The battery industry is expanding rapidly due to high demand for electric vehicles (BEVs), government incentive programs to boost production capacity, and regulations aimed at localizing manufacturing. This rapidly changing landscape brings new challenges across the entire battery value chain.

Production capacity has exceeded global BEV demand, temporarily lowering costs and creating an overcapacity problem, which poses a significant challenge for cell manufacturers. However, demand in other areas is still growing quickly. Production of battery energy storage systems (BESS) is increasing and is expected to grow fivefold by 2030. Meanwhile, both startups and large enterprises continue to make rapid progress in advanced battery technologies.

In this dynamic market, companies must innovate, invest in large-scale battery manufacturing, and commercialize new technologies to ensure profitability amid falling cell prices and fluctuating global EV demand. Focusing on digital transformation is crucial for sustainable growth.

Data-Driven Manufacturing

The decline in cell prices due to temporary overcapacity makes manufacturing costs a key driver of near-term success; they can account for up to a quarter of total cell costs. High scrap rates are a major component of this issue. For companies just starting large-scale manufacturing, scrap rates can be as high as 40% or more, compared to 10%-15% for stable, large-scale producers. Reducing scrap rates by a few percentage points can save large battery manufacturers billions of dollars.

Adjusting manufacturing operations through iterative improvements is not fast enough for success in the changing battery market. Companies need to adopt data-driven manufacturing, enabling them to collect and correlate data from machines and plants, extract battery-specific intelligence, and identify and address issues hindering scrap rates and manufacturing quality. Leveraging comprehensive digital twins, IT-OT convergence, and the power of generative AI, machine learning, and data analytics, companies can detect production problems faster and implement solutions cost-effectively.

Simulation guides the interaction of manufacturing steps in data-driven manufacturing. IT-OT convergence provides execution insights for production and allows data to be collected and correlated across the shop floor. When combined with battery-specific data analytics and AI/ML, this helps quickly identify defective cells before they complete the formation and aging processes.

Advances in New Battery Technologies

Making existing technologies more cost-effective is crucial, but new technologies such as sodium-ion chemistry and solid-state architectures could reshape the battery industry. Digitalization, including digital twins, automation, and data and generative AI, is essential for unlocking new innovations and bringing them to market.

Rapid progress in sodium-ion chemistry has pushed the technology toward early commercialization in China, serving small urban vehicles with very short ranges. Similarly, automakers such as Toyota and Honda, as well as solid-state battery producers like QuantumScape, have announced promising progress and plans to scale manufacturing. Additionally, new cell and pack designs, such as cell-to-pack and cell-to-chassis technologies, will be key to improving battery energy density. Digital twins enable companies to evaluate these numerous concepts and accelerate innovation through comprehensive simulation and AI models.

The Rise of Battery Energy Storage Systems

Demand for battery energy storage is growing rapidly and is expected to increase fivefold by 2030. This growth stems from sustainability initiatives for decarbonizing grids worldwide. In the coming years, power-hungry AI training and data centers may also drive rapid demand for battery storage.

However, BESS differs significantly from EV batteries and presents a unique set of challenges. For example, a 1GWh BESS may have 7 to 9 million components, including 1 to 1.5 million cells. In terms of overall bill of materials (BOM) complexity, it is equivalent to a Boeing 787 aircraft. This poses significant challenges for supplier collaboration, BOM management, inventory management, and service.

Navigating Upcoming Battery Passport Regulations

The battery industry faces growing transparency and traceability requirements, driven by government regulations and the need for ethical sourcing and sustainability. EU regulators have mandated that by February 2027, any industrial or EV battery with a capacity exceeding 2kWh must be equipped with a digital battery passport. These passports must include information on material composition, sourcing locations, carbon footprint, performance, and lifecycle.

Companies need to collect multiple data types in a transferable, verifiable, and secure manner. While the final system integrator is responsible for providing the data in the battery passport, much of the information comes from the broader value chain. Data from battery manufacturers and related supply chains will be used for compliance certification and labeling, total battery carbon footprint, and responsible sourcing information. Additionally, battery performance over its lifecycle is another key data point for the passport, requiring reporting of data collected through the battery management system.

Toward Future Success

The growth of the battery industry over the past decade has brought opportunities and innovation to the market, but sustained growth requires companies to transform their engineering and manufacturing practices. With new demands from battery storage and EVs, rapidly falling battery prices, and advances in new battery technologies, success means sustainably scaling operations with the help of comprehensive digital twins, IT-OT convergence, data analytics, and generative AI.

Becoming a digital enterprise helps companies find the flexibility to reposition and continue operating successfully. This change may manifest as technical improvements in products or processes, but it could also be a shift in market focus. Batteries have important applications in every aspect of our lives. Focusing on only one application, even a large one, is not a sustainable path to success. The future potential of this industry is immense, and the right tools can turn that potential into reality.

About the Author

Puneet Sinha is Senior Director of the Battery Industry at Siemens Digital Industries Software. In this role, he is responsible for the company's battery strategy and cross-functional growth priorities.