Electric cars have been on the horizon for years now, but what will it actually take for a majority of the world's vehicles to be powered by batteries instead of combustion engines?
In this week's Industry Focus: Energy, Tyler Crowe interviews Steve Levine, author of The Powerhouse: Inside the Invention of a Battery to Save the World, about the fascinating geopolitical situation surrounding batteries and EVs. Tune in to hear where the technology is today, which two breakthroughs to really watch out for, some unexpected ways the takeoff of EVs could affect the world, and more.
A full transcript follows the video.
This podcast was recorded on March 16, 2016.
Tyler Crowe: Diving deep into battery technology and the future of energy, this is Industry Focus.
Hi, Fools. It's Thursday, which means we're talking with the energy show. This is interview week. We're doing a little bit of a special theme, kind of deviating from what we normally do. For this week's show, we've brought in Steve Levine, a man of many talents. He was a reporter out of Newsweek in the late '80s, early '90s. Spent some time also in the Caucasus and the Central Asia area for The Wall Street Journal and Washington Post and now is a columnist for Quartz and has also written a book called The Powerhouse: Inside the Invention of a Battery to Save the World. Basically, it is the story of how we have been developing batteries over time. Steve, how are you doing today?
Steve Levine: I'm great, thanks, Tyler.
Crowe: So, just to get started, like I said, you've done a lot of things when it comes to energy, foreign reporting, things like that. What brought you to batteries? What was the impetus to you that brought that conversation enough that you wanted to write a book about it?
Levine: I know, you're thinking... when I first pitched this book and I described it to my agent, to my wife, to friends as "the geopolitics of batteries," I would get this: "Excuse me? Did you just say the geopolitics of batteries?" It's difficult to get your arms around, or even to think that batteries could be interesting. But when I started researching this, which was a while ago, in 2010, a bunch of countries, including the United States -- President Obama, but also President Hu of China, the Prime Ministers of Japan, U.K., South Korea -- a bunch of countries, all of them had decided that batteries, lithium ion batteries and electric cars, were the next big thing in the global economy. And all of them decided, "We're going to dominate that. We're going to grab electric cars, we're going to juice lithium ion batteries, we're going to create a super-battery, a very powerful battery, and we're going to build hundred-billion-dollar industries around these technologies."
So, when you look at that, when you're talking in terms of those kinds of numbers, these are numbers that drive economies. If you follow history, you know that countries rise and fall based on their wealth. So I could see influence, wealth, power rising and falling, if they were right.
Crowe: It's also very interesting that the two largest countries you talked about, China and the United States -- two countries at the time, 2010, where we were enormously dependent on foreign sources of energy, most particularly in the oil and gas space. There was a large impetus -- this was just pre-shale revolution. Natural gas was just barely starting to take off as this, "Hey, we might be able to make something happen with this." But to see those countries basically looking at it and being so reliant on somebody else's source of energy, it kind of really plays well into that, "We need to disrupt this and make ourselves a little bit more secure from an energy perspective."
Levine: It looked like that. There was a mantra, which we hear less of now, about getting off oil, getting off Saudi Arabian oil in particular, becoming energy independent, that -- actually, I don't have to tell you, that goes all the way back to Nixon, all the way back to the '70s. But, at the same time, we don't like, or, we didn't like, that we were under the thumb of OPEC. We haven't liked that since the '70s. And we don't like Putin, Vladimir Putin, very much, either. So, the idea: What were some of the geopolitical impacts. And at that time, you said it, this is pre-shale oil. No one knew it was going on under the radar. The idea was that a side benefit, apart from all these others' wealth, was that you would undermine OPEC and Putin -- the same dynamics that we're watching in play right now because of shale oil.
Crowe: Yeah. What was a great thing about the book is, a lot of times, when people hear about the development of battery technology or something like that, people are expecting they're going to get into this really technical sort of story. But I think what you did a great job with this in the sense of a lot of development stories I've seen like this -- like Michael Lewis' stories, or Greg Zuckerman's The Frackers, which is a book that we've talked about with him on the show before -- is you took it and kind of personalized it around the people who were actually making it happen, most particularly two companies and the people who were involved in it, one private start-up by the name of Envia, and the other one is the Argonne National Lab just outside Chicago. What was the major role of those two, and why were those two the center of the story for you?
Levine: The first thing was that, although geopolitics was my hook, that's what appeals to me, I didn't want to tell the story from a 50,000-foot view. And I personally was interested in, "OK, this is happening, it's going to happen, where do I want to be? How do I want to tell this story?" So, I wanted to be with one group of scientists, I hoped the American team that was in this great battery race, and watch them as they attempted to make this big breakthrough. So, I started looking around. "OK, if I was going to do that, who would that be?" And I very quickly came to Argonne National Lab, the first national lab in the United States.
And I went out there, I met Jeff Chamberlain, the lead character in the book, the other main characters in the book. Their stuff is in the Chevy Volt. So, it's a lab where they're attempting to make this big breakthrough, but there also are the inventors of one of the lead chemistries that's already been commercialized. So, I knew that the characters were strong, they were accessible, and in addition, they had heft, they already had gravitas. They had the credibility so that I wasn't just talking about some company, some lab, some place. I asked them, "What would you think about an author hanging around your lab for one year?" And it was kind of like that, this pause, "Did you just say one year?" It ended up being two years. And they said yes in principle right away. It took me a year to negotiate that.
And then, I'll just finish this one point because you asked about the other company, too. So, Envia, the start-up, licensed the NMC. So, it was natural to then segue from Argonne to a small company, Silicon Valley, a wiry, full-of-themselves, want-to-make-a-billion-dollars company, using the same material.
Crowe: Yeah. Just, for a quick brief of the technology, NMC is, would you say, the current, most popularly used technology out there today? I believe it's a lithium battery that uses nickel, manganese, and cobalt, hence the NMC name. It seems to be the most popular thing that people have been tweaking for quite some time. One of the things, I think, for our readership, that's most fascinating about this book, and something that if me as an investor is really looking at this, the core theme for me that made it interesting to me is the concept of the valley of death. When you have a major developing technology, like something like a major energy storage breakthrough with batteries, there is always that initial excitement, that idea that we're going to ride this great wave of battery technology to upend the oil markets, and everybody gets really excited, and money just gets poured into it.
And then there's this long, long slog of just trying to figure it out and start-up companies going bankrupt, and that initial excitement wearing off until the real development takes place. And I think Envia is actually a great example of that. Maybe you could kind of give a quick detail a little bit? You don't have to give away the whole thing, because obviously, we want people to read the book about it. But just an idea, what were some of the challenges that Envia faced?
Levine: Sure, that's a good question. This period, the bubble period, the frenzy period, was about 2009 to about 2012, 2013. And this was -- all you had to do was to say, "I can work on batteries," or "I've got an idea about a battery," and literally, in Silicon Valley, the VCs [venture capitalists] would throw money at you. There are a ton of stories of just having an idea on paper and getting $2 million, $3 million, almost no questions asked.
Crowe: I'm sure it helped that, right around that time, we were just coming off the peak oil theory of 2008 when we were seeing prices in the $140-, $150-per-barrel range, that kind of thing. If anybody can say something was going to disrupt oil in any way, anybody's going to get money at that sort of price.
Levine: That's one of the dynamics working. The other one was, it's right after the financial crash. And there was kind of a hope out there, a deep yearning, to find a real economic, a real technology, a real business, a real industry. So, you had the one thing, this desire for clean energy, and then you had this second thing: "What's the next new thing?" And batteries just slid right into that. So, Envia, it's an immigrant from India, Sujeet Kumar, a very, very talented electric engineer, who had worked through a bunch of start-ups. And looking through the catalogs that are out there of patents, he came across the Argonne patent for the NMC. Just, amazingly, no one -- I mean that, no one, no one commercially had come across that patent and realized how valuable it was. So he knocked on the doors of Argonne. He persuaded them to give him the license for really a throwaway fee, $100,000.
Crowe: And that's the technology that we're pretty much using today.
Levine: Right. And, then, he went, with this technology, created a bunch of slides, and started knocking on doors with VCs. The very first VC whose door he knocked on, it was actually someone he kind of knew, because this man went to school with his wife, and he went to him for some advice. "How should I try to sell this?" And the guy says, "What do you mean, how should you try to sell this? I'll buy it." And he laid on him $3.2 million.
Crowe: I've got to imagine that there are a lot of start-ups in Silicon Valley that wish that they had that sort of success rate. [laughs]
Levine: Oh, yeah. I mean, it's amazing, when you think about that. And the idea was, the conceit, and really, the next stage in this, you had that NMC in the bold, but what you're really looking for is the superbattery. You need to get from 38 miles on a single charge, which is not enough -- it's not enough to lift electric cars from a green niche into the mainstream. You need a superbattery so that a car will go 200 miles, 300 miles on a charge. And that's the quest that Envia is after, and that's also the quest that you're following in Argonne.
Crowe: And, in your two years that you were there -- we don't need to get into the super detail-y nuances of the chemistry or anything like that -- but like you said, it's a niche product. We're starting to see some emergence of a commercial aspect, like you said, the Chevy Volt will be coming out, Tesla's (NASDAQ:TSLA) coming out with their Model 3 pretty soon, Toyota's making their own push with -- sorry, actually, I believe Toyota's actually doing hydrogen fuel cells.
Levine: Fuel cells.
Crowe: Little bit different. But, in your two years you were there, observing and seeing, what are the biggest challenges to batteries right now, that takes them from going from that niche product to being that mass-market product that is going to be competitive with traditional internal combustion engines?
Levine: They're running up against physics. The challenge is to pack more energy in a small space at a very low price. And they need to take these batteries -- the Volt and the Model 3 go a long ways. They'll go 200 miles on a single charge. And that car they're going to produce -- which, we'll see the Volt by the end of the year, and Tesla is going to unveil the Model 3 on March 31. Those will go on sale in 2019. But the challenge is that the current pathways to getting there, to that superbattery, is electrochemical pandemonium. That everything goes haywire in the battery, how do you arrest that? Or, there's another pathway that catches fire. This is a red line, no one is going to drive an electric car if they think it's going to catch fire.
Crowe: It's a weird stigma, though, because, I mean, we've been driving around with giant fuels of gasoline under our tanks for years, that could catch on fire. But for some reason, that doesn't seem to be as much of an issue.
Levine: You're right, you're right.
Crowe: Perhaps it's something we're just used to now, I guess.
Levine: Yeah. And then, this other pathway that's out there that people talk about, silicon, putting silicon into the battery. Swells. When you put silicon into the electrode of the battery, it swells to four times its size, it shatters the battery, it short-circuits. Anyways, all of this is to say, in a very short sentence, that nothing currently works to get to the real superbattery. But, these new cars that are coming onto the market this year in 2016 are the beginning of the second stage. We are in the valley of death. However, sort of the other side is within sight.
Crowe: OK. And, actually, on that, as somebody who's seen it quite a bit as of late, studying it for those couple years, and watching how the industry is going: If Argonne National Lab or another start-up were to make an announcement in regards to a change, what would be... so, say you were to explain it to a layman, "This is something you should watch." If this were to happen, some breakthrough, where you would be like, "Wow, this is really worth talking about or writing about?"
Levine: Yeah. So, somebody is going to become as rich as Bill Gates, and the way that they're going to do that is they're going to figure out how to do one of two things: They're going to figure out how to make silicon work in a battery. If you come across an announcement where a start-up, a lab or whatever, has really figured out how to put a silicon anode into the battery. Or, the second pathway: how to use pure, metallic lithium. This is a holy grail. These are what will make an electric car side-by-side competitive with the internal combustion engine. And whoever does that -- and, incidentally, there are a lot of battery liars out there. The field is full of exaggerators and hypesters and hucksters. When that happens, whoever does that is just... it's going to be like Microsoft.
Crowe: Mm-hmm. It's really fascinating to think about that, because, like you said, in the book, there are so many challenges on things like, the battery degrades over time, how do they fix that sort of thing. And that's kind of going along the lines of, if they can effectively use silicon or pure metallic lithium versus some of the, I guess you could say oxides that they've been working with over the past couple of years.
So, like you said, we're on the precipice. We're still in that valley of death, but you could almost say we're seeing the light a little bit at the end of the tunnel. And there's been a lot of themes popping up lately in your work, some stuff been going on at Bloomberg and other media outlets that have been touting the rate of adoption of electric vehicles, and their ability to completely upend the oil market. In your book, you talk a little bit about that valley of death and how batteries for automotives are in the valley of death. But are we coming to the end of it? And when do you foresee that rate of adoption of electric vehicles really starting to take off?
Levine: This is actually the uncertain thing. We know that all the major carmakers, over the next five years -- so, starting now, starting January 2016, the beginning of this year, and running until the middle or the end of 2019 -- so, this period of years -- every major carmaker starting with GM (NYSE:GM) is marketing a mainstream electric car. The question is, will they be bought? Will people be willing to pay $30,000 for the Chevy Volt? And will they be willing to do it in large numbers? When Elon Musk comes out with his Model 3, he also says his car is going to cost $35,000, and after the subsidies, into the $20,000s. I have my doubts about that, but this is what he says. Will that be bought? And when we say large numbers, we mean hundreds of thousands of units. That's the end of the valley of death.
Crowe: That's one of the things I think is really underestimated when we talk about the adoption rate of electric vehicles. We see numbers like, "Oh, they sold... " what was it, the Nissan Leaf is probably doing in the 30,000-40,000 a year range, compared to something like the F-150 pickup truck from Ford (NYSE:F), which I think is doing well over 100,000 a month.
Crowe: So, these rates of adoption that we're talking about, these are much, much larger scales than we are really kind of talking about on days like today.
Levine: Well, they are. I think, Tyler, that another signal that we're heading out of the valley of death is when we see electric or plug-in hybrid SUVs, large SUVs and pickup trucks. The carmakers are all going to have to go into that market, because CAFE standards, mileage standards, we're right on the cusp in 2018, they start zooming up. And in 2025, they have to be double what they are now. Americans prefer SUVs and pickup trucks. Therefore, if the carmakers are going to comply with the regulations, they have to manufacture plug-in hybrids, electric pickups, and SUVs.
I've done anecdotal... I know on Twitter, when I floated this idea, I got, "No way, that's never going to happen, you don't understand pickup truck drivers." Well, I went to college in Fresno, California. This is a pickup-driving place. I was just there two weeks ago, speaking at the college, I was asked to come back to speak. And I road-tested this idea. And they sort of looked at me quizzically, "Why wouldn't we drive an electric pickup truck?" So I kind of think that Ford -- Ford is going to lead the way, by the way. Ford has said publicly, "By the end of the decade, we will have electric pickup trucks." I don't know if it's going to be the F-150, but they say they're going to do it.
Crowe: We shall see.
Crowe: And we kind of brushed on it at the beginning here, on the idea of it completely upending the geopolitical... I guess you could say, the current structure of energy and the geopolitical interaction that happens because of energy. As you see battery tech, it seems like it's going to be that game-changer in these sorts of things. When you are looking at the geopolitical forces that are involved with this, how do you foresee the battery story playing out on the world stage?
Levine: When you look at technologies, the biggest technologies of our days -- so the transistor, of course, microprocessors, smartphones, laptops, tablets -- they seem like they burst onto the market immediately. Like, the iPhone came out in 2007. All of these technologies had about 20-year runways. The iPhone is not the first smartphone. That came out 20 years ago. And by runway, I mean, until they were adopted by more than 50% of the population. So, if you used 2009 as the start of this new battery age, this new electric car age, then we're talking 2029 is sort of that line after which you have mass adoption on some level.
Crowe: On some scale.
Levine: Right. So, is it 30%? Is it 40%? Of new-car sales. Because there are already a billion cars on the road, 250 million in the United States. So I think people are going to buy these cars. The carmakers have to sell electric and plug-in hybrids. They're going to make vehicles that people will want to buy. Elon Musk is going to lead the way. I think the runway begins about 2019, where they start to take off slowly, start to get picked up. But as we're getting into the mid-2020s and toward the end, they're all over the place. And consumer taste will change. The people who are now 16 years old, or, my daughters, who are, my eldest daughter is 13. When she buys her first car, I have a feeling she's going to reject any vehicle that doesn't have some form of battery in it. Young people will not be comfortable being in a car that's just pure combustion.
But I think, as a window into what we're going to be looking at geopolitically, look at how the plunge of oil prices has ricocheted through the economy. Yes, it's affected all of the oil economies -- OPEC, Russia, Venezuela may collapse. But it's caused emerging markets to go into recession. It's caused Europe, Europe is going to go into recession. It's ricocheted through the economy in ways we didn't expect. This is what's going to happen with batteries, too. So, yes, you will have those same kind of impacts on OPEC, on Russia. Oil companies, suddenly demand for oil will drop. They will have a lot of trouble. But also carmakers. The same way that we've seen oil companies, the fact that they're having so much trouble, really cause problems for economies on a large scale, what is it going to mean when Google, Apple (NASDAQ:AAPL), and Tesla are the new car companies of the world? When Apple is producing the Titan? When Google --
Levine: Yeah, supposedly. Tim Cook, just by happenstance, hired a thousand new engineers to work on this car.
Crowe: Just a coincidence.
Levine: Yeah, "We're just messing around with technologies, you know, we just do that." Google has got its autonomous driving technology. What happens when Silicon Valley meets Detroit? I think this, again, will be something that ricochets through the global economy. It's going to hit carmakers hard.
Crowe: That also brings up a fascinating question. Like you said, when we look at some of the Silicon Valley early entrance into this, like 2009-10 times, one thing that Silicon Valley hasn't exactly been over years is been the most patient when it comes to VCs trying to get their money back and things like that. When it comes to developing a battery, or developing a major industrial product like a car, it's not like an app. It's not like a smartphone. And one of the things that's always been a weird question for myself has been, do the people in Silicon Valley have the patience to have something like this actually develop? Because, like you said in the book, there is an immense, immense opportunity, greater-than-Bill Gates sort of opportunity here. But does anybody have the patience to ever go all the way through it?
Levine: Yes and no. The VCs don't. But that's because they're driven by these fast profits. They would like to be in and out within five years.
Levine: So, generally speaking, they don't. But the folks at Google, the folks at Apple, they think a little bit differently. So, yes, they're out for the almighty dollar and all that. But they're also mission-driven. So, these are folks, especially Google, that would like to change the world. And this is a world-changer. It's a game-changer. It fits right into their mental framework. "What can I do," for example, "to solve climate change?" And this is the way they see it. So, because of that, I think they do have the patience. And I think we are going to see an electric car out of Apple.
Crowe: All right. Well, I do want to shift gears a little bit. The book is The Powerhouse. Anybody who's interested at all in the battery technology should check it out. But as I also said, you are a reporter for Quartz, among various other things, and one of the big topics that you're always talking about -- I read your stuff a lot -- is the geopolitics of oil, energy, and the machinations of that right now. And so, I wanted to shift gears and get your opinions on that as well. One of the first questions that came to me was, in the world of oil, what to you is the most fascinating story right now that has the potential for long-term change? Aside from electrics, of course.
Levine: We're watching it before our eyes, and that's the impact of shale. But not just shale, oil around the world. And this prospect that we're in a very long period -- and by very long, certainly the rest of this decade, maybe the next half-decade -- in which oil prices may rise no higher than $70. And when you look at the fiscal breakevens of almost all of the Middle East oil-producing countries and Russia, that's too low. That's too low for them.
Crowe: Right. Provided that they don't make any significant changes to the way that they're currently structured.
Levine: Right. All things being equal, it's too low for them. So, Putin especially, but also the leaders of the GCC -- Saudi Arabia, Kuwait and Qatar, and also Khomeini in Iran -- they're kind of putting on this brave face, of, "We're prepared to wait this out, we're going to stick with the strategy, we have the lowest-cost oil in the world, it's going to the other players, the shales of the world and the Brazils and the Canadians, they're going to have to blink, they're going to have to cry uncle and shut down their wells, we're going to keep our market share. And we're going to tinker around the edges, but by and large, we're going to be just fine." Especially Putin is this way.
This, to me, is just so much theater. So, I don't know when, but, as long as relatively low oil prices are sustained, the harder it is for these places. There is some point at which Putin, Russia can go no longer. Everyone knows their own comfort zone, their own breaking point. They don't telegraph what it is, but really, the most interesting thing for me to watch is how low oil prices could shift geopolitics, and I mean power in Russia and how countries are governed in the Middle East, relatively soon. Is it next year? Is it the year after that? Is it 2019? iI's very interesting. What is the hard-and-fast rule of politicians everywhere all around the world? They want to stay in power.
Levine: It doesn't matter if you're the dog catcher or if you're the president of Russia. So, at some point, Putin is going to understand -- his people aren't going to give up on him. Of course, they'll stay. But the country is just, the finances are going to go to hell. So, he's going to have to institute reforms. And the kind of reforms he would institute would be positive. And I think they'd be positive for everyone.
Crowe: Well, certainly, there's a lot of American oil companies that are very excited to get involved with Russia again. In your previous book, The Oil and the Glory, it's kind of highlighting the Caspian Sea oil boom that went on back in the mid-'90s, early 2000s, and the development up to that, trying to get involved with that. And it's had some mixed results. We have projects like the Kashagan project in Kazakhstan that has not quite turned out for the players like ExxonMobil. But, certainly, with the potential that is available left in Russia, I can certainly think that there's a lot of companies who are still really itching to get involved there.
And, last two questions to wrap up here -- you've written books, like I said, The Oil and the Glory, the Gold Rush or Oil Rush of the Caspian Sea. You also wrote a story of basically life in Putin's Russia, highlighted by various people in the country, and now batteries. So, with that rather diverse swath, what is really piquing your interest right now for the next big story?
Levine: Of course, I'm following the American presidential election. It's incredible. But just in my own space. I'm very interested in -- you've heard, we've all heard and read about how geography impacts geopolitics. Where you are geographically and the seas around you and so on. I've become very, very interested in how geology affects geopolitics. It's a long story, it's too long to explain in a few minutes. I wrote a little bit about it last year, but the Fukushima earthquake, the oil story that we're watching right now, is frameable as a geology story, that Saudi Arabia has declared war on American geology. It's a war between Saudi geology and American geology. And, by the way, Saudi Arabia has pivoted, and its pitted its geology against Iranian geology. It's sort of a very deep-seated framework, where you can kind of understand what's the strength of a country, and what's the weakness of a country, too.
Crowe: That does sound very interesting, and hopefully, maybe sometime, when we have another book on it, we'll have you back in here for that. Last question: This is actually pulling from a famous investor, Peter Lynch, one of the things he always did when he talked with management and things like that, he always asked who were some management people that they really look forward to. But since we're in the journalist, writer, author realm, I'll shift it. When you're reading or developing stories here, or maybe just trying to better understand what's going on in your own world, who are some of your favorite authors, journalists, maybe publications that you're really looking at?
Levine: As you might suspect, I read the majors every day. I read The Financial Times, The Wall Street Journal, and The New York Times. They're so superb and just thick with stuff. And I think some of the writers at those publications -- Ed Crooks from The Financial Times, for example; Izabella Kaminska, who writes on the FT Alphaville blog, is very good. And, I use Twitter, I go through my feed and... I get completely caught up by going through there. I think The New Yorker is very, very good. Authors: Robert Caro, in my opinion, is hands-down the best nonfiction author that we have. I read everything that Michael Lewis reads.
Crowe: Definitely a Motley Fool fan here, Michael Lewis. He's been actually been in the office a couple times.
Levine: Yeah. And you know where I'm getting a big kick right now? Science fiction. I read this story about how, in Silicon Valley, that the technologists out there, generally, regard themselves as world-beaters when it comes to engineering and all of that, but, creatively, zeros. So, they've started to hire science fiction writers to be on their staffs.
Levine: And they provide them a framework, sort of a way to think, about the future. "In your imagination, what are you thinking, where is technology going? Where should it go?" And it kind of gives them a piece that they're missing, and the added advantage in that very, very competitive environment. And I'm finding that this genre of fiction is inspirational, in terms of writing, but also just in terms of loosening yourself, myself up, in terms of understanding what I'm looking at, and being willing to be a little bit more risk-taking in terms of where I think things are going.
Crowe: Awesome! Well, Steve, thank you very much for your time today. That was Steve Levine, he's the author of The Powerhouse: Inside the Invention of a Battery to Save the World. I always get titles messed up when I say things like that. Thanks very much for being in here today.
Levine: Thank you.
Crowe: If you have any questions for The Motley Fool, you can always contact us at Focus.Fool.com. Just like always, we love your questions. And, as in every other podcast, The Motley Fool may or may not have formal recommendations for or against any companies that were mentioned on this, although there weren't many today. Thanks for listening, we'll see you next week.