There’s a severe oversupply of electric car batteries comin’

The supply of batteries for electric vehicles could far surpass the demand for electric vehicles over the next few years, estimates Lux Research. Lux calls it a “severe mismatch,” and one that will cause consolidation, the need for increased partnerships between battery makers and auto manufacturers, and the need for new markets for battery makers to sell into.

Part of the reason for the oversupply of EV batteries is simple: The market for electric cars is looking like it’s going to be a lot smaller than predicted, at least in the short term. The crunched market is something battery maker Ener1 (s HEV), which had a deal with electric car maker Think, and Johnson Controls (s JCI), which has a battery partnership with Saft, have discussed publicly. Johnson Controls is looking to end, or expand, its deal to work on EV batteries with Saft, because it wants to pursue the power grid battery market. And Ener1 cut its losses on its investment and partnership with Think, partly because the EV market was looking slower than expected. Think eventually went bankrupt.

At the same time that the EV market is looking tiny, battery makers have been expanding capacity substantially for making EV batteries and new battery makers have been moving into the EV market. But Lux says even if oil prices jump to $200 per barrel, which could cause the EV market to grow substantially by 2020, five of the leading battery makers — LG Chem, GS Yuasa, SB LiMotive, AESC, and Sanyo — would have enough capacity to manufacture far more than needed to cover that market. That means there will be dozens of battery makers with way too much supply, particularly if gas prices remain low.

In fact, Lux predicts there will be only a few winners in the EV battery market, and some of the ones already ahead include LG Chem, SB LiMotive, and Chinese makers China BAK, China Aviation Lithium Battery (CALB), and BYD. Lux also gives Envia Systems props for its innovative technology and GM (s gm) backing — there will be room for small, innovative tech developers to do licensing deals and be acquired, says Lux.

On the other hand, Lux says A123 Systems (s AONE) and Ener1 face “an uphill climb” — marking both of them as “caution.” Lux also issued caution takes for International Battery, K2 Energy Solutions, Valence Technology, Leyden Energy, Electrovaya, and gave a “strong caution” to Altair Nanotechnologies (ouch).

There are a few ways for these battery makers to survive the coming market crunch and consolidation. One is to find new partnerships — because the market is so immature, the partnerships that are already in place are relatively tenuous. Another survival method will be to find battery markets outside of pure EVs, like hybrid vehicles, e-bikes, and the power grid.

But there will be a significant amount of losers in the market. As an anonymous president of a battery material company says in the Lux report:

“If someone wants us to build out capacity, what happens if no one use it? If we return to just phones and laptops, then my investors are looking for new management because we’re bankrupt.”