The widely-publicized Samsung Galaxy Note 7 lithium-ion (Li-ion) battery fires add another case in the file of Li-ion battery fires that already includes Dell, Boeing, and scores of hoverboard manufacturers. The fires have not revealed anything new about Li-ion batteries – they store large amounts of energy in a small space and, on occasion, fail in a spectacular fashion. It’s also not surprising to see established players in the energy storage industry suffer very public failures: Sony supplied faulty batteries to Dell laptops, GS Yuasa provided batteries for Boeing’s 787, and Tesla supplier Panasonic has recalled laptop batteries as well. Samsung was hit swift and hard by the recall, halting production while its mobile division’s profits fell 96% and Samsung SDI’s share price fell 25%. This begs the question where did Samsung go wrong?
We still don’t have an official answer from Samsung on the technical reason behind the failures, but we can look at a few key strategic decisions that may have played a role in this disaster. The company reportedly rushed a product to market as it sensed weakness from competitor Apple’s iPhone 7 Plus – the same strategy that led to mass hoverboard recalls, as adequate quality control could not be insured. Additionally, Samsung performed all battery testing and certification in-house, a practice none of its competitors follow. The lab is certified to complete testing, and hasn’t faced battery issues in the past, although a clear conflict of interests exists which may be magnified by rushing to market. These factors, adding to an existing possibility that even the safest Li-ion batteries can catch fire, created an environment within Samsung in which thorough evaluation may not have occurred.
Companies are highly sensitive to the costs of each component in the design of handsets, and rightly so, as the high volume nature of these products means even small changes in component price have significant impact on revenues. However, in making these decisions, a key factor can be left out: risk. It’s difficult to understate the financial burden Samsung will ultimately feel from this fiasco – the company estimates it will cost over $5 billion including lost sales and the direct costs associated with the recall. Considering Samsung would likely sell around 10 million of these handsets, this recall costs the company a staggering $500 dollars per phone – 100 times the cost of the battery.
Financial concerns aside, it’s more difficult to put a price point on the bad press that comes from product recalls, but look to Nokia for an example: Once the world’s largest handset manufacturer, the company saw its value plummet after a 46-million handset recall due to batteries overheating – from which it never recovered. Software can be rushed to market and fixed after release with a patch; however, batteries don’t have a simple fix, and potentially cause physical harm. Those in the Li-ion value chain should take risk much more seriously, factoring it into energy storage considerations along with price and performance.