In 1800, the man who gave his name to the volt, Alessandro Volta of the University of Pavia in Italy, invented the first electrochemical battery. Aptly named "Volta's Pile," it was the first device to produce a continuous electric current.

Source: Tempio Voltiano

Volta's battery certainly may not look like much, but it worked, laying the groundwork for the communications, computer, electronics and power engineering industries of today.

In those early days, the first real consumers of batteries (and even then, only in modest volumes) were the telegraph industry, followed, historically, by the telephone industry.

The communications industry was, perhaps surprisingly, followed by the transport industry. According to The Economist: "At the turn of the century battery-powered vehicles were a common sight on city streets, because they were quiet and did not emit any noxious fumes."

Batteries Today

Only since the 20^th century, however, have batteries become commodity items - cheap, mass-produced and readily available. They're now used in everything and anything. The Saft Group (Bloomberg Ticker - SAFT:FP), one of the world's leading high-technology battery companies, describes its markets as follows:

*JC-S is a joint venture with Johnson Controls (Bloomberg Ticker - JCI:US) - a leading manufacturer of lead-acid batteries.

The company's market segments do not even include some of the biggest areas of battery demand: mobile phones, portable computers, audio/video and power tools.

Battery technologies, too, have multiplied, with individual battery technologies for every possible use. While nickel-hydrogen (NiH₂) batteries are now the choice for geostationary satellites, silver-zinc [Ag-Zn] batteries do the job best in torpedoes. And where military radio communications and cardiac defibrillators use lithium-sulfur dioxide [Li-SO₂], such batteries are unsuitable in such applications as UPS (uninterruptible power supply) systems, in which Nickel-Cadmium [Ni-Cd] batteries do a fine job.

Source: Saft

The heterogeneity of uses to which batteries are now put would be truly mind-boggling to 19^th century battery users - as would the specs of the different batteries themselves. These days, outside the consumer market, batteries are increasingly "made-to-measure."

Exploding Batteries

Over the past century, as batteries have developed, there have been any number of battles pitting different technologies against each other to create the "best" battery. Some have been high profile, others fought behind the scenes.

Among the higher profile has been that fought in the realm of portable electronic devices, such as camcorders, power tools or portable computers. Anyone who has used such devices over the past several years will have noticed that whereas, before, they used NiCd batteries, now, more often than not, these have been replaced by lithium ion [Li-ion] batteries. Indeed, as we saw in October's article Cobalt: More Than Just Blue, over the last 10-12 years, Li-ion batteries have, by value, come to dominate the market.

Source: Umicore

But just when it appeared that Li-ion batteries might at last have won the day, a news item in The Wall Street Journal on Nov. 1 showed that the battle might not yet be quite over: Sony Corp (Bloomberg Ticker - 6758:JP), the world's second-largest manufacturer of Li-ion batteries, was involved in the recall by five computer makers of 100,000 of its batteries made for their laptops. This came just two years after the recall of some 9 million of their batteries, also made for laptops, cost the company over $400 million.

With some of the newly recalled batteries spewing out smoke or flames, the article notes significantly that: "The recall also shows the challenges involved in mass-producing a powerful yet safe battery technology that could drive next-generation consumer electronics and eco-friendly cars."

With such huge international names as Sanyo Electric (Bloomberg Ticker - 6764:JP), Panasonic (Bloomberg Ticker - 6752:JP) and Samsung SDI (Bloomberg Ticker - 006400:KS) working on the problem, one would think it should be just a matter of time before such minor irritations are ironed out. According to the WSJ, Sony alone has invested over $406 million enhancing its Li-ion battery production in Japan. But the promise remains to be seen.

Back to Electric Vehicles

The next big battle is shaping up over electronic vehicles, which many see as a huge new market for batteries (with significant knock-on effects on the commodities markets, as we'll explore in depth).

Electric vehicles fall into two basic categories: hybrid electric vehicles [HEVs] and electric vehicles [EVs]. While the latter rely solely on batteries, the former combine an onboard rechargeable energy storage (battery) system with a conventional engine.

There are, however, a number of different types of HEV.

Source: EVWorld/AABC

In a report published at the end of October, the market research firm Frost & Sullivan examined the demand for both HEV and EV vehicles, together with the batteries they use.

The firm's research showed that, while the HEV segment is currently the most dynamic - for reasons of cost efficiency - EVs such as delivery vans, motorcycles and other vehicles are increasingly used. And with the increasing focus on pollution-free, zero-emission vehicles, the dynamism of the EV segment looks set to increase.

In the HEV segment alone, the research indicated that the global HEV battery market's earned revenues exceeded $710.9 million, with an annual growth rate in 2007 of 31%. Perhaps most importantly, it concluded that advances in new battery technologies will prove critical for future market expansion.

Another forecast puts the size of the HEV battery market at some $2.3 billion by 2015, while Deutsche Bank Securities goes so far as to say the market for advanced automotive batteries could be as large as $30-40 billion by 2020.

Currently, HEVs use NiMH (nickel-metal hydride) batteries. In 2006, NiMH HEV battery pack business stood at some $600 million and accounted for nearly half of all NiMH battery business. The joint venture between Panasonic and Toyota (Panasonic EV Energy (PEVE) accounted for over 75% of the market, with Sanyo being the only other significant player.

But most see NiMH as only a stepping stone on the path to the eventual use of lithium batteries. The problem is that nobody yet has successfully reached the end of the path and produced a truly acceptable lithium battery for such use.

Concerns rage both about durability and safety. From the manufacturers' point of view, there are also concerns both about reliability and manufacturing yield. Even so, lithium-technology batteries are still expected to be used in HEVs from 2010 on, maybe even sooner.

The Lithium Players

Whereas the big international Japanese companies dominate in the consumer Li-ion battery "space," in the HEV battery market, there are also a number smaller "upstarts" who are already making their presence felt - either alone or in joint ventures with larger companies.

Each manufacturer is pursuing a slightly different approach (usually involving batteries' chemistries) to solve the various outstanding issues with lithium technology. At this stage, however, no one is yet in a position to claim the victor's laurels, either in terms of solving outstanding problems or, necessarily, being selected as the supplier of choice by HEV manufacturers.

For example, Compact Power of Troy, Michigan, a subsidiary of LG Chem, is looking at Li-ion batteries in which the cobalt is replaced by manganese. Both A123 Systems, a private, Boston-based company, and the Canadian company Phostech Lithium are seeking to address the issues using iron-phosphate technology. The joint venture between Saft and Johnson Controls is looking at positive electrodes incorporating nickel-cobalt-aluminum-oxide. And Altair Nanotechnologies (Bloomberg Ticker - ALTI:US), based in Reno, Nevada, is developing batteries using lithium-titanate.

The list of manufacturers of batteries and ultracapacitors for EVs and plug-in HEVs to be found on Aorta City's site gives a fairly good indication of the plethora of companies there are engaged in exploring lithium battery technology. (And its list of such vehicles themselves is fascinating!)

The statement made by The Economist in its article "In search of the perfect battery" back in May remains relevant today: "At this point, it is hard to say which lithium-ion variation will prevail." In the U.S., back in mid-September, the leaders of the auto industry went so far as to seek federal loans "to develop homegrown technology for more fuel-efficient vehicles" - not least in an effort to close the "battery gap" with Japan.

But whatever happens to the auto-industry in the U.S. and globally (and to the price of oil), the quest for pollution-free, zero-emission transport vehicles is here to stay, as, for some time yet, will be hybrids - a necessary stage toward this goal. So, consequently, the search for perfection in such vehicles' batteries will continue.

The Lithium Out

While calling the winner in the battle of the HEVs' battery technologies is currently impossible, one thing is clear: The winning technology will be lithium-based. How, then, to invest in the outcome of this battle?

Going back to basics and investing in lithium itself could constitute not only a simpler, but also a more attractive option. According to an article in Chemical Week earlier this year: "From the current base of nearly zero, sales of lithium for HEV batteries are expected to exceed $500 million by 2015, analysts say."

The world's largest lithium producers, who, together, constitute 75% of global production are: Rockwood Holdings (Bloomberg Ticker - ROC:US) - 30%, Sociedad Quimica y Minera de Chile SA (SQM) (Bloomberg Ticker - SQM:US) - 35% and FMC Corporation (Bloomberg Ticker - FMC:US) - 5-10%. (For each, however, it should be noted that lithium production is just one of a number of business activities.)

Even without any demand from HEV battery production (hopefully still to come), the growth in consumption of lithium carbonate hit double figures this year. According to SQM, demand grew by nearly 20% in 2007 and, earlier this year, was expected to grow in the medium term by some 10% per annum.

Of the remaining quarter of the world's 50-80,000 tonnes of lithium production (expressed in terms of lithium carbonate production), the majority comes from a number of smaller producers located in China.

While most of the world's lithium comes from South America, with the three big producers extracting the metal from salt flats located in the "lithium triangle" along the borders of Argentina, Bolivia and Chile, other producers are already looking to exploit reserves elsewhere in the world.

To take the example of just two:

Earlier this year, Nordic Mining ASA (Bloomberg Ticker - NOM:NO) acquired a 68% stake in Finnish mining company Keliber Oy. Keliber, which plans to open a lithium plant in Finland's Österbotten region in 2010, claims to be Europe's first lithium producer.

At the end of October, Canadian company Black Pearl Minerals (Bloomberg Ticker - BLK:CN), having already "initiated lithium brine exploration in the Great Basin [including parts of California, Nevada and Utah] of the United States in April 2008," bought the largest-known lithium spodumene pegmatite deposit in Canada.

Conclusion

While Li-ion batteries already have the major share of the rechargeable battery market for portable electronic devices, they have yet to be used commercially in either HEVs or EVs. With the advantages that lithium ion technology appears to offer, however, it's nearly certain that Li-ion batteries will win out in HEVs and EVs over the currently used NiMH batteries. As yet, though, no single Li-ion battery technology has proved itself superior to any of the others for use in this market segment.

Investing in the producers of lithium itself would, therefore, currently appear more attractive than investing either in one of the battery manufacturers. It doesn't appear that Li-ion batteries are going to be superseded by any other technology anytime soon - even fuel cells.