Dawn of the gigafactories: five rules to scaling gigafactory production

The world is experiencing the dawn of the gigafactories – supersized lithium ion battery plants that are fuelling the rise of electric vehicles and renewable energy storage.

There are currently 369 gigafactories in the pipeline to 2030, three years ago this was 115.

At the end of last year there were a total of 237 active battery plants with a total output of 786 gigawatt-hours.

While lithium ion batteries have been a mainstay of modern day lives for a generation now, mass scale production of electric vehicle quality battery cells is nascent practice.

Here are five Benchmark rules that should be the bedrock of any plans to build and expand gigafactories.

Work with automakers and key end users from the start

It is crucial that upcoming battery cell makers develop their product alongside their target primary end consumer.

Lithium ion batteries are specialist end products that are engineered with a specific end use in mind: from form factor to chemistry.

It is a reason why many major gigafactories are joint-ventures: from Gigafactory 1 in Nevada between Tesla and Panasonic to Ultium Cells, a joint venture between General Motors and LG Energy Solution in the US.

Soon after China’s CATL was established in 2011 it worked with BMW’s China joint venture, BMW Brilliance, on the development of batteries. Having an early automaker customer is key for new battery startups.

Sweden’s Northvolt received investments from Volkswagen and BMW in 2019, two years before it started battery production.

Know your chemistries

Knowing what chemistry you want to master is the centre point of your entire operation.

It defines your end market customer base and your supply chain strategy on security critical minerals and battery chemicals for your gigafactory.

But developing cell chemistry remains a moving target, as the industry continues to evolve the technological advancements of the lithium ion battery.

Back in 2019 when Northvolt signed its deals with VW and BMW, high-nickel NCM 811 was the holy grail of nickel based advancements, representing just 1% of deployed capacity in EVs. Today it’s more than 20% of deployed capacity and the industry looks towards the next iteration of nine-series NCM.

Trying to develop the latest cell chemistry, while growing a brand new company and brand is a tall order, particularly on a start-up budget and competing with tier one cell manufacturers including the industry giants from China and South Korea.

Secure your raw material supply chains

“A gigafactory without secure raw material supply is as useful as a grain silo to the EV industry,” said Simon Moores, chief executive of Benchmark.

Access to raw material, and partnerships which facilitate raw material purchases at discounted or preferential terms to spot market fluctuations will be critical in producing battery cells at a competitive cost.

The bill of materials made up up to 70% of the cost of some battery cells in 2022. There is the risk that this becomes even higher with further production efficiencies and makes raw material supply chain bottlenecks more important to avoid.

Ensuring access to raw material out is is the first challenge. Then you need to factor in the additional hurdles or localisation, sustainability and product quality. All of this makes consumers increasingly exposed to supply chain risks.

Securing raw materials before production ensures that battery producers are not forced to compete for supplies globally at potentially higher cost.

Securing government backing

Gigafactories are geopolitical hot potatoes. They are core to a country’s industrial ambition and creating a new future looking industry in electric vehicles and reducing reliance on fossil fuel energy with energy storage.

Britishvolt’s end came as a result of it being unable to access £100 million in UK government funding, because it had not reached certain milestones laid out in the lending agreement.

Government backing is key to competing with the cost of Chinese companies, even for bigger players. The US Department of Energy has agreed to lend $2.5 billion to a joint venture between GM and LG Energy Solution to build a battery plant in the US.

Northvolt also secured funding from government-backed institutions including the European Investment Bank, which lent €52 million for its demonstration line in 2018 and then agreed to lend €350 million two years later.

Have a credible and experinced management team to lead development

Successful battery startups often have been spawn out of credible battery experience, especially at the top.

Before co-founding Northvolt, Peter Carlsson and Paolo Cerruti had both worked at Tesla on its supply chain. Yasuo Anno, who had decades of experience in the Japanese battery industry, also joined the company early on.