Venture capital has a blind spot for the EV battery

One of the world’s largest battery companies is considering reversing a $1.3 billion project to produce electric vehicle power packs in Arizona. The South Korean company LG Energy Solution Ltd. cited rising costs and slowing demand as it now rethinks the investment announced in April.

This is a blow for electric vehicles and batteries, and for the United States as it tries to develop its supply chain. It is, however, a much-needed opening for funding under-the-radar technological breakthroughs.

So far, the energy storage industry has been dominated by Chinese giants like Contemporary Amperex Technology Co. Ltd, BYD Co., Samsung SDI Co. Ltd and LG Energy Solutions Ltd. Their current size has allowed them to gain market share and meet existing demand. . By gradually improving the energy density and fast charging of their batteries, this was enough to satisfy investors. This largely rules out big funding for smaller, more promising tech startups. Additionally, investors prefer to focus on electric car makers rather than the batteries that power them.

Now, with the costs of everything from labor to raw materials rising, it’s not as easy to make multi-billion dollar investments and grab headlines. Big players – like LG – are being forced to reconsider their overall strategy to meet forecasts.

As the South Korean company plans to scale back its operations in Arizona, it separately entered into a non-binding agreement with Kansas-based miner Compass Minerals to supply lithium carbonate and hydroxide to secure raw materials. and strengthen its supply chain. In June, the company inaugurated a nickel processing plant in Indonesia. Without access to raw materials, there will be no power supplies to manufacture.

Regardless of the potential impact of LG’s decision, the recalibration is an opportunity for investors to focus on technologies that may move the needle. Nomura analysts estimate that more than 40% of its battery production capacity will be in the United States by 2025.

Several startups are researching options for better and cheaper batteries for EVs and grid usage, as well as EV charging and the necessary infrastructure around it. Throughout the energy storage supply chain, smaller companies are looking for lower cost options using more abundantly available materials like sodium, sulfur, manganese, and in some cases, no metals. With advancements in the cathode side of the battery pack, companies are now focusing on other parts like the anode, separator, and electrolyte. Others are looking for manufacturing processes that will store more energy.

Yet they constantly run into funding issues given the scientific and hard-to-understand nature of their product. At first glance, the numbers don’t look too bad: $3.3 billion in investments have been disclosed by about 34 battery-related startups since 2017, according to BloombergNEF analysts. Considering the global ecological objectives to be achieved, this is a pittance. Juxtaposed with the rapid funding of jazzy electric car startups that haven’t quite lived up to their promises, it’s even smaller and the $210 billion invested in fintech last year – led by crypto interests and of the blockchain – are tiny. Let’s be honest, as millions of people experience power outages across the world, there’s no doubt that the energy crisis needs solutions.

It is therefore not surprising that we are so behind on EVs and the energy transition. Venture capitalists avoid such a complex and difficult innovation that is not a digital or cloud-based platform. Electrochemistry has also not been a popular investment area. Investors can’t quite gauge the effectiveness and incremental nature or risk the way scientists can, according to some small companies. They are also unwilling to invest their belief and money in technologies focused on high-tech manufacturing.

Even the likes of Tiger Global write relatively small checks. Late last month, Chase Coleman’s company led a $25 million Series A funding round for India’s Battery Smart, a battery swap provider, along with a few existing investors. Compare that to a rocket builder’s $650 million E-Series (arguably far less useful in the near future than powering our homes and businesses) last year.

The potential vacuum created by LG (and potentially its near-term peers) will open up the battery investment landscape, but barriers to entry remain far too high due to large incumbents. Targeted venture capital and private equity firms – those run and led by scientists and engineers, not just financiers – should open their eyes a little wider and accept the reality: there won’t be big breakthrough so soon.

Instead, multiple battery chemistries are likely to coexist. The choice of range and safety will be left to consumers. It will go beyond the two choices drivers currently have: nickel, cobalt, manganese packs that will take cars further and possibly less stable and more expensive, or lithium iron phosphate. These represent the tried and tested, safer version that won’t get you that far, but does the job for now. The silicon anodes, sulfur-based cathodes, cheaper lithium anodes and cell architecture where companies like Warren Buffett-backed BYD have succeeded are where high-profile investors need to start putting their money. and show the way. If even Charles Koch’s energy empire, which has long opposed climate regulation, is now betting hundreds of millions on batteries, surely that’s the only way forward.

Startups take more than three years to generate positive cash flow. Meanwhile, “scaling new technologies from lab to mass production can take up to 10 years,” according to BloombergNEF analysts. Without money, it will take much longer and the mass adoption of electric vehicles will be even further away.

Bloomberg

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