News this week in the advanced battery industry has centered on Dyson Ltd.’s purchase of Sakti3 for $90 million. Sakti3, led by University of Michigan professor Ann Marie Sastry, is developing solid-state battery technology. Sakti3 has been a company that has long generated great hope and occasionally great skepticism. Originally backed by Khosla Ventures, the company also received investments from General Motors and Dyson. But some in the industry have accused Sakti3 of refusing to provide solid independent data to back up its widely publicized performance claims.
The Dyson-Sakti3 deal provides three insights into the advanced battery industry. The first is that, regardless of the actual performance of Sakti3’s proprietary technology, there is a growing belief that solid-state electrolytes will be an important, and perhaps indispensable, part of future lithium battery technology. Solid-state electrolytes promise a way to address the continuing concern of regulators and transportation companies about the thermal stability of lithium-ion batteries. Solid-state electrolytes may also enable the use of powerful cathode materials, such as lithium metal, that will permit the development of more energy dense and longer lasting lithium-based batteries.
Dyson is not the only major company investing in solid-state technology. Last summer, Bosch purchased SEEO, another solid-state technology start-up, for an undisclosed price. That deal followed Volkswagen’s purchase of a major stake in solid-state battery developer QuantumScape. It may be that the healthy $90 million price paid by Dyson had less to do with the immediate efficacy Sakti3’s technology than with a shortage of credible, independent solid-state battery start-ups in which Dyson could invest.
The second insight the Dyson-Sakti3 deal highlights is that the template for developing the advanced battery industry is looking more like the pharma industry every day—at least in the West. Five or six years ago, venture investors raced into the battery space hoping to turn one or another individual innovation in chemistry into the next major battery or automobile company. That strategy, which sought to duplicate successful venture investments in the IT space, has not generally been positive for investors. The Cleantech MoneyTree™ report published by PwC notes that venture investments in Cleantech companies declined 72% in Q1 2015 from Q1 2014 and 75% from Q4 2014 (with 46% of all Cleantech investments made in smart grid and energy storage).
What the Dyson-Sakti3 deal illustrates is that major strategic investors may increasingly replace venture capital investors as the primary source of equity capital for battery start-ups. Strategic investors appear to be stepping up to invest in new battery technologies, perhaps in lieu of investing in battery R&D themselves. This seems to parallel what has happened in the pharma industry. There major pharmaceutical companies regularly acquire smaller companies that have successfully navigated the early stages of new drug development. This system intentionally reduces risk for large, publicly traded pharma companies by pushing that risk (and with it, occasionally great rewards) down to independent start-up companies. The battery industry may be following suit. NAATBatt has long anticipated this trend. The Energy Storage Innovation Summit, which is a regular feature of NAATBatt annual meetings, is designed to encourage investments and acquisitions by large battery companies of smaller emerging companies (click here for information about our 2016 Annual Meeting next March in Indian Wells).
The third insight from the Dyson-Sakti3 deal is that the second insight may be unique to Western companies and entrepreneurs. Asian companies in the battery space seem to place much greater emphasis on internal R&D and have not traditionally been active purchasers of technology developed by outside start-ups. This distinction is important since Asian companies have come to dominate the actual manufacturing of lithium-ion batteries.
The CEO of a U.S.-based start-up focused on solving one particular challenge in the lithium-ion battery space recently recounted to me his experience in dealing with a major Korean conglomerate. Interested in licensing his technology to the conglomerate, he traveled to Korea for a meeting. What he found was that the conglomerate had a team of more than 100 PhD scientists working on the very problem he was trying to address and had little interest in looking at technology developed on the outside.
In another decade or two we may know more certainly whether the Western or Asian approach to developing new advanced battery technologies has been the most successful. With respect to this question, the new investments by Dyson, Bosch and Volkswagen should bear close scrutiny. But in the meantime, the Dyson-Sakti3 deal provides a good roadmap for how new battery technology can be brought to market, at least in the West.