Electrification
This article discusses an upcoming transformation in electric energy, which will be triggered by the current transportation revolution and some other factors.
Around September 2018, I started publishing a chain on LinkedIn titled Electrification.
It was a systemic analysis that discussed the process by which electricity will become more distributed and will engrain itself much deeper into society. In this process many more objects will become electrified and access to electricity will become more abundant. Electric energy will also become more mobile.
This will be triggered by progress in electricity storage technology and the phenomenon could become self-reenforcing and continue growing!
Ultimately, the phenomenon will significantly effect the electricity platform layer and herald Electrification.
However, this article is not complete, as later I became distracted by some other projects (including a chain on the next global recession) and did not complete this chain. But I think this article still has many valuable ideas. Maybe if I find time in the future I will complete the analysis.
Below is a chain published on LinkedIn starting Sep 2018.
1. It is interesting that once most cars go electric, without even considering electric micro-mobility, the size of the lithium-ion battery market will increase by 100X. This will drastically increase research funding into electricity storage. Today there are already 10X more PhDs working on energy storage than 5 years ago. And this number will only increase more drastically in the very near future. This could eventually lead to a breakthrough in storage technology. Thereby improve storage unit production cost, energy density, storage/charging efficiency… Consequently electricity will become more mobile and distributed and will also integrate itself deeper into every aspect of life!
2. Five main phenomena are unlocking the lithium-ion battery market: 1. Electrification of cars 2. Electric Micro Mobility 3. Drones/Electric Air Mobility 4. Rooftop solar 5. Other emerging, electric modes of transportation. Cars are the biggest market right now and if the car market size remains the same it will increase the Lithium-Ion storage market by 100X. The other four phenomena would ramp up accordingly based on adoption market size. There will be a cost reduction effect from economies of scale. Also each of the 5 phenomena optimizes the storage technology for a slightly different case focusing more on charging speed, weight energy density, volume energy density, cost, other efficiencies… Initially there will be evolutionary progress in storage technology, which depending on the progress level will self-reinforce all 5 phenomena.
3. Transportation and Energy are deeply linked and the revolution in transportation will be a main trigger of Electrification 2.0. The chart below shows the current energy production and consumption by source and sector. So if we are talking about transportation going electric, we are talking about an almost doubling of electricity consumption. This is if the transportation market size remains the same. Yet the market-size could increase if friction is removed from the transportation process, but the unit energy consumed could also decrease through more energy-efficient transportation.
4. The 100X increase in the Lithium-Ion battery market and the 2X increase in electricity consumption are just an order of magnitude assessments. Currently it is too difficult to accurately predict any part of the transportation market, as the transportation sector is going through drastic changes including electrification, autonomous driving, micro mobility, ride hailing, air mobility and additional modes. And all these changes are interacting with each other in the transportation-electricity marketplace. Yet the 100X and 2X changes in market sizes, for batteries and electricity consumption respectively, are important for unlocking the marketplace. Next we will discuss how gradual electrification spreads into the marketplace.
5. As Tesla is ramping up its production and getting closer to its target rate, electric cars, mainly Models S, X and 3, are replacing the gasoline fleet at a faster pace. This increases the battery market size for companies like Panasonic and also creates economies of scale with lower battery unit cost. German automakers now realizing that they cannot compete with Tesla on their old platform are shifting hard into electric cars with new models available already by the end of the year. These companies will have a difficult time competing with Tesla but Tesla is for now supply restricted. So German cars will accelerate electric car adoption even more and will have a step-function effect on the Li-ion battery market and unit cost. After the step-function the feedback loop (driven by cost and infrastructure) will become stronger and begin exponentially accelerating adoption. Not only do the battery economies of scale accelerate electric car adoption (by lowering electric car prices), but they also unlock the electric micro-mobility market. To be discussed next…
6. Micro-mobility has many faces. The most prominent right now are the dock-less scooters by Bird, Lime, Lyft, Uber and others. This market is growing so fast that scooter manufacturing is a significant bottleneck. As more capacity is introduced, it will also increase the lithium-ion battery market and add to battery market increases from car electrification. Although at pack level these two batteries are different, on the cell level there is some compatibility. Current battery cell costs for cars are at about $100/kWh for Tesla and about $114/kWh for Audi. As cell costs decrease even more, micro-mobility adoption will increase. Micro-mobility is more sensitive to battery prices, since the battery is a much bigger portion of the total product cost (mostly for the ownership model usually around 40–50%). The battery drop can unlock new use cases and new micro-mobility product categories that are currently uneconomical (for example cases limited by small battery capacity). All these will create another self-reinforcing feedback loop for the battery market. The loop will increase the micro-mobility market size and will be aided by increasing infrastructure around it… To be discussed next..
7. How big is the electric micro-mobility market? It is difficult to gauge but it seems pretty big! The dock-less scooter market is right now supply restricted and has several well-funded players. Because of significant funding, large capacity will eventually come online. Also the socio-economic power of this significant funding will stimulate improved infrastructure around micro-mobility. The improved infrastructure will not only accelerate adoption of dock-less scooters but also of other micro-mobility modes and use cases. Also with continuous miniaturization and economies of scale for electric motors and Li-Ion batteries, eventually most skateboards and bicycles will be electrically assisted. Electrification could become a standard option with insignificant weight or cost additions to existing modes. Will micro-mobility significantly cannibalize car transportation or will it increase the size of the overall transportation market by removing frictions (measured by trips)? We will have to wait and see. Either way micro-mobility and its implications will add to electric transport and further unlock the Li-Ion Battery market. This will add to previously discussed feedback loops of other electrification phenomena. We will discuss air mobility next…
8. Electric air-mobility is for now comprised of drones and air taxis. The latter is still in its infancy and will take longer. But drones already have a wide range of applications and are widely used. As battery prices decrease, drone adoption will increase. Drones have a high sensitivity to battery prices. A drone is basically a flying battery that can provide that energy for other applications such as imaging, other types of information collection, transport or new use cases. Batteries are a significant constrain on drones, in terms of price but also in terms of weight energy-density. Once the drone market opens up it will optimize batteries for weight-energy-density. The defense sector also has become a major user of drone technology and will further push weight-energy-density research. If drone delivery becomes economically meaningful for some use case, the drone market size will significantly increase. All these will add to the increases in the lithium ion battery market and also stipulate research in higher weight-energy-density storage technology. Higher weight-energy-density will also help air-taxi adoption by unlocking more value cases… To be discussed next.
9. I will not attempt to make predictions on the timeline or size of the electric air taxi market. There are several startups currently working on air taxis and these startups probably have more information. If air taxis become viable, they will add another mode of Li-Ion battery capacity expansion. Another positive feedback loop to an emerging transportation market will further assist battery economies of scale and in this specific case weight-energy-density research. Air taxis unlike small, commercial drones require more battery capacity and could have a bigger impact if the air taxi market size becomes sufficient. With all these emerging electric transportation modes it is important to consider the effect autonomous and on-demand/sharing business models will have on each transportation market size, if measured by either energy consumed, transportation units or miles. Autonomous and on demand/sharing, by removing frictions from the process, will probably increase the total trips and transportation energy consumed. However sharing models will lead to higher vehicle utilization rates and could reduce the total number of transportation units needed and thereby have a decreasing effect on Li-Ion battery capacity. We will discuss these phenomena next…
10. As 1. Electric Cars, 2. Electric Micro-mobility and 3. Electric Air-mobility are spreading into the transportation market, the economic dynamics in the transportation marketplace are shifting due to the sharing business model and autonomous navigation (to arrive later). All these simultaneous, dynamic phenomena add a high complexity to the transportation marketplace and make it challenging to predict its “semi-steady-state” dynamics. We will still attempt to analyze it. The sharing business-model leads to higher vehicle utilization rates in all categories. This makes the variable cost of a trip more significant in the total cost structure. At current electricity prices (which could also adjust to electrification), the variable cost of electric transport is much lower than for ICE (internal combustion engines). Also the variable maintenance cost is lower for electric transport (battery replacement cost could maybe become a part of the maintenance cost). Lower variable cost will lead to cheaper transportation prices with the sharing model, especially since the transportation marketplace is fairly competitive. This dimension will increase total transportation miles and grow the size of the market. We will continue analyzing the marketplace dynamics.
11. Autonomous navigation, just as the sharing model, leads to higher utilization rates in all modes, and shifts the cost structure emphasis towards variable cost. The variable cost of electric transport is much lower. Also eliminating the driver not only reduces the variable cost due to the driver, but it theoretically allows 24h utilization rates not considering charging-time (this could be significant for trucking and goods transport). This will further lower transportation prices and possibly increase total miles traveled and number of trips. The per capita transport energy consumed could increase due to more usage, but will also be pressured by increasing energy efficiency of transport (including micro-mobility). To better understand the system’s evolution it would be interesting to track several macro-level parameters. These variables could include per capita miles traveled, per capita number of trips, per capita transportation energy used, ratio of sharing vs. ownership, distribution across the 3 modes, per capita transportation units in operation (both for people and goods transport). Electric micro-mobility could have interesting implications for energy efficiency and we can briefly discuss this aspect next.
12. Electric micro-mobility by itself is already a transformative phenomenon and will strongly interact with the transportation revolution and with electrification. By some estimate it could capture up to 30% of the transportation market. Micro-mobility is much more energy efficient (by about 2 orders of magnitude) and therefore could hamper the increase in overall transportation energy use. Micro-mobility is also much cheaper per mile and will cannibalize macro-mobility. To what extend will micro-mobility cannibalize macro-mobility in the short-term and to what expand will it contribute to the total transportation market (measured by trips, miles, energy, total battery market capacity, total units)? Short-term questions are difficult to answer for this currently highly complex, dynamic system. In the long-run the boundary between cars/trucks and micro-mobility will probably blur and the transportation modes will become use case and capacity specific. This proliferation of modes will interact with other product categories as well, specifically future mobile robots (which are the intelligent cousins of micro-mobility). We will continue discussing the micro-mobility marketplace a little more.
13. Once Uber and Lyft tap the public markets in 2019, the economic power behind the transportation revolution and also behind electric micro-mobility will increase significantly. Also for the first time we could get public data on transportation patters and also on unit-economics in micro-mobility. This level of detail in transportation data would have been impossible with the old transportation model, so the data is very useful on a macro level!!! Also the unit economics seem challenging in micro-mobility and it is difficult to imagine how any company could create differentiation in that space. Is it economies of scale and competing on price? Is it pace of innovation and competing on better service/hardware? Maybe brand or bundling? Operational efficiencies? Either way, it would be an interesting market to watch and most likely a prolonged fight, that could lead to consolidation at some point. This battle would be a large push for electrification. This additional funding will push forward the evolution of electric micro-mobility hardware and force micro-mobility infrastructure. College campuses could be an interesting market for micro-mobility, useful to create future consumer habits. We will continue discussing the micro-mobility marketplace…
This is where I stopped this analysis as I got distracted with other projects. When I find more time and motivation, I will complete this analysis and more specifically discuss the implications of Electrification 2.0 on energy production and distribution.
But one important aspect I want to discuss quickly is the adoption of rooftop solar. When rooftop solar becomes price-competitive, aside from associated battery economies of scale and other scale triggers, a more important change is the supply-side capacity expansion economic dynamics. Once the capacity expansion decision becomes more distributed, it will open up the supply-side dynamics in the marketplace, similar to what happened in the oil industry when fracking emerged. But even more drastic, because the supply decision will be made by each individual household.
So it will make the marketplace more responsive and adjust quicker to changes in production cost. This is also likely to trigger oversupply, which will have major implication for electricity prices. Also there are many interesting feedback dynamics worth discussing. These will impact the new equilibrium of supply/demand in electricity.
Disclaimer:
Since I am a dyslexic, I am prone to spelling and grammar mistakes. Hopefully it does not distract from the substance of the article.
Thank you for reading this article :)
