Metal Hydride for Hybrid EVs. Samsung SDI , also headquartered in South Korea, produces lithium-ion batteries and supplies BMW, Ford, Stellantis and VW Group . SK Innovation , in South Korea, supplies Daimler AG , Ford, Hyundai Motor Co . and Kia . The company and Solid Power are co-developing solid-state batteries that eliminate the liquid component of lithium-ion batteries. The company plans to invest $30 million to jointly produce all-solid-state EV batteries with Solid Power for electric vehicles, according to a company release. Stop 2: Maximizing range, lowering costs The early reputation of EVs for poor resale value had a lot to do with the vehicles’ high prices, limited range and the lack of infrastructure for charging on long trips. As a result, every major OEM — including Ford Motor, General Motors and Volkswagen, to name a few — are making significant investments in EV production and materials, allowing for advancements in range, charging times and the accessibility of charging stations as they look to increase consumer adoption and limit depreciation. Battery range has come a long way in the past decade. The new 2022 GMC Hummer EV pickup, for example, will go 350 miles on a single charge. And the 2022 Lucid Air battery has an Environmental Protection Agency -estimated range of 520 miles on a single charge, the longest range of current EV models in the market. Limiting the cost of battery production has also been a key consideration for the EV battery industry. There are three main types of EV batteries: lithium-ion batteries (LFP); nickel-metal hybrid, used in many plug-in hybrids like Toyota; and NCM or NCA batteries, which primarily use nickel, cobalt and manganese. The materials used to make EV batteries are expensive, and prices show no signs of cooling. Lithium prices have risen 400% since 2015 as EV sales in China have taken off, according to Asian Metal Inc. , which tracks Chinese lithium prices. Nickel and cobalt batteries and new LFP technology can provide an extended range, and many manufacturers are looking to produce batteries with less cobalt, which is traditionally expensive to mine and process. As a result, several EV battery production companies — such as Factorial Energy , Panasonic, QuantumScape , Solid Energy Systems , Solid Power and SK Innovation — are advancing research and production in nontraditional solid-state EV batteries that do away with the liquid component popular in lithium-ion batteries. Several large automakers have also made the move to invest in EV production in North America to help overcome pricing hurdles present in EV battery production, Michael Insulan , vice president of commercial at Electra Battery Materials , told AFN . “Nickel sulfate and cobalt sulfate producers are non-existent in North America,” Insulan said, noting that “China is the processing powerhouse of all these materials. Integrating the supply chain into North America is critical.” In fact, EV manufacturer Tesla is slated to open the first battery materials park in Ontario, Canada, within the year. Racing to counter Asia’s dominance in the EV battery space, General Motors is building factories in Ohio and Tennessee, including its first Ultium battery gigafactory, with production slated to start this year. Ford plans to scale up capacity by 2030, investing $11.4 billion to construct battery factories in partnership with South Korea’s SK Innovation. Toyota selected a site for battery manufacturing in North Carolina, where it is expected to start production in 2025. Volkswagen is constructing a plant in Tennessee and plans to start production this year. With lithium-ion battery production booming in China and supply chain issues at the forefront, much of the EV battery production in the U.S. is likely to move toward more sustainable materials. Tesla, for example, is partnering with CATL to produce a cheaper, zero-cobalt LFP. A global trend is emerging as automakers — including General Motors, Tesla and Volkswagen —adopt nickel-rich chemistries for longer-range cars, according to statements by the companies. The move toward cheaper, longer-range and efficient batteries may precipitate a rise in vehicle range and a drop in battery prices that could result in longer term sustainability in the EV resale market. Stop 3: End-of-life replacement and recycling A recurring question in the auto finance industry is what to do with a battery at the end of its life, beyond remarketing the vehicle through wholesale avenues. Currently, EV batteries are considered “end of life” when their charge capacity reaches 80% or lower, Electra Battery Materials’ Insulan said. Most current warranties cover EVs to roughly 80,000 miles or when the battery reaches 80% charge capacity, he noted. Still, it’s likely many consumers continue to drive their EVs even after their warranty has expired and the battery has some diminished charging capacity, particularly as battery producers continue to make strides in battery technology and range expansion. “I don’t think the end of life is 80%,” Insulan said, “I’ll keep driving my car until the rest of it falls apart, which will be sooner than the batteries. They last for a long time.” This could be a key factor in remarketing as well, with more consumers willing to make the move toward used EVs at a cheaper price, Insulan said. Ford Credit , for example, is exploring what a used leasing program might look like for its EVs returning to the market, Jim Drotman , executive vice president of U.S., Canada and International Markets, previously told AFN. Lenders may also utilize recycling or battery repurposing as EV batteries reach end of life, although battery recycling use cases are still in their infancy. Ford Motor, for example, has partnered with Carson City, Nev.-based Redwood Materials with an eye toward a closed-loop recycling process . In fact, recycling the battery at end of life could net a profit for both lenders and consumers, Insulan told AFN , depending on what type of battery is used. The materials and maintenance options for EVs will be a factor to consider in the underwriting process when forecasting vehicle residuals in the future. “If a car manufacturer produces a car with a nickel cobalt battery, they can actually make money at the end of the day,” Insulan said. “Whereas if they produce a car with an LFP battery, it's a long-term liability. They probably have to pay to get rid of that.” Auto Finance Innovation Summit, the premier event for technology in auto finance, returns April 25-26 in San Diego. The event will showcase today’s technology and tomorrow’s innovation-driven opportunities to position your company for success in this fast-paced digital era. To learn more about the 2022 event and register, visit www.AutoFinanceInnovation.com .

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