Expect lower prices for lithium batteries

By Staff -- Purchasing, 2/22/2001

The lithium rechargeable battery market will see steady growth over the next three years, driven by portable electronic equipment such as cell phones, personal digital assistants and handheld computers. The good news for buyers is that competition will mean lower prices for lithium cells.

The outlook for sales in the lithium battery market is strong in the short term. Market researcher Darnell Group in Corona, Calif., projects the worldwide lithium-ion battery pack market to be $3.0 billion in 2001. The group also predicts the lithium ion market will grow at approximately 4.9% through 2004. Edward Hester, vice president of the durable goods division at the Freedonia Group in Cleveland, estimates the worldwide market for lithium rechargeable batteries to be $2.4 billion in 1999 and growing to $6.5 billion in 2004, with an average of 22% growth over the five-year period. Driving that growth are the new portable technologies flooding the market today, which rely more on flexible lithium-based power sources and less on nickel-based batteries.

"2000 appeared to be a strong year for lithium," says Hester, adding that lithium-based batteries took a strong hold in 2000 over some of the more established technologies. "Lithium is a superior product that is taking share away from other battery types such as nickel cadmium and nickel metal hydride. It's like any other emerging market-it starts from a zero base, grows exponentially, and then levels off over time. And when you start from zero and you have the whole market to penetrate, you can have very fast growth. We still think there is room for lithium to make further inroads, but it will slow down over time. For example, between 2004 and 2009, we expect the growth to slow down to under 15%."

Toshiba America Electronic Components of Irvine, Calif., may have best confirmed the trend away from nickel to lithium when it sold its nickel metal hydride operations to Sanyo in October 2000.

"Now we're totally focused on the lithium and advanced lithium lineups," says Ritch Russ, business development manager for Toshiba's battery business unit. "We've seen some cost erosions in lithium also. But there are still high-end products out there to make it less of a commodity than nickel metal hydride was."

Ty Bowman, Marketing Manager for Panasonic's OEM Battery Sales Group in Elgin, Ill., says demand for all lithium battery products was up in 2000 over nickel-based products and Bowman expects that trend to continue in 2001. But revenue growth may not accurately reflect the increased sales, as prices are expected to drop with more players coming into the market with more product options.

When it's time to change

But the question of how much market the lithium products will take away from nickel cadmium and nickel metal hydride is not what's on the mind of most market watchers. Today, most industry experts are watching the transition from lithium ion batteries to lithium polymer batteries and trying to gauge how quickly this transition will take place.

Lithium polymers have a strong advantage in that they have similar performance to lithium ions, but are flexible and can be built to fit nearly any application. This gives the technology a distinct advantage in the fledgling PDA market and the booming cell phone market, which is rapidly replacing the notebook PC as the biggest application for lithium batteries.

"Lithium polymer cells have really just been ramping up in the past year and there haven't been many users until the second half of 2000," says Joel Tax, an analyst with Santa Clara Consulting. "We'll see growth in the thin, small, portable phone applications and PDAs. But there are still significant volumes of very thin lithium ion cells available for these applications. So form factor is number one and the second factor is pricing, which may be an issue."

Tax says the availability of lithium polymer batteries has increased in the past year, as has the reliability of these products. And as more manufacturers begin to make polymers, the adoption rates will increase. Panasonic expects to begin mass production of lithium polymers in mid-2001.

Hester says some lithium polymer makers are having difficulty developing a stable product, but Lev Dawson, chairman and CEO of Valence Technology Inc. in Henderson, Nev., expects the switch to lithium polymers from lithium ion to be swift. He estimates that 2% of the products on the market use lithium polymer technology today, but in two years that number will be 30%. Despite that dramatic increase, Dawson is confident the industry will be able to handle the demands made on it.

Toshiba is talking up its Advanced Lithium Battery (ALB) technology after developing and comparing it closely with the lithium polymer technology being pursued by many of its competitors. Today, Toshiba is manufacturing about 1.6 million ALB cells per month with a goal of five million per month by the end of 2001. Russ admits there is a 25% cost premium for ALB over lithium ions, but both lithium polymers and ALB offer a cost advantage over standard lithium ions in the long run.

"We developed pure lithium polymers and advanced lithium side by side and, ultimately, went with the ALB technology because of the performance benefits," says Russ.