There’s a new kid on the hi-tech manufacturing block. The days of high profile multi-billion manufacturing facilities (fabs) being announced by Intel, TSMC and Samsung have been a feature of the technology landscape for decades but it might surprise readers to know electric vehicle(EV) battery manufacturing could ultimately match the national economic significance and technical challenges posed by precision-critical microchip production. The costs are a clue. In the last few weeks pioneering EV gigafactory player, Northvolt, announced the decision to build a new EV battery manufacturing facility in Quebec, Canada, at a cost of $5 billion. Meanwhile, in Leixlip, Ireland, the Intel Fab 34 manufacturing facility has opened with a price tag of €17 billion. That’s the cost of future-proofing manufacturing capabilities with the latest extreme ultra violet(EUV) technology required for AI chip production. Indeed, SilverBack has worked on this Intel project over the last two years as well as working on Northvolt’s first gigafactory over the past 4 years. This combination of experiences means we are in a good position to observe how EV battery production and the latest fabs have much in common.
Let’s begin with the money. In 2022 alone, total investments in the EU’s battery ecosystem topped €180 billion (Source: EU Commission) which is on a par with $182 billion capital expenditure of the global semiconductor industry in that year(Source: Statista). The global count of new EV battery gigafactory projects announced was 102 last year but don’t presume these are long-term initiatives being given a bit of PR coverage. On the contrary, these projects are being built on highly aggressive schedules. The drivers of this need for speed are three-fold:
- Urgency to move supply chains away from China and diversify supply risk.
- Electric vehicle (EV) uptake by consumers has accelerated from 5% of new purchases in 2020 to almost treble that in 2022(14%). EV market penetration continues to beat expectations and is now expected to be two thirds of ALL new car purchases by 2030(Source: RMI)
- The competitive land-grab between all players in the EV eco-system is moving at full tilt with capital providers anxious to see projects hit scheduled production deadlines.
Of course, this pressure to complete projects must take into account the high-spec requirements of EV battery manufacturing. The planning around site location and then the actual production line reflects the huge amount of specialized equipment which needs installation, but also the need to avoid costly delays. The EV ecosystem leadership experience of the project managers, sub-contractors and construction teams is critical to risk management and the avoidance of costly mistakes. Quite simply, the amounts of investment capital at stake and the incredibly sensitive environments required for high-speed battery production bear a striking resemblance to a multi-billion dollar semiconductor manufacturing facility. Consider the following:
- With so much specialist equipment crammed into the gravity-fed production facilities, buildings must maintain ultra-low humidity and a clean room environment.
- Cathode and anode production lines must be constructed in parallel. Also, electrical loads for battery gigafactories are 2-3x those of large auto manufacturing plants.
- The humidity hurdle is a huge control challenge. For context, semiconductor clean rooms contain 30 times more humidity than their EV battery equivalents. Clean AND dry moves the technical bar a lot higher.
- Furthermore, thousands of production line employees and more extreme weather events are separate but significant humidity control challenges.
We touched on production employees above but in the construction phase it is a feature of these projects, in usually remote sites, that the workforce will be multinational, multilingual and multicultural. Also, many projects have two ‘masters’ as ownership can often be a JV between an auto manufacturer and a supplier. So, the degree of experience of teams and managers working in these ‘global collaboration’ environments is crucial to the resilience and problem-solving needed when plans hit set-backs and go off track. As an illustration, we watch with interest the current struggles of microchip manufacturer, TSMC, in building a new high profile plant in Phoenix, Arizona. TSMC has pushed back plans to start manufacturing to 2025 blaming a lack of skilled labour. In fact, it is apparently trying to fast-track visas for 500 experienced Taiwanese workers. One doesn’t need Fox News to tell you that’s not ideal in a “build-the-wall” swing state ahead of 2024 US presidential elections.
As a final observation, the demands on precision, capital, technology and expertise are clearly big challenges for the EV battery sector in both the construction and production phases. But, it is worth noting that the semiconductor industry faced the same challenges and then it consolidated. First in manufacturing, then in design and equipment. Think of Intel, AMD and Samsung as today’s market dominant manufacturers while Dutch, German and Japanese players have largely exited the activity. Then think of the design company you never heard of until this year, Nvidia. Now a trillion dollar monster in the AI microchip world, but it is TSMC who manufacture those super-powerful chips for Nvidia. Then consider the example of a company you probably still haven’t heard about yet. The Dutch manufacturer of the critical EUV technologies used in chip manufacture, ASML, is the dominant equipment player and has attracted market valuations of almost $400 billion in recent years. It seems entirely possible that an industry sharing the same investment capital and technology pressures as semiconductor manufacture will produce its own market leaders with extremely high valuations. No wonder the battery production race is so fierce!