Oil supermajors must diversify into new-age energy businesses for survival

Still, expanding into an area outside of the oil supermajors’ expertise is risky - batteries are a hard business to win even for industry veterans - but action is key as transportation and the grid increasingly march toward more electrification.

“As Darwinism looms for the future of power, oil supermajors looking to evolve must choose among more expensive, broader battery players. But they should still act, as waiting longer or doing nothing, would be an even worse outcome,” said Cosmin Laslau, senior analyst of Lux Research and lead author of the report titled, ‘Superpower Darwinism: What big oil can and cannot do about Total’s billion-dollar battery move’.

He added, “Worthwhile battery companies continue to gain value and build momentum with each passing day, as do other opportunities toward a distributed generation future. Indeed, the recent Tesla-SolarCity merger highlights the increasingly high-stakes race to integrate the future pieces of power, which are underpinned by distributed solar and advanced energy storage.”

Top battery-makers such as Panasonic, Hitachi and China’s BYD might be out of reach for most oil supermajors, given that each is a larger conglomerate valued in excess of $ 20 billion. But Samsung SDI, Toshiba and NEC are affordable targets, and more focused businesses too. Still, each will cost way more than the $ 1 billion Total paid for Saft - a transaction that today looks like a positive bargain.

In addition, Asia challenges loom for battery acquirers. Even though the battery business is a truly global one, most battery companies remain Asia-based, posing potential integration challenges for a major acquirer. Still, Korea’s LG Chem, for example, has a factory in the US, and NEC has a US presence via its acquisition of A123 Systems’ energy storage division.

Total’s moves are not about the battery but also about solar and distributed generation. It bought a controlling stake in SunPower in 2011, years before it bought battery-maker Saft. It also has made smaller plays in distributed generation through Stem, Sunverge, Powerhive and Off-Grid Electric. Total’s approach has important lessons for other oil supermajors, and suggests it is no longer enough to buy a battery company. To make the most of the emerging opportunities, solar or wind is also key, as is being active in connective software and hardware.