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CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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SpecialAcknowledgements

YUNEVispleasedtorecognizeandthankthefollowingindividualsfortheircollaborationandcontributionstothisreport:

TomBrotherton,Director–MarketingAcceleration,CALSTART

KevinWalkowicz,Director–CleanTruckandOff-RoadInitiatives,CALSTARTJimmyO’Dea,DeputyDirectorofTrucks,CALSTART

BahaAl-Alawi,Sr.Manager–MarketandIndustryAnalysis,CALSTARTEmilyVarnell,TechnicalWriter,CALSTART

ShrutiSahu,Intern–MarketandTechnologyAnalyst,YUNEVLLC

IshitaKumar,Intern–MarketandTechnologyAnalyst,YUNEVLLC

Coverimagecredit:PoweredbyWebasto

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Coverdesign:OBeatyDesign

()

Copyright?2021byYUNEVLLC.

Allrightsreserved.

ThisreportwasfundedbytheCaliforniaAirResourcesBoard(CARB)HybridandZero-EmissionTruck

andBusVoucherIncentiveProject(HVIP).HVIPisadministeredbyCALSTART,thenation’sleadingcleantransportationnonprofitorganization,workingnationallyandinternationallywithbusinessesand

governmentstodevelopclean,efficient,andequitabletransportationandmobilitysolutions.CALSTARTisasolutionsnetworkthatconnectscompaniesandgovernmentagenciesandhelpsthemdotheirjobsbetter.Fromtechnologyfirmstotransitoperatorsandfromvehiclemanufacturerstoresearch

institutions,CALSTARTconnectseveryelementofthecleanenergysector,offeringcustomizedservices,information,andprogramming.CALSTART’s270+memberfirmsandagenciesincludevehiclefleets,

manufacturers,suppliers,technologyfirms,alternativefuelproviders,electricutilities,governmentagencies,academicinstitutions,non-governmentalorganizations,financialinstitutions,andotherbusinessesinterestedinthefutureofsustainabletransportation.

ThisworkisenabledbyYUNEV’songoingworktohelpbuildoutamoreefficientbatterysupplychainfor

theNorthAmericancommercialvehiclee-mobilitymarket.Nopartofthisdocumentmaybereproducedortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,

recording,orotherwise,withoutpriorwrittenpermissionbyYUNEV.Requestsforpermissionorfurtherinformationshouldbeaddressedto

kevin@yunev.co.

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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ListofAcronymsandTerms

ACT=AdvancedCleanTruck(regulation)

AIAG=AutomotiveIndustryActionGroup

APQP=AutomotiveProductionQualityProcess

BEV=Battery-electricvehicle(100%plug-inelectricvehiclewithnoadditionalpropulsionsourcethananelectricmotorwithbatteryenergystoragesystem)

BNEF=BloombergNewEnergyFinance

BMI=BenchmarkMineralsIntelligence

BMS=Batterymanagementsystem

CARB=CaliforniaAirResourcesBoard

CBEV=Commercialbattery-electricvehicle

CNG=Compressednaturalgas

CO2=Carbondioxide

CV=Commercialvehicle(ThiscategoryismostofteninreferencetoMD/HDtrucksandbuses,butitcanalsoincludeoff-highwayvehicles,terminaltractors,andothervehiclesdesignedfordedicatedcommercialandindustrialuse.)

DOE=U.S.DepartmentofEnergy

EOL=End-of-line

ESS=Stationary(battery)energystoragesystems

EV=Electricvehicle(Forpurposesofthisreport,EVmayinclude100%battery-electric,aswellasplug-inhybridelectric.)

FCEV=Fuelcellelectricvehicle

GVWR=Grossvehicleweightrating

GWh=Gigawatthours

HEV=Hybridelectricvehicle

HVIP=California’sHybridandZero-EmissionTruckandBusIncentiveProject

ICE=Internalcombustionengine

kWh=Kilowatthours

LD=Passengercarandlighttruckvehicleclass(typicallyClass1andClass2,<10,000lbGVWR)Li-Ion=GeneralreferencetoLithiumIonbasedbatterycell,module,orpack(regardlessof

chemistryorformfactor)

LFP=LithiumIronPhosphatebatterychemistry

LNG=Liquifiednaturalgas

LSEV=Low-speedelectricvehicle

LTO=LithiumTitaniumOxidebatterychemistry(alsoknownasLithiumTitanate)

MD/HD=Medium-andheavy-dutycommercialvehicles(Class3–Class8trucks,>10,000lbGVWR)MOU=MemorandumofUnderstanding

MW=Megawatt

NA=NorthAmerica

NACFE=NorthAmericanCouncilforFreightEfficiency

N/A=Notapplicableornotavailable

NMC=LithiumNickelManganeseCobaltoxidebatterychemistry(alsoknownasNCM)

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NOx=Nitrogenoxides(acriteriaairpollutantpresentinICEexhaustproducts)NRE=Non-recurringengineering

OEM=Originalequipmentmanufacturer(typicallythevehiclemanufacturer)PEV=Plug-inelectricvehicle(includingbothBEVandPHEV)

PHEV=Plug-inhybridelectricvehicle

PM=Particulatematter(acriteriaairpollutantpresentindieselICEexhaustproducts)PPAP=ProductionPartApprovalProcess

SAE=SocietyofAutomotiveEngineers

SG&A=Selling,general,andadministrativeexpenses

SOP=Start-of-production

SPAC=Specialpurposeacquisitioncorporation

TCO=Totalcostofownership(sometimesreferredtoasLCC,life-cyclecost)

Tier1suppliers=Automotivesupplierswhoproduce/sell/shipdirecttotheOEMVI=Verticalintegration

VW=Volkswagen

xEV=Referencetoallformsofvehiclepropulsionsystemelectrification(hybridelectric,plug-inhybridelectric,battery-electric,fuelcellelectric,etc.)

ZETI=Zero-EmissionTechnologyInventory(CALSTART)

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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TableofContents

SpecialAcknowledgements ii

ListofAcronymsandTerms iii

ListofFigures vi

ListofTables vii

ExecutiveSummary 1

IntroductionandBackground 2

DisclaimerandForward 5

CurrentState–ASnapshotofTwoVeryDifferentEVWorlds 6

CompetingTechnologies,PolicyDrivers,andMarketFactors 12

KeyCostFactors 16

BatteryIndustryStructure 24

BatteryCell/Module/PackCosts 33

Warranty,Financing,andRecyclingConsiderations 46

CommercialVehicleE-MobilityDeploymentStatus 49

ForwardLookingForecasts 54

BringingItAllTogether–PolicyandStrategyImplications 59

Conclusions 61

AbouttheAuthor 62

Bibliography 64

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ListofFigures

Figure1.Li-IonGlobalDemandMarketSegmentation 2

Figure2.CommercialEVTruckandBusSalesvs.LDEVPassengerCarsandSUVSales 6

Figure3.BatterySupplyChainStrategicExamples 7

Figure4.ContinuumofCommercialVehicleOEMBatterySourcingScale 9

Figure5.The“MessyMiddle”TransitiontoFreightTruckingElectrification 12

Figure6.BatteryCellRawMaterialCostBreakdown 16

Figure7.LithiumPriceIndex 17

Figure8.FlakeGraphitePriceIndex 18

Figure9.BatteryChemistryPerformanceComparisons 19

Figure10.GlobalLi-IonMegafactoryFootprint–2019Actual 24

Figure11.GlobalLi-IonMegafactoryFootprint–2024Forecast 25

Figure12.ChinaLi-IonBatteryCellMegafactoryFootprint–2019Actual 26

Figure13.ChinaLi-IonBatteryCellMegafactoryFootprint–2024Forecast 26

Figure14.PlannedMegafactoryCapacitiesforEuropeandUnitedStates–2024 28

Figure15.PlannedMegafactoryCapacitiesforEuropeandUnitedStates–2029 28

Figure16.Li-IonBatteryPackCosts 33

Figure17.EVBatteryPackCostProjectionsfromaVarietyofTechnicalStudiesandAutomaker

Statements 34

Figure18.CommercialVehicleBatteryPackCosts 35

Figure19.BatteryCostTrendsandProjections–PassengerCar/LightTruckandCommercial

Vehicles 36

Figure20.BatterySupplyChainIllustration 39

Figure21.Chinavs.GlobalBatteryPackPrices 43

Figure22.Zero-EmissionBusandTruckSalesintheUnitedStatesandCanada 53

Figure23.BNEFForecastforLi-IonBatteryDemand2020through2030 55

Figure24.ComparisonofSeveralLeadingEVForecasts 56

Figure25.TheZero-EmissionBeachhead–CommercialVehicleE-MobilityFleetAdoption

Pathways 57

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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ListofTables

Table1.ComparisonofVariousBatterySourcingStrategies31

Table2.FrameworkforSummer2021EstimatedandForecastedBatteryPackCost($/kWh)for

Competent-Proficient-EfficientCVOEMs 45

Table3.PartialListofNorthAmericanCommercialE-MobilityTrucksandBuses 50

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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…thestakesareevenhigherforcommercialvehicleOEMsdueto

theirmuchlowervolumesand

scale…

ExecutiveSummary

Thosewhohavespenttheirentirecareersintheautomotiveindustryrecognizetheexceptionaltransformationtakingplaceintheelectricvehicle(EV)market.Reportsofnewstart-upsintheEVspace,ornewEVventuresamongestablishedoriginalequipmentmanufacturers(OEMs)

andTier1suppliers,arriveatanalmostdailypace.Chinalaunchesonenewbattery

megafactoryeachweek,whileEuropeandtheUnitedStatesmakeaconcertedattempttoplaycatch-up.EstablishedcarmakersinNorthAmericaareengagedinamake-or-breakstrategic

planningexercisetopinpointwhenEVsactuallycrossthechasmandbegincapturingearly

majoritycustomers.Yet,oncethatmilestoneisreached,willitbetoolatefortheincumbentstolaunchenoughnewproductstopreventlosingsignificantmarketshare?

EstablishedcarmakersinNorthAmericaare

engagedinamake-or-breakstrategicplanningexercisetopinpoint

whenEVsactuallycrossthechasmandbegincapturingearly

majoritycustomers.

Thesequestionsareonlyafewofthebackdropinquiriesanddilemmasfacingcommercial

vehicleOEMsandtheirTier1suppliersinNorthAmerica.Asthisreportwilldiscuss,thestakesareevenhigherforcommercialvehicleOEMsduetotheirmuchlowervolumesandscale,

whichmakethebatterysourcingchallengethatmuchgreater.Furthermore,theincumbenttruckOEMsfaceagrowingnumberofwell-funded,talent-drivenstart-upsthatarenot

constrainedbythetraditionalproductandsaleschannelapproachesoftenfollowedbythe

moreestablishedplayers.Someofthesenewcomers,likeTeslaandBYD,haveaccesstosomeofthelargestscale(andlowestcost)batteriesinthepassengercarEVworld,whichgivesthemacompetitiveadvantageonthesinglelargestcostelementoftheEV.Forthefirsttimein

recenthistory,start-upsmayalsohaveanadvantageintermsofhowtheypricetheirEVsby

leveragingshareholdercapacitytosubsidizeEVtechnologypricingtosecureearlymarketsharepositions.Willregulatorstakethesemarketdiscontinuitiesintoconsiderationwhenrevising

incentivepoliciesforthefuture?Orwilltoday’splayingfieldbetiltedevenfurtherinthedirectionofindustrynewcomersandstart-ups?

Finally,thereisreasontobelievethattoday’sbattery

industrystructureandpricinglevelsarenotfully

understoodwhenitcomestotheNorthAmerican

commercialvehicleOEMandTier1segments.This

paperseekstoprovideasubstantivedescriptionand

discussionoftoday’smarketplaceandprovide

directionalpricingguidanceontoday’sbatterycost

structureandwhereitmaygointhecomingtwotofiveyears.

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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IntroductionandBackground

Thepurposeofthisindustryreportistoprovideestimatedbatterycostsfororiginalequipmentmanufacturers(OEMs)andTier1suppliersintheU.S.commercialvehicleindustryandto

provideanoverviewofseveralimportantconditionsregardingtoday’scurrentstateofe-

mobilitybatterysourcingandsupply,specificallyforcommercialvehicleOEMswhoproduce

medium-dutyandheavy-duty(MD/HD)trucks,buses,andotherimportantcommercialvehicles.

California’sHybridandZero-EmissionTruckandBusIncentiveProject(HVIP)provideszero-emissionvehicleincentivestocoveraportionofthecostofelectrifiedvehicles.Batteriesarethedominantelementoftheincrementalcost,thereforeHVIPhasastronginterestin

promotingabetterunderstandingofbatterycostsastheyrelatetozero-emissioncommercialvehicles.Theintendedaudienceforthisdocumentincludespolicymakers,investors,and

seniorleadersinlegacyandstart-uporganizationsworkinginthecommercialvehiclee-mobilitysegment.Strategicplannersandbatteryande-mobilitysourcingstaffmayalsobenefitfrom

thisreport.

ThisreportincludesinformationpertainingtothebatterysourcingcontextandisgenerallyapplicabletobatterypackpricingforMD/HDcommercialvehicleOEMsandtheirTier1

suppliersinNorthAmerica.Thisreportreferenceslight-duty(LD)automotivepassengercarEV

batterypricingandsourcingstrategiesthroughout,sincethoseexternalfactorshaveasignificantimpactonthecommercialvehiclebatterypricingandsourcinglandscape.

Figure1providesasimpleandhelpfulframeworkforthinkingabouttheglobalmarketfortoday’slithium-ion(Li-Ion)batteries.1

Figure1.Li-IonGlobalDemandMarketSegmentation(Source:InteractAnalysis)

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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Thishelpfulfigureshowsthreemajorbatterydemandsegments:

●EV–ElectricVehicles(e-mobility)

●ESS–EnergyStorageSystems(stationarygridandotherenergystorageapplications)

●CE–ConsumerElectronics(smartphones,tablets,laptops,powertools,etc.)

WithintheEVcategory,demandcanbefurtherbrokendownbypassengercar,commercial

vehicle,andlow-speedelectricvehicles(LSEVs,includingtwo-wheeler,trike,scooters,e-bikes,powersports,etc.).Commercialvehiclesincludebus,truck,andoff-highwayvehicles.The

NorthAmericancommercialvehiclee-mobilitymarketisthefocusofthisreport.

Duetothefrequencyandsheervolumeofindustry

newsrelatedtoEVactivities,itiseasytolosetrackofwhich

announcementsarerelatedtoactualeventsandmilestonesvs.those

thatareforwardlookingandcharacterizedprimarilybyforecasts.

Thelevelofinvestmentamongglobalautomakersandtheirbatterysuppliersinthee-mobilityspacehasreachedremarkablelevels.AgrowingnumberofEVplatformsarebeingofferedbyagrowinglistofmajorautomotiveOEMs,andbatterymakersareinvestinginmegafactories

acrossAsiaandEuropetosupportgrowingenergystoragedemandfortheseEVs.Simply

stated,therehasneverbeenanythinglikethiscurrentperiodofrapidtransformationwithintheautomotivee-mobilityindustry.ArenewedeffortisunderwayintheUnitedStatesto

attractinvestmentinbatteryproductionfacilitiesandcapacitytosupportadomesticEV

market.Thise-mobilityphenomenonisnotlimitedtothepassengercarandSUV/lighttruckindustry,butalsoextendsintotheMD/HDtruckandbusworld.

TransitbusmakersinNorthAmericahavebeenofferingEVvariantsformanyyearsnow,and

thepenetrationofEVbusesinthetotalnumberofbusessoldeachyearcontinuestogrow.ArecentreportpublishedbyCALSTART(ZeroinginonZEBs)capturesthescopeandlocationof

thesegrowingEVtransitbusdeployments.2Legacytruckmanufacturersandseveralstart-upstothespacehaveannouncedplanstobeginofferingtheirfirstproductionEVslaterthisyear

(2021).ThisdevelopmentfollowstheintroductionandavailabilityofseveralEVsintheMD/HDtruckspaceoverthepastfewyears.CALSTART’sZero-EmissionTechnologyInventory(ZETI)

providesaninteractiveonlineresourcefortrackingcommerciallyavailableofferingsofzero-emissionmedium-andheavy-dutyvehicles.3

SmallcommercialEVOEMandsupplierstart-upsthatoncestruggledtoaccesssustainable

investorfundinghavenowclosedonhundredsofmillionsofdollarsthroughreversemerger

acquisitiondealsorchestratedbyspecialpurposeacquisitioncorporations(SPACs),whichhaveenabledthemtofurtherfinancetheirdevelopmentandmanufacturingoperations.

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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Morethan145,000EV

passengercarsweresoldanddeliveredinCaliforniain2020,comparedwithlessthan100MD/HDbattery-electrictrucks.

Whenviewedintheirentirety,thesecommercialvehicledevelopmentsandeventsaretrulyunprecedentedintheirscopeandtheirreach.Duetothefrequencyandsheervolumeof

industrynewsrelatedtoEVactivities,itiseasytolosetrackofwhichannouncementsare

relatedtoactualeventsandmilestonesvs.thosethatareforwardlookingandcharacterizedprimarilybyforecasts.Forexample,afterreadingandhearingaboutthe10,000-unitorder

fromUPSforArrivalEVsandthe100,000-unitorderfromAmazonforRivianEVsoverthepastyearormore,itiseasytoimaginethattheseunitsareactuallybeingproducedanddeployedtodaywhen,infact,onlyasmallnumber(lessthan50)ofpre-productionvehicleshavebeenbuiltandarenowbeingtestedintherealworld.

Similarly,afterseeingandhearingthatLi-Ionbatterycostshavedecreasedbymorethan85%

overthepast10years,itisonlynaturaltoassumethatcommercialtruckandbus

manufacturersareenjoyinglowbatterypricesastheypreparetointroduceagrowingnumberofEVs.Unfortunately,whileitistruethatbatterycostshavebeenreducedsignificantlyoverthepastdecade,itdoesnotnecessarilyfollowthatallMD/HDtruckandbusOEMsareabletoaccessattractivebatterysourcingandpricingchannelsatthispointinmarketdevelopment.

BasedonCALSTART’sZETIdatabase,sourceshavereportedmorethan70makesandmodelsofcommercialEVsavailableinproductionintheNorthAmericanmarket.ThisstatisticisastrongleadingindicatorofinvestmentandnewproductavailabilityforthecommercialEVmarketanditsgrowthinthenearfuture.Atthesametime,thislargenumberofmakesandmodelscan

alsocreatetheimpressionofamorerobustmarketforcommercialEVsthanwhatactually

existstoday.Forexample,theCaliforniamarketforMD/HDbattery-electrictruckswasless

than100vehiclessoldanddeliveredin2020(basedonanalysisofCalifornia’sHVIPvoucher

redemptiondata).Admittedly,2020saleswereheavilyinfluencedbytheCOVID-19pandemicandHVIPvoucherfundingconstraints.IndustryresponsetonewHVIPvoucherfundinginJuly2021showedmomentousstrengthonthedemandside,sothisreportisnotsuggestingthat

2020salesdatareflectsacompleteoraccurateviewoftoday’smarket.Nevertheless,thesearethemostrecentfull-yearsalesdataavailable,andthisreportseekstobuildonadata-driven

“currentstate”perspectivetohelpreadersunderstandthechallengeOEMsfaceintermsof

day-to-daysourcingofproductionbatteries.Onaverage,the2020Californiasalesfiguresworkouttoroughly1.5vehiclessoldpermodel.Viewedfromthisperspective,itisclearwhybatterycostandsourcingchallengesforcommercialvehicleOEMsandTier1supplierscontinuetobeimportantissuestoday.

Thisindustryreportisbeingpublishedwiththehope

thatitwillspuramoreinformedquestandadditional

effortsforinnovationandthebuildoutofamore

efficient,costeffective,anddomesticbatterysupply

chainintheUnitedStatesthathelpsexpandthe

availabilityanddeploymentofcommercialvehiclee-

mobilitymodelsdomesticallyandbeyondatthe

earliestpossiblepointintime.

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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DisclaimerandForward

Thisreportdoesnotattempttoclaimcompleteknowledgeorunderstandingofthebattery

sourcingstrategiesbeingdevelopedanddeployedbyallstakeholdersinthecommercialvehiclee-mobilitysegment.Today’smarketplaceistoodynamicandactiveforanyentitytoassume

thecapacitytotrackeverynewdevelopmentandplayer.Havingsaidthat,thisreportdoes

provideanoverviewofmanyofthecoreissuesthatarerelevantandimportantastheyrelatetosourcingLi-Ioncells,transformingthosecellsintomodulesandpacksforcommercialvehicleapplications,andvalidatingthosedesignsforproduction.

Morethan20yearsofrelevantindustryexperienceanddatapointshaveinformedthe

developmentofthisreport.Nevertheless,thereisarealpossibilitythatcertainkeyplayers,importantdatapoints,orotherkeyfactorshavebeenoverlookedormisrepresented

unintentionally.YUNEVhopesreaderswillbegraciousandtakeamomenttopointoutanymistakestofacilitateongoingcorrectionsandimprovements.Thislivingdocumentwillallowforreal-timerevisionstobemadeforrelevantpointsthatcanbeverifiedinthefuture.

Thecostdatainthisreportareconsideredaccuratetoadegree,butYUNEVreadily

acknowledgesthatanyspecificnumberssharedinthisreportarealmostcertainlyprecisely

wrong.Ratherthanprovidespecificbatterypackpricingdatapoints,thisreportisintendedto

showsomerelativepricetrends,ranges,andcomparisonswhilealsogivingamoreholisticview

ofthecurrentchallengesandstatusofsourcingbatteriesforcommercialvehiclesatthisspecificpointintime.

AnImportantNote

Thisreportseekstoillustratethattherangeofbatterycostsacrossmanufacturersand

industryforecastsshouldbeviewedinthecontextofmanufacturingvolumesand

experience,andthatbatterypurchasingdynamicsaredifferentforcommercialvehicle

manufacturersthathavenotyetachievedhighsalesvolumes.Whilethisreportnotesthat

batterycostdisparitieswilllikelypersistacrosstheindustryaselectriccommercialvehicle

manufacturersevolveandgrowatdifferentrates,lowerbatterypricesandsupplychain

improvementscanbeacceleratedbyincreasingthedeploymentofzero-emissiontrucks.

Sustaineddemandwilldrivequickerimprovements,leadingtomorededicatedsupplyand

lowerpricesforall.Purchaseincentivesandotherpoliciesarecurrentlystillneededtohelp

manufacturersachievescaleandpriceparitywithcombustionvehicles.

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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CurrentState–ASnapshotofTwoVeryDifferentEVWorlds

OnewaytoquicklyunderstandthenatureandmagnitudeofthebatterysourcingchallengeforcommercialvehicleOEMsistocompareNorthAmericanEVproductionvolumeswiththoseoftheglobalEVpassengercarandSUVmarket.Thefollowingchartshowsmanufacturers’salesvolumesandisintendedtohelpcontrastthelongtailoftheNorthAmericancommercial

vehiclemarketvs.thedramaticallylargerscaleoftheglobalpassengercarandSUVmarket.ThischartclearlytellsthetaleoftwocompletelydifferentindustriesandhighlightstheearlymarketstatusofelectriccommercialtruckandbusesinNorthAmerica.

Figure2.CommercialEVTruckandBusSalesvs.LDEVPassengerCarsandSUVSales

AsFigure2illustrates,thereareanumberofpassengercarOEMscurrentlyproducingEVsattherateofhundredsofthousandsperyear.AnevenlargergroupofOEMsisproducingEVsattherateoftensofthousandsperyear.Bycontrast,commercialvehicleOEMsandtheirTier1suppliersinNorthAmericaarecurrentlyproducinganddeliveringEVsandEVsystemsatthe

rateofdozens,andinsomecases,hundredsperyear.Morethan145,000EVpassengercarsweresoldanddeliveredinCaliforniain2020,comparedwithlessthan100MD/HDbattery-

electrictrucks.4ThescaleofpassengercarEVsismorethanthreeordersofmagnitudegreaterinCaliforniathanthescaleforcommercialEVOEMsandTier1suppliers.

7

ThisenormousdifferenceinscalebetweenEVpassengercarsandEVcommercialtruckandbusvehiclesmatterswhenitcomestobatterysourcing.Thisreportwillexplorehowthisdifferencetranslatesdirectlyintoamorechallengingbatterysourcingreality,alongwithunavoidably

highercostsforcommercialvehiclemakers.

Figure3providesahigh-leveloverviewofthevariousstrategiespassengercarOEMsarebringingtothebatterysupplychain.

Figure3.BatterySupplyChainStrategicExamples(Source:YoleDeveloppement)

Thischartillustratesanotherimportantdistinctionbetweenthesetwoindustries.Namely,thewayinwhichmanyLDpassengercarOEMsarepursuingverticalintegration(VI)withtheir

batterysourcingstrategyandformingsignificantpartnershipsandtakingequitypositionsincellmanufacturersandevenrawmaterialprovidersinsomecases.AlthoughFigure3depictssuchsourcingstrategiesasmovinghorizontally,conventionaleconomicnomenclatureusestheterm

VItodescribethepracticeofowningafirm’supstreamsuppliers,andinsomecasesitsdownstreambuyersaswell.

Tesla’sexampleofexpandingsourcingacrossbatterymanufacturingpartnerslikePanasonic,

LG,Samsung,CATL,andothersiswellknown.PerhapslessfamiliaristheexampleofBMW

workingtosecuresupplyfrom1.)Northvoltthrougha$2.3billionUSDlong-termsupply

contract,52.)SamsungSDIthrougha$3.4billionUSDagreement,6and3.)CATLbasedonan

$8.5billioncommitment.7Volkswagen(VW)recentlyunveiledtheirplansforsignificantVI

throughtheirelectrificationandbatterystrategyasoutlinedintheirPowerDayeventinMarch

CommercialVehicleBatteryCostAssessment–IndustryReport,June2021

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2021.8Inadditiontoawiderangeofbatterytechnologyandproductdesigndetails,VW

announcedplansforsix40GWh/yrgigafactoriesinEuropewiththreebatteryproduction

partners(Northvolt,GotionHigh-Tech,andQuantumScape).WhilethereareafewMD/HDmanufacturersthatcanleveragesignificantbatterymanufacturinginvestments,itisevidentthatmostMD/HDtruckmanufacturershavenotyetexpandedtheirbatterymanufacturingcapabilitiesinasimilarmannertothatoftheLDmarket.

AllsixoftheVWgigafactoriesappeartobecaptivetoVWdemandonlyandreflectaserious

commitmenttosecurecapacityandinfluencebatteryproductandtechnologyattributesthatwillsupportVW’svisionforbatteryintegrationacrosstheirentireEVportfolio.Inadditiontothesesixgigafactoriesandthreeproductionpartners,VWalsoreportstheyremainfully

committedtosourcingbatteriesfromLGChem,SamsungSDI,SKI,andCATLfortherestoftheworld.ThislevelofbatterysourcinginvestmentundoubtedlyincludeshundredsofVWstaff

andhundredsofmillionsofdollarsofcapitalinvestmentwhichcanleadtosignificantcost

savingsandamorereliablesupplychain.WhileotherEVpassengercarOEMs