This will be the first in a series of posts looking at the size of different addressable markets for lithium ion batteries.
Ideally, these studies should serve as a litmus test for where reasonable production rates could max out in the future. If, at any point going forward, I start assuming that Quantumscape has captured 80% of these market, you’ll know I’ve gone full Cathy Wood. And if there’s one rule in investing: you never go full Cathy Wood.
Introduction
When it comes to determining total revenue potential in this space, the equation is simple: how many batteries will you sell, and at what price?
In “battery land” parlance, we’ll typically refer to kWh as the standard battery metric for size.
Revenue Potential = (Price per kWh) x (# of kWh’s)
We discussed the pricing aspect in my Unit Economics article. In this post, I want to explore the quantity side of the equation.
In terms of quantity, we can break down the question even further by asking “how big are the batteries for each vehicle (in terms of kWh)” and “how many vehicles will be electric”.
# of kWh’s = (kWh’s per vehicle) x (# of vehicles)
First we’ll tackle the the battery size.
Battery Size
As of this writing, the average BEV battery pack size by region is:
Europe: just under 80 kWh
US: just over 80 kWh
Asia: just under 50 kWh
While the average has grown over time, and should continue to grow into the future, there is an upper limit to how much battery we can fit into an electric vehicle. So instead of trying to extrapolate, lets look at the highest capacity sedan currently on the market, and adjust the capacity upwards by the energy density gains that QS offers. This should give us an idea where the upper limit is.
The largest battery to date for a sedan is in the Mercedes EQS at 125 kWh and uses an NMC cell. The leading “energy” cell currently on the market has a volumetric energy density of about 700 wh/L. QS, aiming to eventually reach 1000 wh/L (a 40% improvement) could fit 175 kWh in the same volume of space. This could be considered the absolute ceiling for a typical sedan.
Note that there are larger packs on the market in Trucks and SUVs. The Ford F150 Lightning has an extended range model with 131 kWh. Rivian’s truck has 135 kWh. And the Hummer EV takes the crown, maxing out at massive 205 kWh.
On the more conservative side, applying the 40% energy gain to the current 80 kWh (developed market) average, which would bring the typical QS equipped vehicle to 112 kWh.
The counterargument to linearly scaling pack size is that fast charge capability and the increased density of charging stations may lead consumers towards even smaller packs packs going forward.
Just to give ourselves a healthy margin of error, I’ll assume that the QS BEV will average somewhere between 70 kWh - 140 kWh.
Average QS Battery Pack Size: 70 - 140 kWh
Next we’ll look at the number of potential vehicles that QS cells might find their way into.
Global Car Market
I think the best way to approach this is from a high level, and then work our way down.
To start off, the total worldwide passenger vehicle production rate for all types (ICE, PHEV, EV, FCEV, etc) currently stands at 88 million vehicles. If we were to think of this number as the absolute ceiling for EV adoption, this would put the potential battery production range between 6,100 GWh and 10,500 GWh annually (assuming our average pack capacity range of 70 - 140 kWh).
Addressable EV Market, Worldwide:
88 million vehicles
6,100 - 12,300 GWh (annually)
Now, we can start whittling this down to get Quantumscape’s addressable market.
China
Quantumscape management has stated that their target markets won’t include China. This is a prudent decision since China has been known to ‘borrow’ intellectual property from foreign companies that do business inside their borders. Being that Quantumscape’s potential moat is their IP, it makes sense that they’ll steer clear of China for the foreseeable future.
China saw new total vehicle registrations (for all passenger vehicles - including EV and non-EV) of 21.1 million units in 2023.
This accounts for roughly a quarter of the global pie, reducing Quantumscape’s potential market reach to 66.9 million passenger vehicles.
Addressable Market, Ex-China:
66.9 million vehicles
4,683 - 9,366 GWh (annually)
Emerging Markets
On the surface, one would think that we could easily exclude emerging markets from this study. But according to the International Energy Agency, electric vehicles are actually taking hold in many of these regions. One of their charts is reproduced below.
The left axis (bar chart) is number units (EVs) sold. The right axis (dots) is the market share of EVs in their respective country. As an example for clarity, Thailand had almost 90 thousand BEV and PHEVs sold in 2023, which represents roughly 13% of their total car market.
Figure 1 shows that while emerging market EV unit sales remain low, they are picking up steam. You can estimate the total vehicle registrations by dividing the number of EV units sold (LHS of Figure 2) by the sales share (RHS). For instance, Brazil had 52,000 EVs sold in 2023, which accounted for roughly 3% of the market share in their country, giving a total passenger vehicle registration estimate of 1.7 million units.
Doing this exercise for all the countries in this graph, we see that emerging markets account for over 10 million passenger vehicles sold annually.
While EV’s are catching on in these countries, I suspect premium cells won’t make their way into these markets for quite some time. In fact, manual transmissions are still prevalent in many of these regions. As such, I think it’s appropriate to subtract emerging markets from Quantumscape’s market share for the time being. This brings the total addressable vehicle market down to 56.9 million vehicles.
Addressable Market, Ex-China, Ex-EM:
56.9 million vehicles
4,000 - 8,000 GWh
Developed Markets
Through 2023, we’ve actually started seeing EV sales momentum declining in many developed nations. See Figure 3. Notably, Germany saw sales actually fall after their EV Subsidy Program ended.
In regards to the U.S. leveling off, there may be implications from the new Inflation Reduction Act introduced in 2022. Being that subsidies are granted only to U.S. producers, there may be potential lag-effects caused by domestic OEMs waiting for domestic cell production to come online.
Current United States cell production stands at 110 GWh per year. This is enough annual capacity to support only 1 million vehicles produced a year (which is pretty much just Tesla at the moment). Cell production is expected to climb to 1,200 GWh by 2032 (a 10x increase). In fact, 18 new Giga Factories are expected to come online in the next 2 years.
Similarly, Europe has only 70 GWh of annual production currently, and is expected to grow towards 1,000 GWh by 2030 (a 15x increase).
All this to say that I wouldn’t necessarily consider the current “rolling over” of domestic EV demand as a bad omen, but rather as a sign of both producers and consumers waiting for competitive pricing mechanisms to find their way into the local market. I wouldn’t be surprised if we see a new surge in EV interest coming in the back half of this decade as these new giga factories come on line. But it’s something to keep an eye on as we head into 2025 and 2026.
Concerning whether we should whittle down the addressable market any further; I think developed markets are pretty much all up for grabs. So I don’t think it’s appropriate to reduce our addressable market any further. Trucks and SUVs might continue to be difficult to break into, but I think the entire market is worth keeping until we see more data to the contrary. At the very least, we might see a higher proportion of PHEV in the truck and SUV markets going forward.
Addressable Market, Ex-China, Ex-EM:
56.9 million vehicles
4,000 - 8,000 GWh
Summary
Quantumscape’s worldwide addressable market (excluding China and Emerging Markets) should be in the ballpark of 4,000 - 8,000 GWh per year.
As stated above, 2030 projections for US and EU battery production capacity lie just under 2,500 GWh per year. This places BEV market penetration at nearly 40% of the my median addressable market projection by 2030. I think this validates that I’m on the right track. If anything, I’m surprised by the speed of market uptake. Within a decade, this implies that nearly half of new vehicles sold in developed nations will be electric.
Getting to Quantumscape’s actual projected demand, we can use the following:
QS Capacity = AM x BMP x MSQS
where,
AM = Addressable Market (GWh)
BMP = BEV Market Penetration (%)
MSQS = Quantumscape Market Share of Electric Vehicles (%)
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