September 27, 2016 Asia: Automobiles Charging the future: Asia leads drive to next-generation EV battery market Equity Research Pushing the limits of lithium-ion batteries and investing in all-solid-state batteries Battery market to grow 6X by 2025E We believe the rapid adoption of electric vehicles and hybrids over the next decade will spur an enormous increase in the market for EV batteries and heightened demand for advances in battery technology. We forecast a six-fold increase in the market for EV batteries to US$24 billion by 2025, fueled by increases in energy density to lower prices. In this report, we outline where we see Asian companies leading this growth and pioneering efforts to find the next-generation battery technology to replace lithium-ion. Powering the transition to EVs Our battery market forecasts rest on our expectations for a 30% CAGR in sales of electric vehicles (EVs) to 2025, along with a 36% CAGR in sales of plug-in hybrid electric vehicles (PHEVs) to reduce CO2 emissions. We expect that over that span, the gravimetric energy density of EV batteries will climb to over 500 Wh/kg from 200 Wh/kg in 2015, likely requiring transition to a post-lithium technology. Investing with eye to lithium’s limits Our approach is to look for companies that will benefit from expansion and innovation in the lithium-ion battery (LIB) market, as well as those invested in the development of potential successor technologies. We believe the post- lithium transition could start from 2020. Among a range of alternatives we focus on all-solid-state batteries that would do away with the liquid electrolyte found in most lithium-ion batteries and offer advantages in size and cost. Asian at heart of battery ecosystem LG Chem (CL-Buy), Korea’s leading battery manufacturer, has supply contracts with multiple automakers, and in our view has an edge over rivals from both a technical and cost perspective BYD (Buy), China’s leading EV manufacturer, is mass-producing its own inexpensive batteries. In addition, we highly value Toyota’s long-term strategy to focus on all-solid-state batteries, but remain Neutral due to US auto slowdown concerns in the near term. Kota Yuzawa +81(3)6437-9863 [email protected]Goldman Sachs Japan Co., Ltd. Yipeng Yang +86(10)6627-3189 [email protected]Beijing Gao Hua Securities Company Limited Nikhil Bhandari +65-6889-2867 [email protected]Goldman Sachs (Singapore) Pte Masaru Sugiyama +81(3)6437-4691 [email protected]Goldman Sachs Japan Co., Ltd. Shuhei Nakamura +81(3)6437-9932 [email protected]Goldman Sachs Japan Co., Ltd. Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research
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September 27, 2016
Asia: Automobiles
Charging the future: Asia leads drive to
next-generation EV battery market Equity Research
Pushing the limits of lithium-ion batteries and investing in all-solid-state batteries
Battery market to grow 6X by 2025E
We believe the rapid adoption of electric vehicles
and hybrids over the next decade will spur an
enormous increase in the market for EV batteries
and heightened demand for advances in battery
technology. We forecast a six-fold increase in the
market for EV batteries to US$24 billion by 2025,
fueled by increases in energy density to lower
prices. In this report, we outline where we see
Asian companies leading this growth and
pioneering efforts to find the next-generation
battery technology to replace lithium-ion.
Powering the transition to EVs
Our battery market forecasts rest on our
expectations for a 30% CAGR in sales of electric
vehicles (EVs) to 2025, along with a 36% CAGR in
sales of plug-in hybrid electric vehicles (PHEVs) to
reduce CO2 emissions. We expect that over that
span, the gravimetric energy density of EV
batteries will climb to over 500 Wh/kg from 200
Wh/kg in 2015, likely requiring transition to a
post-lithium technology.
Investing with eye to lithium’s limits
Our approach is to look for companies that will
benefit from expansion and innovation in the
lithium-ion battery (LIB) market, as well as those
invested in the development of potential
successor technologies. We believe the post-
lithium transition could start from 2020. Among a
range of alternatives we focus on all-solid-state
batteries that would do away with the liquid
electrolyte found in most lithium-ion batteries and
offer advantages in size and cost.
Asian at heart of battery ecosystem
LG Chem (CL-Buy), Korea’s leading battery
manufacturer, has supply contracts with multiple
automakers, and in our view has an edge over
rivals from both a technical and cost perspective
BYD (Buy), China’s leading EV manufacturer, is
mass-producing its own inexpensive batteries. In
addition, we highly value Toyota’s long-term
strategy to focus on all-solid-state batteries, but
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 2
Table of contents Our thesis in four charts: Battery market to grow 6X by 2025E
Executive summary: Battery race starting to rev up in Asia
10 Asian beneficiaries of LIB growth, development of post-lithium technology
Key industry themes
Battery race accelerating with energy density likely to double, market up 6X by 2025E
Up the technology curve: Next-generation LIBs, then all-solid-state batteries
EV and PHEV penetration set to accelerate through 2025E
Stocks in focus
LG Chem: Strong and diversified EV battery client base; reiterate CL-Buy
BYD: To benefit from China’s fast-growing NEV market, valuation attractive; reiterate Buy
Panasonic Corp: Leading LIB supplier globally, but Neutral on tough market outlook
Toyota: Leading all-solid-state battery development, but Neutral on stiff competition
Toray: No. 2 supplier of LiB separators globally, further expansion underway; Neutral
Samsung SDI: Shifting focus from mobile to EV, but challenges ahead; Neutral
Other beneficiaries
Appendix
Disclosure Appendix
Prices are as of September 21 close for Japanese companies and September 22 close for non-Japanese companies. The Future in
numbers
The drive for better EV batteries sits at the nexus of multiple trends. See our theme pages for related work on Cars 2025, The Low Carbon Economy and The Great Battery Race.
Lighter, Faster, Cheaper, Apr 7, 2016
Disruption in China’s new car market, Feb 29, 2016
BYD (1211.HK) Buy: Electrifying the world’s largest new car market; reinstate at Buy, Aug 31, 2016
The Low Carbon Economy, Nov 30, 2015
Electric Vehicles – customer acceptance & continued scaling; check, Apr 7, 2016
The Great Battery Race, Oct 18, 2015
China Energy Storage: Charged up and ready to grow, Jun 8, 2016
LG Chem (051910.KS) Buy: Right chemistry and charged batteries; initiate at Buy (on CL), Jan 22, 2016
Get a 2-minute audio summary from author Kota Yuzawa. Listen here
Charging The Future in numbersSATISFYING THIRST FOR RANGEBATTERY BOOM ON THE WAY
GREATER DEMAND, GREATER DENSITYCOST TO COME DOWN
THE LARGEST MARKET - CHINAASIA TAKING THE LEAD
Increase in lithium-ion battery (LiB) demand expected between 2015 and 2025, rising from 58 GWh to 387 GWh. Demand for automotive batteries is slated to rise from 15 GWhto 279 GWh during the same period. (p. 12)
6x
2x Increase in energy density expected between 2015 and 2025, from 200 Wh/kg to 550 Wh/kg. (p. 10)
60 kWhBattery capacity needed to achieve a driving distance comparable with that of a gasoline-powered vehicle (around 300 km/200 miles). (p. 11)
US$272 to US$100 per kWhCost for auto batteries from 2015 to 2025E. Improvement in energy density should help drive this decline. (p. 10)
300,000 New Energy Vehicle sales (excluding hybrids) in China (2015). (p. 29)Percentage of global output from Asian battery makers. (p. 6) 50%+
3,000+ Patents for all-solid-state batteries filed in 2002-2011, far higher than other post-LiB technologies. 71% of these applications were filed by Japan, Korea and China. (p. 19)
The All-Solid-State Batteries Future
What is an all-solid-state battery?An orthodox LiB has a separator and liquid electrolyte between the cathode and the anode. An all-solid-state battery, on the other hand, has only a solid electrolyte between the cathode and the anode, and contains no liquid. There is no need for a separator, as the solid electrolyte also takes on that function. These batteries are known as all-solid-state batteries as they contain absolutely no liquid.
Why are all-solid-state batteries needed?All-solid-state batteries have advantages in terms of safety, and they also offer stable performance through a wide range of temperatures, which is why they are being developed for automotive applications. As they eliminate the need for liquid electrolytes and separators, all-solid-state batteries could in theory have much higher energy density. Competition to develop solid electrolytes will be the key.
Is the production method different?A mass production technique for all-solid-state batteries has yet to be established. However, in many cases the production of relatively large-capacity all-solid-state batteries for automotive applications involves a pressurized process, which means that facilities will differ from those used to make conventional LiBs. Solid electrolytes are generally less conductive than liquid electrolytes, but a number of companies, including Toyota, are vying with each other to develop solid electrolytes that have ionic conductivity on a par with, or even exceeding, that of liquid electrolytes.
Negative current collector Positive current collector
Separator
Li+
Li-
Li-
Li-
Li-
Li-
Li+
Li+Li+
Li+
Li+
Anode CathodeLiquid
Negative current collector Positive current collector
Li+
Li-
Li-
Li-
Li-
Li-
Li+
Li+Li+
Li+
Li+
Anode CathodeSolid
Lithium-ion battery All-solid-state battery
Source: Goldman Sachs Global Investment Research.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 4
Our thesis in four charts: Battery market to grow 6X by 2025E
Exhibit 1: Bullish on demand outlook for EVs, PHEVs Outlook for EV/PHEV sales, 2015-2025E CAGR
Exhibit 2: Forecast rapid increase in energy density, battery costs halving Outlook for energy density, battery costs
Note: Excluding low speed EV in China.
Source: IHS, Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Exhibit 3: At battery cost of US$100 per kWh, EVs could represent cheapest
solution for reducing CO2 Additional cost to reduce CO2 by 1g
Exhibit 4: We project six-fold growth in automotive battery market LIB market outlook, by application
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
(Thous.) 2015 2020E 2025E CAGR
PHEV 397 1,272 2,787 22%
China 60 518 1,339 36%
Non-China 337 753 1,448 16%
EV 251 1,322 4,014 32%
China 140 864 1,890 30%
Non-China 111 458 2,123 34%
PHEV+EV 648 2,594 6,801 27%
Global auto demand 88,384 101,730 111,494 2%
683
272
197
100150
200
300
500
0
100
200
300
400
500
600
700
0
100
200
300
400
500
600
700
Cost(USD/Wh, RHS)
Energy density(Wh/kg, LHS)
Current LIB
Next generation LIB
Post LIB(All-solid-state battery)
Needtechnologicalbreakthrough
Li-ion battery All-solid-state battery
2010 2015 2020E 2025-2030E
10 9 7 215 1517
9 113
86
302710 17
4
279
49
0
50
100
150
200
250
300
Mobile phone PC Tablet Machine tool Automotive Others
2015 2020 2025
(GWh)
2015$ 4bn
2025$ 24bn
Automotivebattery market (USD)
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 5
Executive summary: Battery race starting to rev up in Asia
PHEV, EV penetration set to pick up pace; EVs key to CO2 reduction Almost two decades have passed since Toyota launched the world’s first mass-produced hybrid vehicle (HV) in 1997. By 2015, the
hybrid vehicle market had grown to 2 mn units, making an enormous contribution to CO2 reduction. Over the coming 10 years, we
think electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs) will demonstrate remarkable growth. In recent years, environmental
regulations have been strengthened and tightened, forcing automakers to review their powertrain strategies. In addition, we see
significant support for EV growth from stepped-up new energy vehicle (NEV) subsidies in China. Moreover, advances in lithium-ion
battery (LIB) technology (huge leaps in energy density) could result in an increase in battery capacity per vehicle. We see the EV
market expanding from 250,000 units in 2015 to 4.01 mn units in 2025 (CAGR of 30%) and look for PHEV sales to rise from 400,000
units to 2.78 mn units (CAGR of 36%). Over the same period, we expect the HV market to grow from 2.16 mn units to 13.94 mn units
(CAGR of 20%).
The lower the cost for batteries, the more sense it will make to adopt an EV-based business model. We calculate that in PHEVs, the
additional cost to lower CO2 by 1 gram is US$139. Based on a battery cost of US$272 per kWh in 2015, we calculate that in EVs, the
additional cost to lower CO2 by 1 gram would be US$124, similar to that for PHEVs. That cost would shrink to US$31, though, in the
case of a battery cost as low as US$100 per kWh. This would make EVs an inexpensive solution for reducing CO2 emissions, on a
par with vehicle light weighting and downsizing turbo engines. From the automakers’ perspective, we see grounds to continue
investing heavily in EVs through 2030.
Turning point ahead for batteries; six-fold growth in automotive battery market by 2025E We look for the automotive battery market to expand considerably, in tandem with growth in the EV and PHEV markets. We expect a
roughly six-fold increase in LIB demand between 2015 and 2025, from 58 GWh to 387 GWh, with demand for automotive batteries
rising from 15 GWh to 279 GWh over the same period. Thus far, mobile phones and PCs have been the main source of demand for
LIBs, but over the next decade we think rapid growth in automotive applications will bring battery operations to a major turning
point. Even allowing for an average annual decrease of about 5% in battery prices—to encourage greater uptake—we think the
market for automotive LIBs could grow sharply in size between 2015 and 2025, from US$4 bn to a massive US$24 bn. For further
details on LIB demand, see our October 18, 2015 report Global: Clean Energy: The Great Battery Race.
Rapid improvement in energy density; focus on all-solid-state batteries The history of automotive LIBs is one of unstinting efforts to improve energy density (gravimetric or volumetric). In 2007–08, Nissan
announced plans for large-scale investment in pouch-type batteries with manganese spinel as the cathode material, going on to
launch the Leaf EV. At the time, we estimate that gravimetric energy density was 100-150 Wh/kg, but by 2015, batteries with ternary
cathode materials were achieving gravimetric energy density of over 200 Wh/kg. Looking ahead, further technical advances will
likely lift this figure to 300 Wh/kg by 2020, and over 500 Wh/kg in 2025 and beyond. Similarly, the aim is to boost volumetric energy
density from 500 Wh/l in 2015 to 700 Wh/l in 2020 and 1,100 Wh/l in 2025 and beyond. We note this will likely require a transition to
so-called “post-lithium ion” technology. Among the many next-generation battery technologies, we focus on all-solid-state batteries.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 6
10 Asian beneficiaries of LIB growth, development of post-lithium technology
While innovation in battery technologies is proceeding at a rapid pace worldwide, battery development is booming in Asia in
particular. Asian battery makers currently have around 50 GWh of production capacity, equivalent to 50% or more of global output
(consumer electronics/automotive battery capacity combined), and have monopolistic shares of 50%-80% of core component
materials, such as cathode materials and separators. Asian producers have also taken the lead in the development of next-
generation batteries. Japan accounted for 53% of patent applications filed in 2002-2011, followed by the US at 13%, Europe at 12%,
Korea at 10% and China at 8%. We reiterate our Buy ratings on LG Chem (CL) and BYD on the back of rapid LIB business expansion.
We remain Neutral on Toyota over short-term US auto market slowdown concerns, but highly value its long term strategy to focus
on all-solid-state batteries. We also spotlight seven other battery and related product makers from among the many Asian names in
this space.
• LG Chem (battery manufacturer, Korea, CL-Buy): A major battery manufacturer with total production capacity of 13 GWh
(our estimate, consumer electronics/automotive battery capacity combined), for a 13% share of the global market. It has well-
established automotive battery supply agreements with Hyundai, General Motors, Ford, and other major automakers. LG Chem
also has an edge in terms of technological development, having successfully developed ternary (nickel, cobalt, manganese
composite) batteries with energy density of more than 200 Wh/kg.
• BYD (automaker, China, Buy): Sales have been growing rapidly on the back of China’s NEV policies. BYD currently mass
produces batteries using lithium ferrophosphate as a cathode material, but also plans to develop batteries with improved
energy density, mainly through the use of ternary (nickel, cobalt, manganese composite) technologies. We see advantages in
terms of cost competitiveness for automakers producing batteries in-house under a vertically integrated business model.
• Toyota (automaker, Japan, Neutral): Toyota is the world’s largest producer of nickel-metal hydride batteries for hybrid
vehicles, but has made no major investments in LIBs. We believe the company considers all-solid-state batteries essential to
growth in EV uptake. We see appeal in Toyota’s accumulating expertise in the field of all-solid-state batteries, including the
development of (solid) electrolytes with high ionic conductivity, but think any real-world applications are unlikely to become a
reality before 2020.
• Panasonic (battery manufacturer, Japan, Neutral): A major battery manufacturer with total production capacity of 10 GWh
(our estimate, consumer electronics/automotive battery capacity combined), for a 10% share of the global market. Sales of
automotive batteries in FY3/16 stood at around ¥150 bn, but we expect this figure to rise sharply to ¥350 bn by FY3/19.
Panasonic is also responsible for supplying nickel cobalt aluminum batteries to Tesla, and has decided to invest around ¥150-
¥200 bn in the US automaker’s Gigafactory project.
• Toray Industries (separator maker, Japan, Neutral): A hybrid chemical maker that makes wet separators, with a 20% market
share in separators, second to Asahi Kasei, which has a 45% share (including its Celgard acquisition). Despite the fact that the
separator business accounts for only 1.2% of sales, the company is planning aggressive capacity additions in coming years.
• Samsung SDI (battery manufacturer, Korea, Neutral): SDI has built a solid track record with increasing market shares in
consumer/mobile battery business. However, we do not expect SDI’s success in mobile battery will directly translate into EV
battery industry given diverging industry dynamics and customer base. We foresee three major challenges for SDI’s EV battery
business including limited customer base, slower cost reduction, and regulation risks in China.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 7
• Asahi Kasei (separator maker, Japan, Not Covered): The only maker of both dry and wet separators, the company has a
dominant, 45% separator market share (Asahi Kasei acquired rival Celgard, which makes dry separators, in 2015). The
separator business accounts for 6% of sales. According to Asahi Kasei, the business is expected to make ¥2.5 bn in operating
losses in 2016 due to goodwill amortization from the Celgard acquisition.
• Tanaka Chemical (cathode materials maker, Japan, Not Covered): A pure play that mainly makes positive electrode
precursors. On August 31, 2016, Tanaka Chemical announced plans to raise capital by issuing new shares via a private
placement to Sumitomo Chemical. This would take Sumitomo Chemical’s stake in Tanaka Chemical to 50.1%. The two have
been collaborating already on development of next-generation nickel-cobalt-manganese (NCM) cathode materials with a nickel
weighting as high as 90%, which should contribute to further increasing batteries’ energy density.
• W-Scope (separator maker, Japan, Not Covered): A wet separator pure play, with a 5% separator market share. It currently
has a 65% consumer electronics separator weighting and a 35% automotive separator weighting, but is targeting market share
growth in automotive separators with the shift from wet to dry separators. Its head offices are in Japan, and it is listed in Japan,
but all of its production bases are in Korea.
• Hitachi Zosen (all-solid-state battery maker, Japan, Not Covered): A machinery maker engaged in the ship engine and
environmental plant businesses that is devoting energy to the development of all-solid-state batteries that make use of
machine stamping technology. With all-solid-state batteries, the process of applying pressure is important in order to boost
electrolyte and positive/negative electrode conductivity, and Hitachi Zosen’s press technology is used for this. The company
has already succeeded in 200 Wh/kg aluminum laminate trial production.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 8
Exhibit 5: Stock selection premised on rapid increase in demand for automotive batteries Valuations for related stocks
Note: NC=Not Covered. All target prices are on a 12-month timeframe. Shares shown above in terms of sales (based on FY2015 company data).
Source: Datastream, Goldman Sachs Global Investment Research.
LFP: Using phosphoric acid iron. Low energy density. Adopted by Chinese battery makers and we expect high volume growth.
LMO: Using manganese. Low energy density and expecting low volume growth.
NCA: Using Lithum nickelate. Adopted by Tesla and Panasonic in their 18,650 type battery.
NCM: Ternary system battery (cobalt, nickel, manganese). Aiming to improve energy density by increasing nickel composition from current 30% to 80-90% in the future.
Exhibit 22: Post-LIB development Features of next-generation batteries
Exhibit 23: All-solid-state battery development has picked up in recent years Number of patent filings in 2002-2011
Source: Goldman Sachs Global Investment Research.
Source: NEDO, Goldman Sachs Global Investment Research.
Strengths and weaknesses of all-solid-state batteries
All-solid-state batteries seek to increase energy density and reduce cost by replacing liquid electrolytes with solid electrolytes. These
batteries have high potential for quickly eliminating EV disadvantages in our view. In addition to raising energy density, they offer
prospects for improved safety and operating temperature flexibility. However, technological hurdles remain for mass production.
All-solid-state batteries require new production processes, including pressurization and calcination. There is also risk of producing
toxic hydrogen sulfide (sulfide-based solid-state electrolytes produce hydrogen sulfide in reaction to moisture). Companies are
examining various methods to address hydrogen sulfide, including the use of sturdy cases that are hard to break and use of
hydrogen sulfide gas detectors to quickly detect gas generation.
All-solid state battery
Lithium-air batteries
Sodium ion battery
Polyvalent ionbattery
Sulfur-based batteries
NAS
Battery using polyvalent cations with divalent or trivalent ion (Li +is monovalent). Research is ongoing for various ions such asMg 2+, Ca 2+ etc.
Replace electrolyte liquid to solid. High level of safety sinceinorganic solid electrolyte is noninflammable. Electrolyte issulfur.
Cathode material: sulfur, anode material: sodium, andelectrolytes: ceramic. Energy density is 110Wh/kg. Operationtemperature is high (300-350℃).
Uses oxygen as cathode active material. High energy densitybut need high level of technological innovation.
Replace cathode material from Li+ to Na+ . Sodium is rich as anatural resource and possibility of further cost reduction.
Sulfur-based batteries use a sulfur material for the positiveelectrode, but sulfur is water soluble, so sulfur-based solid arefrequently used for the electrolyte.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
All Solid Battery Lithium-airBattery
Na ION Battery Polyvalent ionbattery
Sulfer-basedbattery
Organic Battery
OthersKoreaChinaEuropeUSJapan
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 21
Exhibit 24: All-solid-state batteries feature greater energy density and safety; need to overcome mass production challenges Advantages and disadvantages of all-solid-state batteries
Source: Goldman Sachs Global Investment Research.
Exhibit 25: LIB using liquid electrolyte between cathode and anode LIB diagram
Exhibit 26: All-solid-state battery using solid electrolytes rather than liquid
electrolytes All-solid-state battery diagram
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Merits
SafeWide range of operating temp. High energy densityHigh volume energy densityDemerits
Low productivityLow power densityUnknown accidents
→ Conductivity of solid electrolyte is not very high.→ Some research warn against a generation of hydrogen sulfide.
→ Less risk of fire due to no liquid electrolyte.→ Especially in low temperature.→ It is possible by using sulfur for electrode material.→ Easy to form a layered structure.
→ Need pressurization or calcination to form a solid electrolyte.
Negative current collector Positive current collector
Separator
Lithium ion battery
Li+
Li-
Li-
Li-
Li-
Li-
Li+
Li+Li+
Li+
Li+
Anode CathodeLiquid
Negative current collector Positive current collector
All-solid-state battery
Li+
Li-
Li-
Li-
Li-
Li-
Li+
Li+Li+
Li+
Li+
Anode CathodeSolid
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 22
Multiple players in all-solid-state battery development
Toyota, Sekisui Chemical, and Hitachi Zosen are targeting mass production of all-solid-state batteries in 2020-2025. Samsung Elec.,
Daimler, and Sony have also announced R&D initiatives, but their mass production timeframes are unknown. BYD has launched a
special team and is conducting research into all-solid-state batteries. Leading auto parts maker Bosch acquired the all-solid-state
battery venture company Seeo. Consumer electronics maker Dyson also entered the battery business by acquiring Skit3. We think
expectations are rising for using all-solid-state batteries not only for automotive applications, but for consumer products as well.
All-solid-state battery production processes differ greatly from current LIBs
The production of all-solid-state batteries can be broadly separated into three main methods. (1) Hitachi Zosen and Toyota use a
powder pressing process that applies pressure to sulfide-based solid electrolytes and the cathode/anode. This method increases
ionic conductivity by making the contact state more adhesive through component interface movement. Ensuring ionic conductivity
within the solid state is the primary hurdle for replacing liquid electrolytes with solid electrolytes. (2) Bosch and Sekisui Chemical
are developing a coating-based process that performs roll-to-roll layering. Electrolytic materials often use semi-solid materials. (3)
Dyson and Applied Materials are developing a semiconductor process, but expansion to high-capacity automotive batteries is
difficult. We would expect this to be used mainly for consumer products.
Exhibit 27: Growing interest in all-solid-state batteries for both automobiles and consumer products
Leading manufacturers and technological features
Source: Nikkei Elec, Goldman Sachs Global Investment Research.
Powder and pressure Coating Semiconductor
Mass production Hitachi Zosen established a massproduction method.
Mass production is possible by roll-to-rollprocess. Under development
Energy densityHigh value from the research done byHigh Tokyo University and TokyoInstitute of Technology.
Average High theoretical value but unsuitable formass production.
Power densityHigh value from the the research doneby High Tokyo University and TokyoInstitute of Technology.
Average Challenge is how to make a separatorthinner.
Safety Risk: generation of hydrogen sulfidefrom sulfide-based electrolyte.
Sekisui Chemical is confident in thesafety of the battery. High level of safety
Toyota Sekisui Chemical (acquired Enax) Dyson (acquired Sakit3)Hitachi Zosen Bosch (acquired Seeo) Applied MaterialsSamsung Zeptor
Battery makers
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 23
Exhibit 28: All-solid-state batteries use special pressing process Comparison of production processes for all-solid-state batteries and LIBs
All-solid-state battery production process
LIB production process
Source: Goldman Sachs Global Investment Research.
Anode
Cathode
Separator
Coating Insert electrolyteLaminateDry
Liquid Electrolyte
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 24
Case study: Samsung’s exploding mobile phone batteries
1) What is happening inside the batteries?
At a press briefing on September 2, 2016, Samsung Electronics (SEC) announced that it will recall all Galaxy Note 7 (Note 7) that have been shipped, around 2.5mn units globally. SEC indicated that the problem stems from issues with the battery cell, while it declined to mention the supplier of the batteries that caused these problems. SEC explained that it mainly uses batteries from two different suppliers, and that an error in the manufacturing process at one supplier caused the cathode and anode of the battery to contact each other which resulted in the battery exploding.
2) Automotive batteries differ from consumer electronics ones, but further safety measures are inevitable
In the case of Note 7 explosion, the battery used is polymer-type while Samsung SDI supplies can-type for EV batteries. So they are different types of batteries, but the risk here is that there could be reputational risk as OEMs will be reluctant to use battery produced by a company that has seen problems even if that was for another application. Another potential implication is increase in entry barriers for EV battery suppliers given OEMs will likely raise safety measures for batteries.
3) Learning from past incidents of battery overheating
There have been several incidences of LIBs overheating in addition to the recent cases involving Samsung. We think there are generally two causes for such overheating (exact cause still unclear for Samsung). The first is a problem with the separator between the positive and negative electrodes. The battery’s safety becomes compromised if the separator is not strong enough or it is damaged by the presence of foreign materials. The second is the possibility of a problem in the battery pack. The battery includes a mechanism (known as a battery management system) that acts as a block when there is a large outflow of electric current. If this battery management system does not function properly for some reason, then it can become impossible to control a thermal runaway in the battery.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 25
EV and PHEV penetration set to accelerate through 2025E
PHEVs could take off by 2020, followed by EVs thereafter
We forecast vehicles with an electric powertrain system will account for 25% of global auto sales in 2025, up from 5% in 2015. While
we expect hybrids to be the main type of electrified vehicle, electrification is gaining traction, driven by the aggressive adoption of
car purchase subsidies in Europe and China. In California and nine other US states, electrification is likely to accelerate from 2018,
spurred by zero-emission vehicle (ZEV) regulations (requiring the sale of a certain volume of PHEVs, EVs, and FCVs, according to
annual sales volume). We forecast global demand for EVs and PHEVs combined will increase sharply to 6.8 mn vehicles in 2025,
from 650,000 vehicles in 2015. In our view, PHEVs will lead the way through 2020 due to battery performance constraints, with the
EV market entering a sharp expansionary phase from 2020.
Even stricter CO2 environmental regulations, moves toward RDE
Fuel economy standards could tighten intermittently between 2020 and 2025, mainly in the US and Europe. The US corporate
average fuel economy (CAFE) target of 54.5 mpg for the 2025 model year and the possible European CO2 emission targets of 95
g/km by 2020 and of 72 g/km by 2025 (not officially decided yet) represent very challenging hurdles for automakers. China has
decided to tighten fuel efficiency standards in response to increasing environmental problems, a heavy reliance on overseas energy
(already more than 50%), and urban traffic congestion. We expect the VW emissions scandal that surfaced in October 2015 to have a
significant impact on emission/fuel economy regulations. In Europe, discussions are progressing ahead of the adoption of Euro 6c
emission standards in 2017, and automakers will need to pay increased attention to the difference between real-world and test-
mode fuel economy.
CO2 emissions: The Euro 6c CO2 emission measurements use the Worldwide harmonized Light vehicles Test Procedures (WLTP),
the unified testing mode for Japan, the US, and Europe. The difference between test-mode and real-world fuel economy is
calculated by comparing real driving emissions (RDE) conditions with WLTP results. New models tested from September 2017 will
need to conform to a permitted difference of 2.1x or less between RDE fuel economy and certified (catalog) fuel economy.
Discussions are also under way on narrowing this difference to 1.5x.
NOx and PN standards: The New European Driving Cycle (NEDC) is currently used to assess emission levels, but under Euro 6C
RDE tests will be adopted as the uniform testing method in Europe. RDE test procedure details are currently under discussion, with
technical adjustments being made to testing environments (test course, latitude, altitude, etc.).
ZEV regulations prompting action; hybrid vehicles to be excluded from ZEV category from 2018
Automakers are rushing to launch EVs and PHEVs in part because of the ZEV regulations announced by the state of California, US.
Major automakers need to generate ZEV credits equivalent to 4.5% of the vehicles they sell in California from 2018, but hybrid
vehicles will no longer be included in the ZEV category. Mid-tier automakers must also generate ZEV credits, like major automakers,
five years later, from 2023. As such, we think electrification is inevitable even at Mazda Motor and Fuji Heavy Industries.
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 26
Exhibit 29: Electrification set to continue Demand estimates by powertrain
Exhibit 30: CO2 emissions need to be cut by over 20% Reductions called for in CO2 emission standards in major countries
Source: IHS, Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research
EVs becoming a reasonable solution
Automakers need to move forward with electrification at some point in order to meet stricter standards. Establishing EV business
models is a matter of urgency for all automakers. EVs and PHEVs do not differ significantly in terms of well-to-wheels CO2
emissions, with both being around 60-80 g/km (these figures naturally change depending on the method of electric power
generation). On the cost side, however, the more battery prices decline, the more likely that an EV business model may make sense.
We estimate that with PHEVs the additional cost of reducing CO2 emissions by 1 gram is US$139 and that with EVs the cost of a 1-
gram reduction is nearly the same, at US$124, based on 2015 per-kWh battery prices. A drop in per-kWh battery prices to around
US$100, however, would bring the cost of a 1-gram reduction down to US$31, which would make EVs an inexpensive CO2 reduction
solution, rivaling auto lightweighting and downsizing turbo engines. From automakers’ perspective, we see grounds to continue
investing heavily in EVs through 2030.
0
20,000
40,000
60,000
80,000
100,000
120,00020
12
2013
2014
2015
2016
E
2017
E
2018
E
2019
E
2020
E
2021
E
2022
E
2023
E
2024
E
2025
E
FCV
EV
PHEV
HV
Internal combustion engines
Using ICE96%
Using battery20%
Using fuel cell0.5%
(K units)
153 156
120
165
89
116
72
118
0
20
40
60
80
100
120
140
160
180
200
US CAFE Japan Europe China
2014
2025E
(g/km)
-42% -26%
-40%
-28%
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 27
Exhibit 31: EV and PHEV CO2 emissions do not differ significantly on a well-
to-wheels basis
CO2 emissions by powertrain (g/km)
Exhibit 32: EVs could become an inexpensive CO2 emissions reduction
solution in 2030
Estimated additional cost of a 1-gram reduction in CO2 emissions (US$)
Source: NEDO.
Source: Goldman Sachs Global Investment Research.
Price and driving range are the keys to EV penetration
The high price of EVs is the main obstacle to their penetration, as reflected in price concerns being cited by 50% of consumers who
participated in a 2016 Ministry of Economy, Trade and Industry survey in Japan. The next largest issues are driving range (cited by
13%) and a lack of charging facilities at home (10%). Improvements in energy density should dispel at least two of consumers’ major
concerns. Around 53% of the respondents said they would be satisfied with a driving range of 300 km/200 miles, and 80% said that
given a driving range of 500 km/300 miles, this factor would not be an obstacle to buying an EV. This is why we see 60 kWh as the
ideal battery capacity for EVs.
21.1
40.1
67.4
0 20 40 60 80 100 120 140 160
GasolineVehicle
PHEV
EV Well to TankTank to Wheel
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 28
Exhibit 33: Price is the main issue with EVs, followed by driving range Impediments to buying an EV (2016 survey)
Exhibit 34: Around 50% of consumers would be satisfied with a driving range
of 300 km
EV driving range survey, 2016
Source: METI.
Source:METI.
Investment recoupment period growing shorter every year
With price being the greatest concern when considering purchase of an EV, we see US$100 per kWh as a reasonable battery cost
target, based on lifecycle cost for the entire ownership period. Based on battery capacity of 60 kWh, car owners would recoup the
higher cost of purchasing an EV in six years. If we additionally factor in a rise in crude oil prices, the recoupment period would be
significantly reduced even if we assume a battery cost of US$200 per kWh in 2020. Assuming a WTI price of US$100/bbl, the
recoupment period for EVs would be eight years in 2020. We estimate that the recoupment period in the first half of 2000s was
around five years, and that this drove the sharp growth in hybrid cars then.
0% 10% 20% 30% 40% 50% 60%
Expensive
Short running distance
No EV charging facility at home
Few EV charging station
Spending long time for charging
Worse automobile performance
Not attractive
16% 15% 18% 20%
28% 26%27% 27%
44%41%
40% 36%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
80km160km320km480km640km
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 29
Exhibit 35: A drop in cost to US$100/kWh would bring the EV investment
recoupment period down to six years Investment recoupment period (years) for EV purchase with battery price as the
variable (US case study)
Exhibit 36: EV investment recoupment period could be shorter depending on
crude oil price Investment recoupment period (years) based on US$200/kWh cost and 60 kWh
battery capacity (US case study)
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
China’s NEVs shape a unique culture
China’s presence in forecasts of EV and PHEV penetration is increasing day by day. The country is giving its full support to NEVs
through subsidies from the national government and license plate issuance benefits from regional governments. We see potential
for EVs to spread even though driving distances and battery costs have not reached our ideal levels. China’s NEV market (excluding
hybrids) had already grown to 300,000 vehicles in 2015, making it the world’s largest market ahead of the US at over 100,000
vehicles and Japan at 30,000 vehicles. China is looking at NEVs with specifications close to the US ZEV standards noted above in
2020. We expect EVs and PHEVs to quickly penetrate the Chinese market and think China will account for 60% of global demand
through 2020. Thereafter, we think China’s presence will decline as EV and PHEV penetration advances in developed markets, but
still expect nearly 50% of EVs and PHEVs to be sold in the Chinese market.
18
29
41
10
18
25
2
6
10
0
5
10
15
20
25
30
35
40
45
40kWh 60kWh 80kWh
300$/kWh
200$/kWh
100$/kWh
0
2
7
18
0
3
6
13
0
3
4
8
0
2
4
6
8
10
12
14
16
18
20
Gasoline Diesel Hybrid EV
WTI=$45
WTI=$65
WTI=$100
September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 30
Exhibit 37: China is already the world’s largest NEV market HV, PHEV, and EV sales in Japan, US, and China (Thous.)
Exhibit 38: Expect China to account for majority of global NEVs in 2020 China’s NEV market outlook (excluding commercial vehicles, K units)
Source: CAAM, Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
NEVs are supported by robust subsidies
NEV policies have been established with robust support from the Chinese government. China relies on overseas supplies for over
60% of its crude oil, making NEV policies increasingly important from the standpoint of energy security. Our China analyst Yipeng
Yang estimates that the NEV business of BYD, which sells the most NEVs in China, had an operating margin above 15% in 2015.
However, excluding subsidies, it may have had a negative operating margin in excess of 10% in real terms (this real profit margin is
roughly equal to Tesla). Automakers involved in NEVs in China have been able to save cash for reinvestment amid the worst period
for earnings due to business startup. However, the government has indicated that it intends to eliminate NEV purchase subsidies
from 2020. It will likely no longer be possible for all NEV makers to reap excess returns on an ongoing basis. We expect both Tesla
and BYD to achieve positive operating profits in real terms in 2018-2019 on lower battery costs and mass production benefits.
We, Kota Yuzawa, Yipeng Yang, Nikhil Bhandari, Masaru Sugiyama, Shuhei Nakamura, Stefan Burgstaller, David Tamberrino, CFA and Marcus Shin, hereby certify that all of the views expressed in
this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or
indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
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returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
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GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Kota Yuzawa: Japan-Automobiles. Yipeng Yang: China Autos. Nikhil Bhandari: ASEAN Plantations and Energy, Asia Pacific Energy, Korea Energy and Chemicals. Masaru Sugiyama: Japan Internet and
Games, Japan-Consumer Electronics, Japan-Media. Shuhei Nakamura: Japan-Advanced Materials sector. Stefan Burgstaller: Europe-Autos & Auto Parts. David Tamberrino, CFA: America-Autos &
Auto Parts, America-Autos Dealers, America-Tires. Marcus Shin: Korea Technology.
ASEAN Plantations and Energy: Bangchak Petroleum PCL, First Resources, Golden Agri-Resources Ltd., IRPC PCL, Perusahaan Gas, Petronas Chemicals Group, PTT Exploration and Production PCL,
PTT Global Chemical, PTT Public Co., Thai Oil, Wilmar International.
America-Autos & Auto Parts: BorgWarner Inc., Cooper-Standard Holdings, Delphi Automotive Plc, Ford Motor Co., General Motors Co., Harman International Industries Inc., Lear Corp., Magna
International Inc., Magna International Inc., Nemak, Tesla Motors Inc..
America-Autos Dealers: AutoNation Inc., Group 1 Automotive Inc..
America-Tires: Goodyear Tire & Rubber Co..
Asia Pacific Energy: Bharat Petroleum, Cairn India Ltd., China Petroleum & Chemical (A), China Petroleum & Chemical (ADS), China Petroleum & Chemical (H), CNOOC, CNOOC (ADR), Gas Authority of
India, Gujarat State Petronet, Hindustan Petroleum, Indian Oil Corp., Indraprastha Gas Ltd., Oil & Natural Gas Corp., Oil India, PetroChina (A), PetroChina (ADR), PetroChina (H), Petronet LNG, Reliance
Industries, Reliance Industries (GDR).
China Autos: Anhui Jianghuai Automobile Co., Baoxin Auto Group, Brilliance China Automotive, BYD Co., China Harmony New Energy Auto, Chongqing Changan Auto (A), Dongfeng Motor, FAW Car,
Fuyao Glass Industry Group (A), Fuyao Glass Industry Group (H), Geely Automobile Holdings, Great Wall Motor Co. (H), Great Wall Motor Co.(A), Guangzhou Automobile Group, Huayu Automotive
Systems, Minth Group, Nexteer Automotive Group, SAIC Motor, Sinotruk (Hong Kong), Weichai Power (A), Weichai Power (H), Weifu High-Technology Group (A), Zhengtong Auto Services Holdings,
Zhongsheng Group.
Europe-Autos & Auto Parts: Autoliv Inc., BMW, CNH Industrial, CNH Industrial, Continental, Daimler AG, Faurecia, Fiat Chrysler Automobiles NV, Fiat Chrysler Automobiles NV, GKN, Hella KGaA Hueck,
Michelin, Nokian Renkaat, Peugeot, Porsche, Renault, Valeo, Volkswagen, Volvo.
Japan Internet and Games: Bandai Namco Holdings, Capcom, CyberAgent, DeNA Co., Gree, Kakaku.com, Konami, LINE Corp., mixi, Nexon, Nintendo, Rakuten, Sega Sammy Holdings, Square Enix
Korea Energy and Chemicals: GS Holdings, Hanwha Chemical, Kumho Petro Chemical Co., LG Chem, Lotte Chemical, S-Oil Corp., SK Innovation.
Korea Technology: Samsung Electro-Mechanics, Samsung Electronics, Samsung SDI Co., Samsung SDS Co., Seoul Semiconductor, SK Hynix Inc..
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Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 31% 54% 15% 66% 60% 50%
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September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 58
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September 27, 2016 Asia: Automobiles
Goldman Sachs Global Investment Research 59
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