Lithium-ion batteries are everywhere – in mobile phones, computers, electric vehicles, and many other devices. They’re lightweight and can pack large amounts of energy into a small weight and volume. However, the lithium used in these batteries is a highly reactive alkali metal that can catch fire, or even explode, when exposed to air and water. This fire risk is becoming a major liability for manufacturers and consumers.
If punctured, damaged, or improperly manufactured, a battery can short and cause a spark, igniting the highly reactive lithium and potentially starting a fire that can be hard to extinguish.
A Problem Of Past, Present, and Future
Fires are happening more often, and regulators and insurers are taking notice. Last August, General Motors expanded a previous recall of Chevy Bolt electric vehicles to more than 142,000 vehicles sold since 2016 due to battery manufacturing defects that could cause vehicles fires. Recalling each vehicle cost approximately $14,085, and most of the $2 billion total cost of the recall is being borne by the battery manufacturer. Meanwhile, individuals are suing GM over the fire risk.
In another example, the cargo ship Felicity Ace was carrying 4,000 luxury vehicles across the Atlantic Ocean when it caught fire this past February. While the cause of the ship fire remains unknown, it’s clear that the burning lithium-ion EV batteries complicated attempts to fight the fire. After six days of burning, the ship sank while being towed to shore. $438 million of cars and goods were lost.
Where Fire Incidents Are Taking Us
As incidents continue, cascading impacts throughout the value chain will make unsafe technologies cost prohibitive for applications requiring large batteries. It starts with increased incremental transportation-related insurance costs due to flammability concerns, along with cumulative liability risk over time due to fire incidents. Insurers may even go so far as to apply risk-adjustment premiums to homeowner policies for EV owners. Building codes may change to require installation of special fire-resistant walls in the garage, along with automated sprinklers or special chemical fire suppression systems.
In September 2021, GM recommended that some Bolt owners park at least 50 feet away from other vehicles to reduce the risk of a potential fire spreading, and to only park in uncovered lots or the top floors of parking decks. GM rescinded the guidance two months later after a firmware update, but Bolts are still unwelcome at some commercial garages, and some are banning all EVs regardless of make or model.
Putting The Potential Liability in Perspective
The $2 billion Chevy Bolt recall was for only 142,000 vehicles. In the next decade, we’ll add millions of additional electric vehicles to roadways in the United States alone. Using the Bolt recall as a baseline, a recall that affects 5-10 million vehicles could cost between $70.5 and $141 billion, which is exponentially larger than any individual company or automaker can absorb.
To protect themselves, insurance companies will use aggregate limits to avoid unexpectedly large cumulative payouts, assuming they’re willing to cover such events. Companies will be forced to pay higher premiums due to risk exposure over a huge budget, which will undoubtedly be passed on to customers—further increasing the total cost of ownership and slowing the transition away from fossil fuels.