A rather short news item caught my eye this week.  The Captain Hybrid blog featured on designnews.com takes issue with financial media reports indicating that there may be constraints in the supply of lithium powered batteries to displace gasoline-powered vehicles.  Rather, the posting notes quantitative research indicating that there may well be an oversupply of lithium ion battery production capacity.  It cites research studies from Pike Research and Lux Research which separately conclude that forecasted sales of all electric powered vehicles result in a predicted oversupply in currently invested lithium battery plant capacity.  As an example, Lux Research predicts there will be 18.2 gWh of lithium-ion battery supply available by 2015, but vehicle sales are only forecasted to consume about 11.0 gWh. Lux’s argument is that governments offering billions of dollars in subsidies to build new plants does not equate to the ability of private industry at naturally balancing supply and demand factors.

While I can partially support such a conclusion, I might offer another stream of commentary.  In the big-picture, governments and their associated industry players are in a global race as to which alternative energy supply chain ultimately prevails as the most innovative and cost competitive.  Is there some disconnect to forecasted demand for end-products? Absolutely.  Is this a economic business, or a political process?  I believe it is both.

The supply chain supporting alternative energy needs is a battleground for dominance in the coming decade. The reality, regardless of political leaning, is that governments are taking stakes in this key battle.  There is over capacity in many other industries today, because of these same strategic stakes, and private industry is just as much at fault.  Need an example, consider the current overcapacity situation in steel production that is occurring in China today.  Last year it was DRAM and flash memory to support consumer electronics growth industries. All remain key battleground areas for supply chain competitiveness.

Let’s move beyond the numbers and concentrate on supply chain strategic implications.  Natural forces of the market, coupled with political influence of lobbyists and governments are all in play.  Time will tell the ultimate story of the surviving lithium battery supply chain. Major automotive OEM’s are already placing their bets, both business and political in scope, on which battery suppliers they will partner with. In the meantime, current lithium-ion battery producers are in a marathon with a rather large prize- dominance of a future strategic industry.

Bob Ferrari