Insights Industry Insights Charging Up

       

Battery Manufacturing: Charging Up

By: AccuVal Associates, Inc.

From alarm clocks to cell phones to airplanes, the battery industry has plenty of products to keep running. Like most U.S. industries, the battery-manufacturing business relies primarily on the success of the American automotive industry – and the cost of materials needed to produce goods. With volatility in raw materials, more consumer desire for high-tech and green technology, and new demand from developing countries, the battery trade can expect big changes in the coming years.

SUPPLY

Increases in raw-material prices impacting volume

Industry experts predict that the cost of non-ferrous metals essential to battery manufacturing (including zinc, lead, nickel and copper) will continue to rise. Over the past five years, the cost of these metals has proven extremely volatile, due to economic uncertainty in the global markets. Costs associated with exploratory mining for precious metals and recent oil and gas increases have been directly related to cost hikes for zinc, lead and other metals since 2010. Metal prices are expected to rise over the long run, as countries such as China, India, South Korea and Brazil continue infrastructure development and growth.

Consumer desire for new technology propelling battery advances

Battery manufacturers have made huge strides to advance technology for the past decade, and fierce competition remains for the next development of lithium, lightweight, rechargeable and longer-lasting batteries. Many manufacturers encounter problems with the short lifecycle of products that require batteries; devices such as cell phones, laptops, digital cameras and music players are typically "turned over" every few years. As consumers replace their battery-operated goods, manufacturers will feel increased demand to keep up with (and improve) technology.

Imports fueling the market

Currently, China accounts for approximately 40 percent of U.S. battery imports. Due to the recent Sendai earthquake that devastated Japan's infrastructure on the country's east coast, reports anticipate that imports, especially from China, will continue to increase in the coming years. U.S. battery imports account for approximately one-third of industry revenue, with China leading the way and Mexico (at 18 percent), Korea (8 percent), and Taiwan (5 percent) ranking as the other major players.

DEMAND

Increased consumer confidence encouraging new purchases

Although economic doubt remains, news of a potential recovery has increased consumer confidence enough to spark growth in the battery industry. With wider belief that manufacturing is returning to the U.S., that the housing market is slowly recovering and that unemployment rates are dropping, shoppers are opening their wallets once again. Positive news, as the public learns of it, has triggered pent-up demand for the newest consumer electronics and automobiles, which will contribute to the anticipated 4- to 4.5-percent annual growth of the domestic battery trade for the next five years.

More hybrid-vehicle interest shifting the industry's focus

Automotive batteries make up more than 40 percent of the battery market. The auto industry's recent rebound has driven some success in battery manufacturing. Although manufacturers will continue targeting traditional combustible-engine vehicles, those same companies are seeking new ways to develop efficient, effective, low-cost rechargeable batteries for hybrid electric vehicles. Undoubtedly, any large-scale transition from traditional vehicles to electric/hybrid vehicles will be a slow process. But with gas prices expected to shoot past $5 per gallon by summer, it's likely that consumers will continue to turn to hybrids – especially if battery manufacturers can increase the life and reduce the cost of the necessary car batteries, which currently can cost $10,000 to $20,000 alone.

Although many consumers want to "go green" and feel the need to embrace new environment friendly technology, the pricing of electric cars and hybrids, partly due to the cost of batteries, has been a roadblock to sales. 2011 sales of both the Chevrolet Volt and the Nissan Leaf were below expectations with overall sales at 7,671 and 9,674, respectively. As a result of these slow sales, General Motors announced they would be suspending production of the Volt for the 5 week period of March 19 and April 23.

Global demand changing the export game

Developing countries' demand for electronics and automobiles will increase in the coming years. The U.S. battery-manufacturing industry has an opportunity to reap the benefits of battery exports, especially in the automobile sector of China and India. Even though exports only represented about a quarter of industry revenue in 2011, the depreciation of the U.S. dollar and favorable exchange rates recently have made the country's exports a more viable option for developing countries. Still, America's production and manufacturing costs could be a major deterrent for trade – and might be the most significant determining factor in the amount of product the country can export in the near future.

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About AccuVal
AccuVal provides a broad range of valuation, advisory and asset management solutions that contribute to growth or help ensure survival. We appraise the business enterprise and shareholder equity; bonds; intangibles and intellectual property; machinery and equipment; inventory; real estate and accounts receivables in over 100 industries worldwide. Learn more at www.accuval.net.