Chris Berry: Challenges Remain for Lithium-ion Battery Manufacturers

Chris Berry, president of House Mountain Partners and co-editor of the Disruptive Discoveries Journal, published a note that looks at the recent hype surrounding lithium-ion batteries. In it, he points out that manufacturers don’t have it quite as easy as some enthusiasts believe.

As quoted in the market news:

… I remain bullish on select energy metals and their supply chains going forward, but it doesn’t diminish the challenges to prosperity which occasionally appear to be overlooked. Specifically, high tech supply chain complexities mean that an aspiring entrant could suffer below average returns unless they can prove scalability and absolute lowest cost of production.

As an example of supply chain complexity, Professor Vaclav Smil, in his excellent book titled, ‘Making the Modern World’ describes the supply chain for the iPhone5:

‘The teardown on Apple’s iPhone5 shows that its major components are made by nearly 20 companies headquartered in the USA, Japan, South Korea, and the Netherlands, with manufacturing facilities in a dozen countries on three continents. For example, NXP Semiconductors, a Dutch company founded by Phillips and headquartered in Eindhoven that supplies the interface for display, manufactures its products in China, Germany, Malaysia, the Netherlands, the Phillipines, Singapore, Thailand, and the UK and uses raw materials that originate in more than half a dozen countries.’

You may think that profiling one of the most popular consumer products in the world is an extreme example, but I show this to demonstrate just how complex supply chains are (or can be).

Berry concludes:

It will clearly be difficult to drive returns across technology value chains. If 4 to 6% margins are the best we can expect from battery manufacturers, could there possibly be other industries with wider operating margins or the possibility for higher returns?

The mining sector is a somewhat different story. The takeaway, should you choose to remain focused on the mining sector, is that unless the opportunity in question can prove the absolute lowest cost of production likely through leveraging a disruptive technology, above average returns may not present themselves. I don’t see any other realistic way to compete with established competitors.

Click here to read the full Disruptive Discoveries Journal report.